Some real estate and economics experts are calling a $75 billion White House mortgage modification program meant to shield homeowners from foreclosure an impediment to the nation's overall economic recovery, a New York Times story said. The “Making Home Affordable" program, which was announced in February 2009, temporarily lowers monthly mortgage payments for 759,000 homeowners struggling to retain their homes, mostly by lowering interest rates.
Though Treasury maintains that "the program is meeting its intended goal of providing immediate relief to homeowners," critics say it is really just slowing-down the foreclosure process by giving many cash-strapped borrowers false hope that they can afford homes out of their price range. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway,” said one hedge fund manager.
Critics also contend that the plan does little to aid borrowers who owe more than their homes are worth. This scenario, known as an underwater mortgage, now affects about one in four mortgage borrowers in the U.S., according to the Wall Street Journal. Many underwater mortgages will face foreclosure, leaving banks to try to unload them into a saturated market.
Borrowers have also seen their credit take a hit, despite assumptions that loan modifications would not be reported negatively to credit agencies. Some banks claimed that even borrowers who began the process with good credit were reported to credit agencies as only making partial payments upon agreeing to loan modification.
Also in today's personal savings news:
One in Four Borrowers Is Underwater (WSJ)