In a way, the following story is not breaking news. There have been reports in the media regarding problems with the Obama administration’s plan designed to assist homeowners. The “Homeowner Affordability and Stability Plan” was implemented to give relief to those who have mortgages. The program was created to provide encouragement to individuals who found themselves in danger of losing their homes due to the economic crisis resulting from the falling housing market and the rash of foreclosures–which finds at least one out of every five mortgage holders in default or in foreclosure across America.
The current economic crisis–which plunged the nation into the deepest recession since the Great Depression of the 1930’s–was created because of reckless lending practices. Government-subsidized institutions, including Fannie Mae and Freddie Mac, were helping to provide mortgages to many who could not afford them. Indeed, members of Congress, including U.S. Rep. Barney Frank (D-Massachusetts) and U.S. Sen.Christopher Dodd (D-Connecticut) led the way in their support of Fannie Mae and Freddie Mac which between them guarantees one in every two home loans in the United States. There have been allegations that both Frank and Dodd profited from kickbacks related to their promotion of Fannie and Freddie. But, to date, a Democratic-dominated Congress has been reluctant to pursue these allegations.
According to TimesOnline, in an article dated July 18, 2008, between July of 2007 and July of 2008, these two programs alone lost $11 billion due to foreclosures–which were guaranteed by American taxpayers.
“Fannie Mae was established in 1938 as part of Franklin Roosevelt‘s New Deal. As the US limped out of the Great Depression, the company was set up to kickstart the mortgage market and allow Americans to own their own homes. Fannie Mae’s role was to buy up mortgages and sell them on to investors, providing stability and liquidity for home loan firms. As a result, the secondary mortgage market was created. Within the secondary market, companies like Fannie Mae are able to borrow money from foreign and domestic investors at low interest rates because of the financial support that they receive from the US Government. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge. Until 1968, Fannie Mae had a monopoly over the secondary mortgage market. But due to fiscal pressures created by the Vietnam War, President Lyndon B Johnson privatised the lender in order to remove it from the accounts. It then became know as a Government Sponsored Enterprise (GSE). The Federal Home Loan Mortgage Corporation, known as Freddie Mac, also a GSE, was set up in 1970 to provide competition to Fannie Mae.”
An estimated loss of $5 trillion guaranteed by Fannie Mae and Freddie Mac created the economic crisis in which America now finds itself; a cascade effect occurred due to dropping home values and the subsequent foreclosures which took place when the housing market went bust. This, combined with skyrocketing unemployment rates–which have now reached double digits–has helped compound the number of Americans who currently find themselves on the brink of default or in actual foreclosure.
President Obama’s “American Recovery and Reinvestment Act” (more commonly referred to as the stimulus package) passed by Congress earlier this year, led to the formation of the “Homeowner Affordability and Stability Plan.” The latter program encouraged lenders to renegotiate interest rates with mortgage holders who found themselves in financial distress. Some suggest that the one in five American homeowners who find themselves on the edge of foreclosure have no one to blame but themselves. However, due to irresponsible and questionable lending practices, many financial institutions failed to adequately verify whether potential homebuyers could actually afford the American dream–owning one’s own home.
The Illinois Family Institute has learned that hundreds or perhaps thousands of Illinois homeowners have again become the victims of government inefficiency. The above numbers do not properly put this crisis in perspective; the failures of the “Homeowner Affordability and Stability Plan” must be related at a personal level.
The Illinois Family Institute has become aware of the fact that lending institutions were not properly advised as to who was eligible for the “Homeowner Affordability and Stability Plan.” Here is an example of how the Obama administration’s plan to bring financial relief has led to a situation in which those who were paying their mortgages on time have now created a huge increase in foreclosures–which is expected to impact the housing market literally within months.
It is estimated four major home lenders control 56% of the housing market. Citibank is one of these institutions. The Illinois Family Institute has discovered, in a number of cases, verbal agreements were made with those holding mortgages which decreased their interest rates substantially. “In June, Citibank told me my monthly mortgage payment would be reduced by $426 effective immediately,” said a homeowner who preferred anonymity.
