Federal home loan program called into question

An Obama administration program that encourages banks to reduce monthly payments of troubled homeowners added approximately 60,000 households in March to a list of completed loan modifications, bringing the U.S. total toabout 230,000, according to a government report released Wednesday.
But the additions were balanced by the 66,000 who dropped out last month, fueling ongoing concerns about the
program’s effectiveness and inspiring further calls for program changes as foreclosures continue. In 2009, 2.8 million
homeowners received a foreclosure notice.
The Obama administration announced the $50 billion Home Affordable Modification Program, or HAMP, in early
2009. It includes payments to lenders and borrowers and pushes banks to modify loans by cutting interest payments
and extending the time in which loans must be repaid.
In response to calls for reform, the White House announced major changes to the assistance program last month,
expanding it in the coming months to include unemployed workers and payments to lenders that reduce the principal
owed on mortgages.
Critics say that changes need to come more quickly, including calls for lenders to write-down the principal on loans for
homeowners who are “underwater,” or owe more than their home is worth.
A Congressional Oversight Panel issued a report Wednesday urging the administration to move more efficiently to
address the fallout from the persistently weak housing market and high unemployment, which continues to affect
homeowners’ ability to pay their mortgage.
It also cautioned that borrowers who have succeeded thus far in making payments under the program may
nonetheless default later.
Local observers said Californians are particularly in need of help with mortgage principal reductions because so many
are underwater.
“Even when the economy stabilizes, many California homeowners will have no hope of getting above water again,” said
Paul Leonard, director of the Center for Responsible Lending’s California office in Oakland. In trial modifications,
borrowers are expected to make at least three monthly payments before modifications become “permanent,” meaning
they are in place for five years. But, even homeowners who have received the permanent changes have later defaulted.
Some banks publicly have rebuffed the call to cut mortgages. Others already have done so.
“Principal reductions will continue to apply in certain circumstances and we have already done it in some instances,”
said Tom Goyda, spokesman for Wells Fargo Home Mortgage.

April 15, 2010 | By Robert Selna, Chronicle Staff Writer