Homes In Foreclosure: The Crisis Goes On Even for homeowners receiving help, redefault rates are high

Homes In Foreclosure: The Crisis Goes On Even for homeowners receiving help, redefault rates are high

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


Now, seven years after the recession ended, everyone had hoped homeowners would have their homes out of foreclosure with mortgages payments current.

But this was wishful thinking.

During the recession, Congress authorized $475 billion for the Troubled Asset Relief Program (TARP), which includes $46 billion set aside to help families prevent foreclosure.

What’s more, a mortgage scandal settlement with Goldman Sachs included $1.8 billion for programs to help homeowners stave off foreclosure. And in a settlement with Bank of America, Eric Holder, then Attorney General, said $7 billion would go to “provide relief to struggling homeowners, borrowers and communities” that were victims of BofA’s conduct.

Including the money set aside by Congress, and the money collected through settlements with Wall Street banks, tens of billions of dollars were available to families for modifying their mortgages so they wouldn’t have to move.

The Office of the Controller of the Currency (OCC) reports that nationally, foreclosures are down. And the number of families current on their mortgage payments is heading upward, currently at just under 94 percent.

More good news. According to CoreLogic, the number of homeowners with a house that is worth less than their mortgage balance decreased to 4.3 million (3rd quarter 2015), from 5.2 million in 2014. In 2011, the figure was 11.6 million homes, so things have dramatically improved.

Mark McArdle, the Treasury Department’s deputy assistant secretary for financial stability, said the Home Affordable Modification Program (HAMP) has helped over 1.5 million homeowners stave off foreclosure. He acknowledged that “several areas and states are still struggling, and we will continue to help homeowners and communities in those places still recovering from the housing crisis.”

However, not everything is as rosy as it might appear. Christy Goldsmith Romero, special inspector general for TARP, warned in 2013 that an “alarming rate” of homeowners were defaulting on modified loans. And in the Inspector General’s latest report to Congress, the default rate on these rewritten mortgages was on the increase.
Going back to HAMP’s launch date in 2009, nearly 53 percent of homeowners were defaulting on their modified mortgages. In total, over 1/3 of the homeowners who took part in the HAMP program have defaulted again on their mortgage loans.

During the period from 2009 through 2015, 2.2 million homeowners applied for a “trial modification”, which is the first step to getting their mortgages permanently modified. But then roughly 786,000 of them dropped out. 1.4 million homeowners were granted loan modifications under HAMP, but then 467,000 defaulted on their modified loan.

In most states, about 35 percent of homeowners were unable to pay according to the terms of their modified loan. This meant they were again facing default and ultimately foreclosure. And in Mississippi, Louisiana and Nevada, for example, the default rate was 40 percent or higher.

Homeowners who called the SIGTARP hotline said banks and mortgage-servicing companies were a big part of the problem. They kept losing paperwork and making clerical errors in documents. Also, many lenders dual-tracked homeowners, which meant they prosecuted the foreclosure on the home while the homeowner was taking part in the HAMP program.
Kathleen Engel, a research professor at Suffolk University Law School in Boston, said “These mortgage modifications were not affordable long term,” because they were based on the presumption that property values would increase, but they actually declined.

John Powell, director of the Haas Institute at the University of California at Berkeley, said the good news nationally about the decrease in foreclosures hides the fact that in many communities where home values declined, the families were pushed deeper underwater. This only depressed the real estate values even more, especially in minority neighborhoods.

The Haas Institute reported that 71 out of the 100 cities with the highest number of underwater households were in areas where more than 40 percent of homeowners were African American and Latino. Right now, over 10 million Americans live in areas where between 43 and 76 percent of homeowners are on the way to foreclosure.

If you are concerned about losing your home or are unable to make your mortgage payments, you should speak with a bankruptcy lawyer to learn your options. Richard Fonfrias of the Fonfrias Law Group, an Illinois bankruptcy lawyer and financial rescue expert, has helped thousands of Chicago homeowners avoid home foreclosure. Rich Fonfrias offers many financial legal services including bankruptcy help, bankruptcy avoidance, foreclosure avoidance, loan modification services, mortgage and credit repair, tax reduction and tax lien services. As a leading Chicago bankruptcy attorney, Rich Fonfrias has the experience to get you started on the road to financial recovery through effective legal strategies.

If you have any questions about filing for bankruptcy in Illinois, please give me a call. I would be happy to give you further information about how bankruptcy can erase credit card debt, including what kinds of credit card debt cannot be erased in bankruptcy. My Chicago law practice specializes in helping individuals and businesses with serious financial problems. For help with bankruptcy, foreclosure, loan modifications, credit card debt, liens, back taxes, or any other money problems, call 312-969-0730 or email today.