Number of Borrowers Under Loan-Modification Plan Falls to Lowest Level

The number of new borrowers receiving help from the Obama administration’s signature loan-modification plan fell to its lowest level since the program began last year, according to figures released Wednesday.

Just 18,000 borrowers started modifications in August, while three times as many that had previously been enrolled were disqualified from the program. Overall, around half of the 1.3 million borrowers put in trial modifications since June 2009 have had their modifications canceled.


Fewer than 500,000 borrowers have received permanent help, far short of the program’s stated goal of reaching three million to four million struggling homeowners.

The program’s disappointing results mean that more homes could be heading toward foreclosure, putting more downward pressure on an already weak housing market.

“You name it and they’ve tried it and, unfortunately, it’s not working,” says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm.

Under the Home Affordable Modification Program, lenders receive incentives to help borrowers avoid foreclosure by reducing their mortgage payments, typically by lowering the interest rate and extending the loan term. Homeowners must make at least three “trial” payments before the modification can become permanent.

Some 200,000 borrowers are in trials, awaiting banks’ decisions to extend permanent help. Around half of borrowers have been in trials for six months or longer.

Many haven’t been able to qualify for the program because they make too much or too little money, because they’ve missed a payment on their modified loan, or because banks haven’t been able to collect the necessary paperwork.

On Tuesday, Fannie Mae said that companies managing loans on its behalf can no longer count unemployment benefits or other temporary income sources when evaluating borrowers for HAMP. The move could further limit the number of borrowers that can participate, although it could produce better performance rates of modified loans.

The Obama administration says the program has nonetheless succeeded in forcing the mortgage industry to become proactive about modifying loans.

But it has disappointed borrowers like Cecil McCammond, who couldn’t get a HAMP modification through Citigroup Inc. Instead, the bank has extended his loan term and lowered his interest rate for two years, from 6.5% to 4.5%. The rate will rise by one percentage point this year and next year.

“I don’t have a problem paying what I owe,” says Mr. McCammond, 57. But he says he thinks he should be able to refinance at the current rate. That’s hard to do because his Wheatland, Calif., residence is worth around half of the $257,000 that he owes.

“If people don’t want to work with us, we can stop paying, live in the house free for a year, rent for a couple years, and then buy again,” says Mr. McCammond, who says he hasn’t worked for two years because of a medical condition.

Earlier this month, the administration launched an initiative designed to cut loan balances for borrowers who are current on their payments but who owe more than their homes are worth. The program relies on investors’ willingness to reduce loan balances in exchange for handing the smaller loan off to the government.

The administration will also roll out later this fall a program designed to help unemployed borrowers by extending bridge loans so borrowers can make their payments.

Write to Nick Timiraos at


About melvynburrow

Attorney and CPA services.
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