Housing finance agencies are being called on to step up the effectiveness of their foreclosure mitigation efforts. In addition, more analysis is needed to determine which factors contribute to the success of loan modifications.
Between 2009 and 2011, nearly 1 million mortgages have been modified under the Home Affordable Modification Program and another 1 million loans were modified under programs administered by the Department of Agriculture, the Department of Veterans Affairs, the Federal Housing Administration, and Fannie Mae and Freddie Mac.
In addition, 2.1 million loans were modified through proprietary programs.
But a report from the Government Accountability Office indicates that a large number of borrowers who sought a modification weren’t among the more than 4 million whose loans were modified.
Around 2.8 borrowers were denied for a HAMP modification.
Despite foreclosure prevention efforts, the number of mortgages in foreclosure remains elevated.
Borrowers had $3.7 trillion more in outstanding mortgages as of Dec. 31, 2011, than they had in home equity — a level that the GAO says represents a significant decline in national household wealth.
GAO’s interviews with stakeholders indicated that they preferred enhancing existing foreclosure mitigation efforts over establishing new programs.
Housing finance agencies could take steps to make their programs more effective, according to the report. As of the end of last year, Fannie, Freddie and FHA had 1.8 million loans that were at least 90 days past due.
Some of the housing agencies aren’t doing enough analysis to determine the effectiveness of their foreclosure mitigation actions, the GAO said. Such analyses can improve outcomes and cut program costs. Although the success rate of modifications can vary depending on the size of payment change, delinquency status and current loan to value ratio — these factors aren’t being considered by federal agencies.
“GAO found some evidence to suggest that principal forgiveness could help some homeowners — those with significant negative equity — stay in their homes, but federal agencies and the enterprises were not using it consistently and some were not convinced of its merits,” GAO stated. “In addition, there are other policy issues to consider in how widely this option should be used, such as moral hazard.”
The report cited FHFA’s resistance to allowing Fannie and Freddie to utilize principal reduction — though the housing finance regulator is considering Treasury incentives for principal forgiveness.
The GAO is calling for FHFA to expeditiously finalize analysis on whether to allow the Fannie and Freddie to offer HAMP principal forgiveness modifications.
“Until agencies and the enterprises analyze data that will help them choose the most effective tools and fully utilize those that have proved effective, foreclosure mitigation programs cannot provide the optimal assistance to struggling homeowners or help curtail the costs of the foreclosure crisis to taxpayers,” the report said.
The report also recommended that the need to keep funding FHA’s refinance program be re-evaluated. It additionally called for an increase in USDA’s monitoring of servicer outreach efforts to struggling borrowers and for FHA, VA and USDA to collect and analyze information needed to fully assess the effectiveness and costs of their foreclosure mitigation efforts.
