Foreclosed Home Prevention Stepped up by the U.S. Treasury

Foreclosed home prevention efforts have been stepped up by the Treasury Department as foreclosures continue to increase in many parts of the country.

According to federal officials, less than 2,000 of the 500,000 home loan modifications worked out over the past months became permanent. A report by The New York Times also explained its contention that the $75-billion Home Affordable Modification Program has failed to stop continued foreclosures throughout the country.

In response to criticisms, Treasury spokesperson Meg Reilly said that the Obama administration will expand the HAMP to make it more effective in keeping Americans in their homes. She said that the goal of the expanded program is to increase the chances of loan modifications becoming permanent and to increase loan modifications that result into lower monthly payments.

Among the newer efforts of the federal program is to make public the names of mortgage lenders and servicers which are lagging in loan modifications, hoping that shaming them will drive them to look into loan modification applications and look for ways to help the applicants.

Under the expanded HAMP initiative, the Treasury has also decided to pay cash incentives only after the loan modifications have become permanent. The foreclosed home prevention program pays $1,000 to mortgage lenders for each loan modification and a three-year annual payment of $1,000 if the borrower keeps up with the payments.

The expanded program will also include other schemes that would make more distressed borrowers eligible for loan modifications and would increase the number of nonprofits and agencies providing help to homeowners.

Based on a report released by the Mortgage Bankers Association, 14 percent of mortgage borrowers were in default or in foreclosure by the end of the July-September quarter.

Another report from the Congressional Oversight Panel also stated that the HAMP program is no longer effective in addressing current foreclosures because the reasons for foreclosures have changed. It said that the major reason for the foreclosure wave in 2008 and in early 2009 was subprime lending. Now, the main reason is unemployment.

The panel said that homeowners who are now losing their homes to foreclosure are responsible borrowers who took out traditional fixed-rate mortgage loans, bought homes within their financial capabilities and paid down payments of up to 20 percent.

Over the past months, housing advocates have been calling for the expansion of the foreclosed home prevention initiative to address the problems of unemployed homeowners.