WASHINGTON (AP) -- A growing number of homeowners who sought help from the Obama administration's main mortgage aid program are in danger of losing their homes.
About 436,000 borrowers have dropped out of the $75 billion plan as of last month, the Treasury Department said Monday.
That's about 35 percent of the 1.24 million who enrolled since March 2009 and exceeds the number of homeowners who are getting help through the program. And nearly 155,000 of those who fell out of the program did so in the past month.
The result could be a new wave of foreclosures that could weaken the housing market and hold back the broader economic recovery.
Most of those homeowners were rejected during a trial period lasting at least three months. More than 6,300 dropped out after having their loans modified.
Another 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.
Experts say more borrowers are likely to drop out in the coming months. Some homeowners who owe more on their loans than their properties are worth are likely to conclude that paying an oversized mortgage simply isn't worth the cost.
Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards.
"The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden."
Obama administration officials contend that borrowers are still getting help -- even if they fail to qualify for the program. The administration published statistics showing that nearly half of borrowers who fell out of the program received an alternative loan modification from their lender. About 7 percent fell into foreclosure.
Another option is a short sale -- one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.
A short sale results in a less severe hit to a borrower's credit score, and is better for communities because homes are less likely to be vandalized or fall into disrepair. To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.
The program is designed to lower borrowers' monthly payments by reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Mortgage companies get up to $75 billion in taxpayer incentives to reduce borrowers' monthly payments.
Grandpa:
The U.S. government agreed to absorb unlimited losses on Fannie Mae and Freddie Mac for the next three years. The Congressional Budget Office "guesstimated" the total cost to the government (a.k.a. grandchildren) at $291 BILLION. To date, the government has injected $112 BILLION into these two zombie entities.
The results of the $75 BILLION Home Affordable Modification Program (HAMP) are disgraceful. If the HAMP program was a high school, parents would demand that heads roll. 340,000 graduated to permanent modification status while 436,000 dropped out! For every one graduate, 1.5 dropped out (a.k.a. flunked) and our grandchildren are once again burdened with another $75 billion.
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