From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Federal Efforts to Help Homeowners Keep Their Homes

Description: Audio interview by GAO staff with Mathew Scire, Director,
Financial Markets and Community Investment

Related GAO Work: GAO-12-296: Foreclosure Mitigation: Agencies Could
Improve Effectiveness of Federal Efforts with Additional Data Collection
and Analysis

Released: June 2012


[Background Music]

[Narrator:] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's June,
2012. In an attempt to help struggling homeowners keep their homes,
millions of home loans have been modified through federal and
non-federal efforts. Yet the number of loans in foreclosure remains
historically high and the U.S. housing market remains weak. A group led
by Mathew Scire, a Director in GAO's Financial Markets and Community
Investment team, recently reviewed issues around the response to the
housing crisis. GAO's Jeremy Cluchey sat down with Mathew to learn about
what they found.

[ Jeremy Cluchey: ] Can you start by talking about the different federal
loan modification and refinancing efforts that are currently underway?

[ Mathew Scire: ] Yeah sure. So a lot of folks probably have heard about
Treasury's effort which is called the Home Affordable Modification
Program, or HAMP and so that's I would say the largest of the federal
efforts or federally-sponsored efforts. You also have efforts underway
at the government sponsored enterprises, Fannie Mae and Freddie Mac, as
well as at the Federal Housing Administration, the Veteran's
Administration, and USDA has a small program as well. So let me start
with the Home Affordable Modification Program. That was announced a few
years back and there has been up till now, almost a million borrowers
who have received home modifications, or permanent home modifications
through that program. And what it tries to do is to reduce the payment
or for borrowers, mortgages to an affordable level and in this case,
that's down to 31 percent of their gross income. The other programs may
not necessarily solve for affordability, but might offer other features
in terms of modifying the loan. FHA, for example, focuses a lot on
repayment and coming up with repayment plans. They may not necessarily
reduce the monthly mortgage payment like the HAMP program does.

[ Jeremy Cluchey: ] You mentioned that about 1 million homeowners have
had loan modifications through HAMP. Can you talk about how many other
homeowners have received relief through these various efforts?

[ Mathew Scire: ] Yeah sure. So in total, there's been close to 2
million homeowners who have received some form of relieve through the
federally-sponsored efforts. Now loan servicers can do loan
modifications outside of these programs, and they have. So in addition
to the more or less 2 million federally-sponsored modifications, there's
been about the same number that the servicers have done on their own.

[ Jeremy Cluchey: ] Your team also looked at the state of the housing
market generally. What did you find there?

[ Mathew Scire: ] Well there are still problems with the housing market
so 8 percent of all mortgages were either in default, meaning that the
borrower is 90 days late on their payment or more, or the house was in
foreclosure. So that's a significant number of defaults and foreclosures
and in fact, that's still near all time highs. House prices have
declined by over 32 percent from their peak and they seemed to be
skipping along the bottom here. Mortgage debt now is at a level that it
exceeds home equity by almost $4 trillion and so that gives you a sense
of sort of the dimensions of stress that's being felt by homeowners
right now. So we also did some work to estimate the number of borrowers
who are at risk of foreclosure going forward and this is based upon data
from last year. And what we found was that between 1.9 and 3 million
homeowners are at risk of foreclosure going forward.

[ Jeremy Cluchey: ] And what steps is GAO recommending be taken to
improve the effectiveness of these efforts?

[ Mathew Scire: ] Well one of the key things we think can be done,
particularly with the FHA and VA and USDA efforts, is for those agencies
to take a closer look at the structure of their programs and in
particular, looking at the data that they have and to collect data that
you don't currently have to understand whether or not their programs are
designed to optimize the reperformance of these loans. There are some
loan modification actions which are more effective than others, and it
also depends in part on the condition that the loan is in and the
borrower's situation. So we think that there's more analysis that could
go into and provide support and rationale for the policies that are
currently in place there.

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