April was one of the cruelest months for homeowners seeking aid from the federal government to pay their mortgages. The Washington Post reported yesterday that 280,000 borrowers — or 20% of homeowners — were dropped from the Making Home Affordable program, raising questions about the effectiveness of stemming the tide of foreclosures.
Treasury data showed that there were 123,000 more borrowers who were dropped from the program in April than those dropped in March, which were 157,000 borrowers. Making Home Affordable was supposed to help distressed homeowners by offering financial incentives to lenders who offer to lower the borrower’s mortgage payments, but now the program is losing borrowers, according to The Post, because they were unable to prove they qualified for help or fell behind on their new lower mortgage payments.
Many housing advocates argue these homeowners are being unfairly dropped from the mortgage aid program for no reason and have no way to address their grievances. Some say they were dropped as the result of the lenders either making errors in paperwork or losing the borrower’s documentation. There are more than 1 million homeowners are currently in the program, but 63% of them are in limbo.
In response to the negative numbers, the Treasury Department said the lenders have helped more homeowners in the month of April move from the federal program to a permanent loan modification, which typically lowers a borrower’s payments by more than $500 a month. In April, there were 300,000 loan mods — a 13% increase over the previous month, according to the Treasury.
The Obama administration underwent a modification of its own by adding a provision in its program to offer financial incentives to lenders who offer to cut the mortgage balances of homeowners who are underwater — that is, owing more than what the home is worth. Despite this initiative, many housing advocates are still unsure if this will put a stop to the foreclosure crisis.