By: Michelle Patana
Distressed homeowners and housing counseling agencies may have originally been optimistic about the $25 billion mortgage settlement with the nation's five largest service providers. However, many are now providing negative feedback about the progress of the program, noting that insufficient details, confusing and complex procedures and communication barriers have made the settlement largely ineffective.
Joseph Smith, head of the Office of Mortgage Settlement Oversight, received a barrage of criticism over the shortfalls of the program during his tour of the country that was designed to elicit feedback about the settlement, according to American Banker. He noted that common complaints he heard were loan modification denials without an explanation and the persistent, yet prohibited, practice of implementing the foreclosure process while borrowers are in the process of requesting a modification, the news source reports. Despite the negative feedback he received from homeowners and housing counselors alike, he said the trip was enlightening and may help lawmakers come up with solutions to the program's problems.
"It's a needed reality check for me," Smith told American Banker. "I see spots of light but there is still a lot of dissatisfaction with the loan modification process, and still a lot of stress out there on underwater borrowers."
Issues with mortgage loans
In recent months, several pieces of legislation have been passed to help spark homeownership and provide some relief to distressed and underwater homeowners. In addition to the $25 billion mortgage settlement, which is designed to provide financial relief to struggling homeowners and stem foreclosure, the Obama administration also updated the Home Affordable Refinance Program to include homeowners with negative equity who meet certain criteria. Further, the Federal Reserve's QE3 program was designed to keep mortgage rates low to entice more potential buyers to the market.
While pending home sales have improved and foreclosure rates have slowed, federal agencies have said they have still not seen the level of progress needed to spark full-scale recovery. Many analysts argue that the financial reforms, namely Dodd-Frank, have made larger financial institutions skittish about extending loans, modifying mortgages and signing refinance agreements. Instead, many large institutions are limiting access to credit while relying more heavily on fee income to remain profitable and stave off risk. As a result, economists and analysts argue that sustainable recovery of the market may be far off until large banks get on board.