Why is housing aid so slow to arrive?

WASHINGTON – Speaking at a high school in Mesa, Ariz., about a month after taking office, President
Barack Obama launched an effort to keep as many as 9 million homeowners out of foreclosure in a major
federal effort to stabilize the U.S. housing market.
So what kind of impact has this plan – backed by $50 billion from the financial industry bailout fund –
had on the housing crisis over the past few months?
While outside analysts expect the program to ultimately make a difference, it’s been slow to get up and
running. And the impact of the plan is likely to be less significant than the Obama administration’s
original projections of up to 4 million loan modifications and 5 million refinanced loans.
In an effort to get things moving, the government has summoned mortgage executives from 25 companies to
meetings Tuesday with top staffers from the departments of Treasury and Housing and Urban Development.
Six other companies weren’t invited because they just joined the program this month.
Meanwhile, government officials, lawmakers and activist groups are urging the participating companies to
ramp up their efforts.
"Much more progress is needed," Treasury Secretary Timothy Geithner and Housing and Urban
Development Secretary Shaun Donovan said in a July 10 letter to the industry, arguing that participating
companies should "devote substantially more resources to this program."
Here are some questions and answers about the program.
Q: How many borrowers have been helped?
A: So far, more than 55,000 borrowers have received refinanced loans and at least 200,000 were enrolled
in three-month trial loan modifications, out of about 370,000 who were offered modifications by mortgage
Q: What’s the difference between a refinanced loan and a modification?
A: When you refinance your home loan, you sign a new contract with your lender. A loan modification
involves changes to the existing contract – such as lowering the interest rate or extending the term
from 30 years to 40.
Q: Why has progress on loan modifications been so sluggish?
A: The loan modification program requires major changes in the operations of companies that collect
mortgage payments – known in the industry as loan servicers.
In normal times, those companies simply collect payments from the vast majority of borrowers who pay on
time – and try to recoup what they can from those who are delinquent. But enrolling borrowers in the
Obama administration’s plan is much more like writing a new mortgage. That means training employees,
reworking computer systems and spending a lot more time with each borrower.
Also, the initial assumptions behind the plan may have been overly optimistic, the Government
Accountability Office said in a report last week. While the Treasury Department estimates that about 65
percent of borrowers at least two months behind on their mortgages will sign up, the actual rate of
responses is more likely to be about 50 percent.
Q: Why has progress on the refinancing program been slow?
A: Initially the administration’s refinancing program to help borrowers who owe more than their homes are
worth was limited to borrowers who owe up to 5 percent more than their home’s current market value. That
excluded many people in areas like Las Vegas and Southern California, where prices have declined by as
much as 50 percent.
More borrowers may now qualify because the government expanded the program this month to borrowers who
owe up to 25 percent more than the market value.
Q: Is the Obama administration planning any big changes?
A: Not yet. While some mortgage companies have been slow to get moving with the loan modification effort,
others are faring better, said Howard Glaser, a Washington-based mortgage industry consultant and former
housing official in the Clinton administration.
"The fact that some servicers are doing well means that the program can work," he said.
Q: What more can the government do to step up pressure on the industry?
A: Shame might work. The government will soon release a public report on how each company is doing.
Exposing the leaders and the laggers could be a powerful incentive for the latter to perform better.
Q: What’s in it for the mortgage companies?
A: Money. Under the program, the servicers will pocket up to $4,500 for each loan they modify. But they
won’t start to be paid until homeowners have made on-time payments for three months. The owners of
mortgage securities – complex investments backed by the value of mortgages – can get paid as well, but
how much will depend on what it costs the investors to modify the loan.
For borrowers who make timely payments for at least a year, the government also will pay up to $5,000 to
reduce borrowers’ outstanding principal balances.
Q: What are the consequences if the effort doesn’t work?
A: If the program doesn’t kick in reasonably well, experts warn, the recent spate of optimism about the
housing market and the economy could fade as more borrowers fall into foreclosure, putting downward
pressure on home prices and forcing banks to write down the value of their mortgage-backed securities.

Q: How does this effort compare to previous efforts to tackle the mortgage crisis?
A: It’s actually doing better. For example, lawmakers spent much of last summer arguing about a
refinancing effort known as the "Hope for Homeowners" program. It was launched by the
government last fall but so far has provided few homeowners with hope, proving unattractive to banks
required to absorb large losses.