The three latest government programs to cure the foreclosure crisis have at least one thing in common: none will likely be fully operational until this fall, which will push the politically potent issue beyond the midterm elections.
Most foreclosures have been put on hold while servicers navigate the new options, and the delay will allow many borrowers, including the unemployed, to stay in their homes months longer.
"If I push out the foreclosure point, the hope is that stability comes to the housing market, unemployment declines and maybe fewer modifications will fail," said Jim Satterwhite, an executive vice president and chief operating officer at Infusion Technologies Co. LLC, a Jacksonville, Fla., technology provider for short sales and real estate owned properties.
While Satterwhite said it was "awfully coincidental" that many of the programs would not be fully executed until after the November elections, others put a finer point on it.
"It's a political campaign of hope," said Joe Mason, a finance professor at Louisiana State University. It "sounds really cynical," but "they are drawing out the foreclosure time lines to mitigate the oversupply conditions on the [housing] market."
Mike Sheridan, the president of DebtMarket, an online platform that connects buyers and sellers of loan portfolios, concedes the delays are affecting his business as banks hold off selling toxic assets and continue to wait for more government programs to fix their problems.
"This is a very, very political issue so everything has to be pushed back until after the midterm election," Sheridan said. "If there's an increase in foreclosures, the government could potentially vote itself out of office."
Asked if the government is trying to delay a wave of foreclosures until after the elections, Meg Reilly, a Treasury Department spokeswoman, said "No."
"Fall is our conservative estimate," Reilly said of the changes announced March 26 to the Home Affordable Modification Program. The government's programs will "take time to implement," she said, but servicers and federal agencies are working "as fast as possible."
The new efforts to reduce foreclosures include giving assistance to the unemployed, encouraging servicers to offer principal reductions to underwater borrowers and allowing some underwater borrowers to refinance into Federal Housing Administration loans.
Each program faces its own time-consuming hurdles. For example, the FHA must publish eligibility guidelines for underwater borrowers trying to refinance. Banks also will need to put systems and processes in place for the Home Affordable Foreclosure Alternatives program, which encourages short sales or deeds in lieu.
But the biggest delays are likely to arise as servicers create specific plans to explain how they are integrating the latest programs into their existing business processes.
"It's definitely going to extend the foreclosure process," said Wade Comeaux, the president of Fay Financial LLC, a Chicago specialty servicer of distressed properties. "You are not able to put a person into foreclosure until you've gone through the entire Hamp review, then you move them to Hafa."
Servicers still can initiate foreclosure or continue with an existing foreclosure proceeding during the short sale process, according to the program's 45-page guidelines. But they cannot complete a foreclosure while a borrower is waiting for a short sale agreement or approval of a short sale contract.
"Here is the underlying secret: the foreclosure process is being stretched out for 18 months," said Dan Reynolds, an executive vice president at LAMCO, a Littleton, Colo., company that manages repossessed properties for banks.
"Everyone is frustrated, it's an embarrassing situation for the borrowers and not having a system ready to handle short sales has caused confusion."
Thousands of borrowers who qualified for Hamp but were denied modifications, or fell out of the program because they did not make a payment or failed to turn in the necessary paperwork, now have to be contacted again and offered the latest programs.
"In most cases servicers have not initiated foreclosure," Satterwhite said. "There are quite a few loans that are in limbo, they've just been hanging out there and nobody has talked to that population about a short sale or a deed in lieu."
Many servicers are now going back to give a "second look" to their entire population of delinquent borrowers because they do not want to have any "finger-pointing" if a borrower said they were not offered a particular program, Satterwhite said.
Ghazale Johnston, an executive who leads the loan management solution division at Accenture LLP, a Chicago consulting and outsourcing firm, said many servicers are still relying on manual processes and do not have analytical tools to determine which of the various government programs is right for each individual borrower.
The big push in the next few months will be to "proactively solicit borrowers who did not qualify for Hamp and are at risk of default," she said.
"The servicers are absorbing these changes at a high speed and they have really tried to get their systems in place and to ramp up their work force," she said. "It's going to take some time to absorb and accommodate the various programs from the government."
Sheridan said mortgage servicers and banks are under tremendous pressure to comply.
"On the one hand they are being told to be aggressive about modifications," Sheridan said. "But they also are being offered tremendous incentives to hold off on foreclosures and not take a loss on these loans so banks can be stabilized."
