- The Washington Times - Friday, February 26, 2010

It’s been a year since President Obama announced his broad-based plan to help tackle the housing crisis. With property values sinking and unemployment rising, the plan focused on encouraging lenders to modify existing home loans that were in danger of going into default.

The plan has not worked. Thus far, only about 116,000 homeowners have been successful in permanently modifying their loans to a lower interest rate and lower monthly payment. This is a drop in the bucket compared to Mr. Obama’s estimate that 9 million homeowners would be helped.

Moreover, just $15 million of the $75 billion earmarked for the plan has been used. That’s two-tenths of 1 percent. What went wrong?

Here’s my take. First, as might be expected, the devil is in the details. Though the plan is intended to prevent folks from going into foreclosure, the program’s requirements make many homeowners ineligible. Second, the bureaucratic red tape involved in the program provided plenty of incentive for lenders to opt out of participating. Third, the announcement of the plan occurred long before an actual plan existed.

The worst facet of the plan, in my opinion, is one of the requirements for eligibility is that homeowners must be delinquent on their loan by at least 60 days. It seems to me that the program encourages folks to stop paying their mortgage payment and ruin their credit.

As a mortgage broker who deals with homeowners every day, I can tell you each struggling homeowner tells me the same story. They tell me their lenders refuse to help them unless they are severely behind in their payments. What sense does that make? Instead of identifying a problem and solving it before it worsens, the program identifies a problem and ignores it until it becomes a bigger problem.

Apparently, some changes are to be made soon in the loan modification program, including a requirement that necessary paperwork be provided upfront to determine eligibility. This, at least, might prevent a homeowner from spinning his wheels.

In the meantime, the program is another example of the federal government’s keen ability to dig a hole and fill it back up.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Reach him at [email protected]

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