The Mortgage Relief Plan is a Failure

by Brian Johnson on January 12, 2010

failureOur government suffers from a naivete with some of its plans to resuscitate the economy which consumers simply cannot afford.  To be more specific, the current administration needs to come to terms with the fact that business practices are dictated by laws and potential for profit.  Businesses cannot, and should not, be counted on to change their policies out of the goodness of their hearts.

Last March, the Obama administration put into place its Mortgage Relief Plan to help homeowners stay out of foreclosure by urging banks to institute loan modifications for borrowers.  Renegotiation of their loans would allow borrowers to make payments on a more affordable rate, allowing them, in theory, to keep homes that would otherwise go into foreclosure.  Since its launch last March, the plan has provided permanent loan modifications to only 4% of those who have attempted to sign up.  Lenders like Bank of America have helped only .06% of the people who’ve requested a modification.

Banks explain the poor performance of the Mortgage Relief Plan as a lack of responsiveness on the part of the borrowers.  They offer that most people who sign up for the program have failed to file the lack of necessary paperwork that would give them the chance to renegotiate the loans.  Its hard to imagine, however, that of the ~160,000 Bank of America customers who signed up for assistance through the program last month, only 98 of them were concerned enough with monthly payments, which they could not afford, to make sure they’d gotten in all the necessary paperwork.  Even the most successful lender, GMAC, only renegotiated 7,600 loans into a permanent modification.  Are we to assume that people who are going to lose their houses cannot be bothered to fill out a form?

A much more likely reason for the failure of the Mortgage Relief Plan is that the loans to be renegotiated should never have been approved in the first place, and that the borrowers are too risky, financially, to lend themselves to renegotiation.   Allowing these borrowers to renegotiate for better loans is, simply, bad for business especially considering that in most cases, their situation has only worsened with the recession.

Bottom line:  the program is a failure.  It gives false hope to homeowners who are desperate for any means by which they might keep their homes.  As a result, desperate homeowners are wasting their time filling out paperwork for a program that has managed only to help 4% of the homeowners who have signed up. The Treasury department needs to acknowledge failure and either scrap the Mortgage Relief Plan or restructure it so that it can have an impact.

Finally, click here for an excellent graphic from the New York Times that illustrates the slow progress on the home loan modifications.


It is time the Federal Government started making direct home loans like they do for college student loan consolidation. Except exclude the banks from handling these loans and make them at the current Treasury rate. This would repay lots of bank loans whole making payments lower. If banks refuse to loan money the feds can. No reason you have to make 2x the purchase price in payments to pay off a home loan in 30 years. After all the home is on US soil and is property of the United States anyway.
January 13 at 10:03 am
Again, the responsible borrowers get screwed. I bought my house with a large down payment and put tens of thousands into improvements. The Banks knowingly made bad loans and now my neighborhood has scores of foreclosures. The irresponsible just walk away and the responsible are left holding the bag. Values have dropped through the floor and I can't even take advantage of lower rates due to a sudden equity evaporation. The people that get the help don't DESERVE it.
January 12 at 19:33 pm
The numbers might not be representative of all modifications since they only show those done under Making Home Affordable. We have an investment property 200k under water in NV. B of A modified our loan to a 2% rate, which resulted in a lower payment than if they had left the rate alone and cut the principal to the apraised value. It didn't qualify un the program but we got a mod. On the other hand, we told them that if they didn't modifiy our loan we'd file Chapter 13 to avoid a deficiency judg
January 12 at 11:17 am
I need to know how to do this. I have been going around in circles trying to figure out how to reduce my payments. Because of the economy we have had to lower the rent, so we have a huge expense each month to cover the mortgage and expenses. If I could lower the mortgage, it would be more managable and more responsible. Plus I would have more money to help boost other areas of the economy, rather than lining the pockets of bankers, who pay themselves huge bonuses.
February 7 at 14:39 pm

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