In a Treasury report released on Tuesday, the initial estimate of homeowners getting relief under the Obama administration’s Loan Modification Program has been slashed down by more than half. The initial estimate of helping 4 million homeowners is now expected to go down to 1.5 to 2 million homeowners likely to receive aid under the program.
The Loan Modification Program aims at helping troubled homeowners by giving incentives to lenders to consider loan modifications for distressed borrowers. Earlier statements concerning the program indicated that around 4 million home owners will benefit from the loan modifications, but the statement was later revisited to suggest that around 4 million modification applications would go through, but the actual number of people getting the relief will be lower depending or whether or not they accept the offer.
So far only about 200,000 homeowners have received loan modifications under the ambitious program. The pace of relief disbursement has also been an area of criticism with it being much slower than expected. Other concerns with the program have been that it may be artificially depressing the actual numbers of distressed homeowners as a lot of them are awaiting trials on their modification applications, pulling down the actual number of foreclosures per month.
The fear is that once a lot of these applications are either rejected or come near to the end of their trial period, there will be a sudden rise in the number of foreclosed homes in the housing markets, causing the real estate prices to tumble down in frenzy.
Initially the program was to tap around 40 billion dollars from TARP and another 25 billion dollars from Fannie Mae and Freddie Mac. However, only a miniscule portion of this has so far been used up, with only about 31 million dollars spent till date. The revised estimate of spending of the allocated funds now stands at 20 billion dollars from TARP.
The Treasury report also warned that even after successful loan modifications, there is a real risk of homeowners ending up defaulting on their repayments again. This is because a lot of the homeowners owe substantial amount of debt on their homes with some actually owing more than the current worth of their house.
The government has also launched additional programs besides the Loan Modification Program such as short sales of houses at values lower than the owed loan amounts to help provide workable solutions to homeowners who are nose deep in debt.