Compensating Mortgage Lenders
Its main program – which pays lenders to modify bad loans – was started over a year ago. So far, only 398,198 loans have been permanently modified. Of the $30 billion allotted to the program, only $321 million has been spent so far.
The Obama administration has sought to tackle the crisis by allocating $30 billion to pay lenders to modify loans. However, only $321 million has been spent so far and only 398,198 home loans have been permanently modified.
Some blame the delay on the administration claiming poor organization, puzzling procedure requirements, and frequent rule changes. Lenders have been required to establish new systems and hire people to undertake difficult case-by-case analyses to determine who qualifies for a loan modification
Others blame the lenders directly for no cooperating enough. Some banks are simply unwilling to participate in the program or accept a decrease in a loan’s principal and the losses that come with it despite the high likelihood that homeowners would avoid foreclosures.
Funding a State-Based Response
Another federal initiative in the works involves allocating funds to states. Roughly $4.1 billion has been allocated to assist 18 states plus the District of Columbia that have been hit especially hard by the crisis. Some say the program will not reach far enough. The program is only expected to help about 140,000 total borrowers.
Extending Unemployment Benefits
The continuous extension of unemployment benefits may also help to stem the crisis. Borrowers still receiving income would be able to continue making mortgages payments while loan modification programs reach more people and job creation measures are implemented. Some say, the extension is only temporary, and once discontinued many homeowners will be unable to pay their mortgage loans and inevitably default.
Luckily, for some borrowers in judicial foreclosure states, a court order is required for every foreclosure. Fortunately, many homeowners are still in their homes because lenders like GMAC Mortgage, JPMorgan Chase, and Bank of America are required to conduct reviews of the foreclosure documents and its processes before executing a foreclosure. Attorney General Jerry Brown of California-although not in a judicial foreclosure state-has ordered Ally Financial, Inc., formerly known as GMAC, Inc., to delay foreclosures until it could prove it was complying with state laws.