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Treasury, Ahem, Clarifies Goals for the Mortgage Mod Program

The administration has been saying that the Making Home Affordable program “will help up to 3 to 4 million at-risk homeowners avoid foreclosure." But the number of expected loan modifications is actually much lower than that.

April 15: This post has been corrected.

 How many struggling homeowners will get a mortgage modification through the government’s $75 billion program? It would seem to be a simple question. But for the past year, the administration has been saying one thing, and observers have been hearing another.

What the administration has been saying is that the program “will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.” Sounds like the Treasury Department is aiming to get 3 million to 4 million modifications, right?

Actually, Treasury’s real goal is between 1.5 million and 2 million permanent modifications, according to a new watchdog report.

Why the discrepancy? Under the program, homeowners first enter a three-month trial period. But as we’ve reported, most trials have gone longer. It has proven much easier for mortgage servicers to get homeowners into the trial than out of it.

The publicly stated goal of 3 million to 4 million, Treasury says, is actually for offers of trial modifications – not actual trial modifications, let alone permanent modifications. It’s a metric that the special inspector general for the TARP (SIGTARP) calls “essentially meaningless” in the new report.

As for meaningful metrics, an unnamed Treasury official is cited in the inspector general’s report as providing the new goal: 3 million trial modifications, of which 1.5 million to 2 million would become permanent. It was always expected that a portion of trials would fail – some homeowners, for example, won’t be able to keep up with even their reduced mortgage payments. The question has always been how many. Treasury thinks that between a third and half of homeowners in trial mods will fall out.

But even by that reduced standard, the program has a long way to go: While servicers have thus far begun 1.1 million trials, only 168,708 homeowners have received a permanent mod.

Our breakdown of the data shows which mortgage servicers are performing the worst. The program lasts through 2012. (The reduced number of trial mods has also led to another revised expectation. The administration originally estimated the whole program would cost $75 billion -- $50 billion from the TARP and $25 billion spent through Fannie Mae and Freddie Mac. Because there have been so few permanent modifications, a recent Congressional Budget Office estimate said Treasury is likely to spend only $22 billion from the TARP, not $50 billion.)

Meanwhile, Treasury is about halfway to its goal of 3 million to 4 million trial offers. Some 1.4 million homeowners have received trial offers from their servicers, according to Treasury. It’s unclear how many of the 260,286 borrowers who’ve received offers but have not begun the trial have refused the offer – certainly some just represent a lag between the offer and the beginning of the trial.

While the Treasury’s newly stated targets may seem like a bait and switch, the SIGTARP doesn’t charge that officials actually changed the program’s goals. Rather, it’s all blamed on imprecision. As far as that goes, Herb Aliison, the Treasury official overseeing the TARP, promises in a response to the report that “Treasury will try in the future to be more precise.”

Have you applied for a loan modification under the Obama administration’s Making Home Affordable program? Are you thinking about it? If so, we at ProPublica want to hear your story.

Correction: This piece originally misstated the Treasury official's estimate of how many homeowners will convert from trial to permanent mods. It said that "Treasury thinks that somewhere between 50 and 66 percent of homeowners in trial mods will fall out," when the official said that between 50 and 66 percent of those homeowners will convert to a permanent mod.

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

More »

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