Despite Big Glitches, Government Still Helping Underwater Homeowners

We’ve run several stories (including this one and that one) about how the federal government’s program to help people avoid foreclosure is an abject failure. Regardless, some people have still managed to get help and keep their homes. Fannie Mae and Freddie Mac, the two taxpayer-owned mortgage giants, helped over a million people refinance their homes in the first three months of 2011.

Some of the help has gone to people who are underwater, and owe more than their house is worth. Fannie and Freddie refinanced 130,204 mortgages in the first quarter in which the amount owed by the homeowner equaled between 80% and 125% of the mortgage. Of those, 16,894 went to people who were truly underwater, and who owed between 105% and 125% of their house value, according to a report by the Federal Housing Finance Agency, which oversees both Fannie and Freddie.

[Article: HAMP Fails to Save Homeowners from Foreclosure]

The old loans were already owned by Fannie or Freddie.

“There’s nothing wrong with letting these people refinance,” says Lawrence J. White , a former Freddie Mac board member and an economics professor at New York University. “It makes sense because it lowers the monthly payment, which reduces the likelihood of a foreclosure, which reduces the burden on Fannie and Freddie later on.”

In total, Fannie and Freddie have made 752,000 loan modifications through the Obama Administration’s Home Affordable Modification Program (HAMP) since the program started in April 2009. That’s far short of the administration’s stated goal of helping 4 million people avoid foreclosure.

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[Article: We Must Kill Mortgage Mods to Save Them, Neugebauer Says]

In other areas, both Fannie and Freddie reported that their finances continued to improve since the government took control of both companies in 2008. About 4.5% of the mortgages owned by the companies are over 60 days delinquent, down from almost 6% at the end of 2009. The number of foreclosure starts continued to drop, from a record high of 339,000 in the third quarter of 2010 to 260,000 last quarter.

The majority of newly modified loans contained major breaks for homeowners. In 51% of loan modifications completed in the first quarter of 2011, the principal and interest was cut by more than 30%, according to the report.

Not all the modifications worked. Three months after modification, 9% of loans failed anyway. That’s actually an improvement over the fourth quarter of 2008, when 28% of modified loans failed. The improvement is partly due to the fact that “modifications in 2010 resulted in deeper payment reductions for a greater proportion of borrowers than in earlier periods,” according to the FHFA.

Image: Esther Gibbons, via Flickr.com