Today's Mortgage Rates

Almost twice as many people dropped out of the government’s mortgage loan modification program in June as those who received permanent modifications, according to the Treasury Department.

There were 91,000 dropouts  in June, which means that 530,000 homeowners have left the mortgage program without a permanent loan modification, reported Reuters. Only 49,000 borrowers received permanent mortgage modifications, for a total of 389,000.

The Home Affordable Modification Program (HAMP) has been criticized for not helping enough homeowners who are at risk of foreclosure. The Department of Housing and Urban Development (HUD) and the Treasury Department released the Obama administration’s July housing scorecard this week and acknowledged the challenges with helping homeowners. 

HUD Assistant Secretary Raphael Bostic said in a statement: “The housing market is performing better than the predictions made over a year ago. We’re absolutely not claiming victory, but due to the Obama Administration’s efforts, improved home affordability is continuing to provide opportunities for prospective, qualified, home buyers, while promising neighborhood stabilization efforts are helping hard hit neighborhoods start to recover.”

The housing market is still struggling to recover and the numbers could mean that more foreclosures are on the horizon. If you find yourself struggling to hold on to your home, talk with a housing counselor as soon as possible to discuss your situation. Like many Americans you may not qualify for a permanent mortgage loan modification, but there may be other options that can help your situation.

In many parts of the country, a significant number of homeowners currently owe more on their mortgage than their home is worth.  The result this negative equity problem is that many people are going into foreclosure or short selling their home — or even doing something called a strategic default, where they can afford the payment but choose to leave the home.

And at least one popular theory has the Obama administration pushing for more principal reductions (reducing the amount owed on the mortgage) as a tool to help stem the tide of foreclosures.

Pressure is mounting on loan servicers and investors to reduce troubled homeowners’ loan balances…but the two largest owners of mortgages aren’t getting the message.

Fannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.

But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications.

The problem here is that nothing is official and no one seems to want to comment on whether or not Fannie Mae or Freddie Mac will start doing principal reductions for troubled homeowners.

Why would Fannie Mae and Freddie Mac be hesitant to do principal reductions?

What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people’s mortgages.

I don’t know whether or not principal reductions will become a new tool — but with the Obama administration pushing for it, I suspect that something like this is coming soon.

And no, that doesn’t mean that I am officially commenting on it… just guessing.

If you are a homeowner who has been struggling with making your mortgage payment and have felt like your mortgage servicing company isn’t really doing enough to help you…

You are not alone.

Many people are reporting that mortgage servicing companies aren’t helping them, are difficult to work with or are just plain not telling them everything that is available to help. And apparently there are enough people that are reporting these issues that the government is starting to look into the problem of mortgage servicers not being responsive to people who need help.

Today Treasury Secretary Geithner told a Senate appropriations subcommittee:

“We do not believe servicers are doing enough to help homeowners — not doing enough to help them navigate the difficult and frightening process of avoiding foreclosure…” and indicated that he was troubled by reports that servicers had done things like foreclose on homeowners who were potentially eligible for relief under the government’s Home Affordable Mortgage Program, lost documents or claimed to have done so and even steered troubled homeowners away from available assistance.

This is not the smoking gun exactly that it first appears to be because no exact data has been released — yet — on how bad the problem is. But that is about to change.

Geithner said during his testimony that Treasury will publish “much more detailed data on the performance of servicers” so that people can see just exactly how responsive lenders are being with homeowners who are having trouble.

And I suspect that very few people are going to be surprised by the results — except for maybe a few senior executives at the banks who end up with a black eye when the report is released.

Just a hunch.