“I had never missed a payment and I had never been late on a mortgage payment. For the next three months, I sent in my monthly mortgage payment, which reflected the verbal agreement I made with Citibank. After a three month period, I began receiving documents which gave the appearance I was in the process of negotiating for the reduction in my mortgage payments–when I was led to believe back in June, I was meeting my responsibilities regarding the re-financing of my mortgage I had agreed to with Citibank. After a two month period of a back and forth documentation inquiries I was receiving from Citibank, I was then informed I did not qualify for the ‘Homeowner Affordability and Stability Plan.’ Beginning in December, I started to receive notices from Citibank’s collection department which stated I was in arrears on my mortgage payments. To my amazement, Citibank was now demanding the $426 decrease for each month I sent in a payment after the June verbal agreement. Citibank told me I owed $426 for each of the six months I thought I was under the ‘Homeowner Affordability and Stability Plan’ program.”
Essentially, Citibank was now telling these homeowners they owed Citibank in excess of over $2,500…even though they had never missed a payment and fully complied with the verbal agreement they made with Citibank under the assumption they qualified for the program.
To pour salt on a financial wound, which was of no making of their own, Citibank sent three notices to this family in December.
“We have one notice dated December 8th that states our loan is more than 30 days late,” said the homeowner, “but we did not receive this notice until December 15th. There is an 800 number on the letter, but no one ever answers the number provided. The next notice we received was dated December 4th and it said our account had been placed with collections. This notice included another toll-free number that no one answers either.”
What made this situation even more ridiculous is the fact the family received another letter from Citibank–which was also dated December 8th–thanking them for their “interest” in the mortgage modification. The communication from their lender also stated they were reviewing this family’s “case.”
Soon the collections agency began making daily phone calls to the family demanding payment in full. The homeowners were also notified their dwelling had been re-appraised and its value had decreased from $170,000 to $100,000. This is a practice known as the Computerized Valuation Method (CVM). A highly respected appraiser and expert in the field of home financing told IFI that CVM is a tool lenders use to determine the value of a home without an appraiser making an actual visit to the premises. This practice is possibly circumventing Illinois law which requires an appraiser to be licensed.
“This company is walking a thin line regarding the law in this case and they are certainly doing no service to the consumer,” said the licensed Illinois appraiser regarding this matter. “It is a proprietary program which some lenders use to determine the value of a home without any human ever visiting the property. Different companies call their CVM’s various names, including AVM (Automated Valuation Method), but they are essentially using the same method. Illinois Attorney General Lisa Madigan has asked homeowners to report these companies whether or not the homeowner agrees with the assessment which usually favors the lender.”
The Illinois Family Institute has learned this scenario has taken place many times over in Illinois and, according to reports, the “‘Homeowner Affordability and Stability Plan” has been inadequately administrated since its inception when it was signed into law by President Obama in February. Obviously, in the case above, Citibank was not aware of exactly who qualified for agreements, which has now put homeowners who were not in danger of losing their homes to default or foreclosure at risk. In the case above, Citibank went as far as to claim the homeowners themselves should have known whether or not they qualified to participate in the “Homeowner Affordability and Stability Plan.”
In a story published by the Heritage Foundation shortly after Obama signed the “Homeowner Affordability and Stability Plan” into law, the group pointed out 12 problems they saw with this initiative. Amazingly, the article pointed to the possibility that homeowners who were not in default or in foreclosure might be lured into such problems through participation in it.
The Heritage Foundation writes:
“Two of the bill’s three key components are designed to provide subsidies and benefits primarily to homeowners who are still current in their payments… The first provision will assist those who may not be able to take advantage of attractive refinancing opportunities at lower interest rates because the value of their home has declined beyond the loan-to-value ratio permitted by rules governing mortgage investments made by Fannie Mae and Freddie Mac. The second such provision of the plan would provide taxpayer and investor subsidies to mortgage borrowers who have taken on more debt than they could safely manage including, in some cases, credit card and automobile debt. The third component of the plan encourages the enactment of legislation allowing bankruptcy judges to alter the terms of certain mortgage loans, a practice that to date has been prohibited by federal law.”
Some say, and rightfully so, that individuals entered into mortgage agreements which they could not afford, and, therefore, they must suffer the consequences. However, in these economically depressed times, it is apparent there were those who were promised something the government could not provide or poor administration could not properly monitor. In such cases, homeowners–through no fault of their own–now find themselves in dire straits. There is an old adage which states: If it sounds too good to be true, it probably is. But the primary role of government is to protect American citizens, not to put them in jeopardy. It is clear the “Homeowner Affordability and Stability Plan” has thrown gasoline on a fire which was already burning out of control.
NOTE: Though flawed, the “Homeowner Affordability and Stability Plan” is free. The public must be aware of scams related to unscrupulous entities claiming to be part of this government program who charge for their services. Buyer beware!
