Preventing foreclosures

WASHINGTON-- About 200,000 mortgage modifications have been worked out under the government's Making Home Affordable program, with 40,000 modification offers completed last week, Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development said on Thursday.

"We've made substantial progress in a short period of time," he said, speaking to real estate writers and reporters attending the National Association of Real Estate Editors conference, being held in Washington this week.

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Donovan said that the foreclosure-prevention program has already had more results than previous government efforts to address the foreclosure problem and that the pace of modifications is increasing.

"We're beginning to get to a pace that will get to millions of modifications," he said.

A key element of the new plan is to make the mortgages "truly affordable" with a modification, he said. With the program, there's a standard 31% debt-to-income ratio, he said; a borrower's modified mortgage payment should be no more than 31% of his or her gross monthly income, according to MakingHomeAffordable.gov.

Making Home Affordable also has a refinance program, designed for homeowners who are on time with their payments but aren't able to take advantage of low mortgage rates because they owe more than their home is currently worth -- making refinancing otherwise not possible. To be eligible for the program, the borrower's loan-to-value ratio can be no higher than 105%, but James B. Lockhart III, director of the Federal Housing Finance Agency, said on Thursday at the conference that there has been talk of raising that limit.

Donovan reiterated the administration's acknowledgement that not every foreclosure can be prevented, and part of the overall foreclosure-prevention plan has been to encourage alternatives to families destined to lose their homes; a short sale, for example, wouldn't damage a homeowner's credit the way that a foreclosure would, he said. A short sale is when the home is sold for less than is owed on a mortgage, with permission of the lender; it is helpful for those underwater on their mortgages.

But while not everyone can be helped, Donovan said that not addressing the foreclosure problem would be akin to a house burning down and subsequently setting fire to the entire neighborhood. The administration believed that allowing foreclosures to continue at the pace they were "wasn't going to lead to a bottom, it would lead to a much more substantial decline than otherwise," he said, with foreclosures continuing to affect values of properties around them.