Q: The Baltimore Sun reported in August that “a record one in eight Marylanders [were] behind on their mortgages as of [last] spring.” Could you briefly describe the roots of this crisis?
A: In the past several years, many investors began to purchase mortgage backed securities. The subsequent increase in money for mortgages and demand for securities led lenders to relax their lending requirements. Lenders became more willing to make mortgage loans without first verifying the assets or even the income of the individuals to whom they were loaning money. Many of these risky subprime loans, often based on inflated property values, were nearly certain to fail from the moment the papers were signed. Lenders and loan originators were protected, however, because they were able to sell the mortgages to firms that bundled the loans into securities and then sold the securities to investors. When people began to default, the securities backed by subprime loans lost value. As a result, some banks and firms that owned those securities as assets failed. The bank failures impacted the rest of the economy and now, as people are losing their jobs or having their hours cut back, more people are beginning to miss payments.
Q: In March, the Obama Administration launched the $75 Billion Home Affordable Modification Program (HAMP). Could you briefly describe the program?
A: HAMP provides incentives to mortgage loan servicers who modify the terms of delinquent mortgages according to specific guidelines. If a borrower has suffered a hardship and their mortgage payment accounts for more than 31% of their gross monthly income, the servicer can modify the loan terms to reduce the payment to 31% by lowering the interest rate, extending the term of the mortgage, and in some circumstances forbearing principal. The program can be very helpful to borrowers in several ways, including sometimes significant reductions in their payments and helping to stop foreclosure sales. Additionally, the program will reduce the loan balance for borrowers who successfully make their payments over the long term.
Q: According to some, the program has gotten off to a slow start. Is this consistent with your experience-and has there been any change in the situation recently?
A: Yes, it does seem that the program has started slowly. It has taken some servicers a significant amount of time to adjust to the government guidelines and to increase their staff to serve everyone who needs help. However, just last week, the Treasury Department released new guidelines that should help to standardize and streamline the process.
Q: Commentators have described how the widespread mortgage defaults of subprime borrowers contributed to the banking crisis, which led to the recession, which in turn led to a second wave of foreclosures-this time including “prime borrowers,” or those who had good credit when they first got their mortgages. Have you seen more prime borrowers as clients as the crisis has continued?
A: We do seem to be seeing more prime loans, but I have not been tracking the numbers on a daily basis. Our first concern is to see if we can assist every homeowner who comes to us with a problem, regardless of where they started.
Q: What is it like for the average client seeking assistance with foreclosure prevention? How long is the average wait for modification?
A: There are several factors that can affect how long the process takes, and if everything goes right, it can still take three months or more. Some loan servicers are beginning to offer HAMP trial period plans based on financial information provided over the phone, but not everyone qualifies for a HAMP modification, and the trial period plan itself is not a permanent modification. Much of the process is dependent on the borrower. If a borrower has trouble controlling their spending, or did not keep track of their financial information very well, it can take longer. Of course, the servicers make mistakes as well and sometimes unnecessarily lengthen the process. Although being delinquent and facing possible foreclosure is understandably stressful, borrowers need to be patient during the process.
Q: The Congressional Oversight Panel recently issued a report stating that the Home Affordable Modification Program, “is targeted at the housing crisis as it existed six months ago, rather than as it exists right now,” and was not designed to deal with foreclosures caused by unemployment-a growing problem with the current economy. Panel Chairwoman Elizabeth Warren has expressed concern that the program is not doing enough and others have questioned whether the Administration will be able to reach its goal of preventing 3 or 4 million foreclosures. On the other hand, Federal Officials have reported this month that HAMP reached its initial goal of 500,000 trail mortgage modifications weeks ahead of schedule. Do you see things getting worse before they get better?
A: It’s difficult to say. The causes of the foreclosure crisis are changing, but it remains a story about how the economy writ large is affecting individuals and families. The economy is still not creating jobs and many people remain unemployed. People and families without sufficient income will be unable to make their mortgage payments. And the hard truth is that if a homeowner cannot pay their mortgage, they will eventually face foreclosure. Until the economy recovers, we can expect high rates of default, and we should ensure that there is assistance for homeowners that is tailored to the problems they are having. HAMP is certainly part of the solution, but other programs may be necessary as we go forward.
Q: What should someone do if they are facing foreclosure?
A: Since the process can be confusing and stressful, homeowners should immediately seek assistance if they have any questions or problems. Many people are afraid of working with their servicer or even admitting there is a problem, but they must know that the problem will not go away if they ignore it. More importantly, homeowners need to understand that the foreclosure process moves very quickly in Maryland and they should not wait until a foreclosure action is filed. Anyone who has already missed a payment or thinks they will be unable to make their next payment should consider themselves to be facing foreclosure. We can help homeowners, if they will let us.
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Interviewed by Will Flagle
Reece Dameron is a recent addition the Foreclosure Prevention staff here at St. Ambrose. He is a 2007 graduate of the University of Texas School of Law who has previously worked on election law issues and landlord/tenant law. At St. Ambrose, Reece is helping our housing counselors and homeowners to find alternatives to foreclosure. Reece hails from Missouri.