Backlogs, Delays Hamper Program to Reduce Bank REO Properties

Backlogs and delays are hampering the progress of the $75 billion program launched by the Obama Administration in March to reduce the number of bank REO properties in the country.

Many distressed homeowners are complaining that lenders have given them inaccurate information, their telephone calls remained unreturned and some said that their requests for help were denied without any clear reason.

The goal of the government program is to prevent as many as 4 million bank REO properties by encouraging banks to modify delinquent loans by reducing monthly payments to make them affordable.

According to the U.S. Treasury Department, since the program was launched, it resulted to offers of over 190,000 loan modifications with reduce monthly payments. During that time, lending institutions and banks have either filed or advanced foreclosure actions against over 1 million properties while 20 percent of those distressed homes were repossessed.

According to the Center for Responsible Lending, an estimated 2.4 million homeowners are at risk of losing their homes to foreclosures this year and about 8.1 million are expected to go into foreclosures for the next four years.

A report by NeighborWorks America stated that it takes about one and a half to two months for lenders to respond to inquiries made by distressed homeowners who want to apply for loan modifications. In fact, homeowners who applied for loan modifications early this year have still not receive any answer on whether they are eligible to avail of small monthly payments or not.

Joel Naroff of Naroff Economic Advisors said that some lenders find it easier to delay the modification process and let homeowners be the one to back off rather than turn them down right away which they feel is politically incorrect.

He also said that banks are dealing with large volume of refinancing mortgages and backlogs are getting worse as more homeowners find themselves with no jobs. He noted that the rate of mortgage delinquencies is highest in areas where unemployment is on the rise.

Realogy Chief Executive Officer Richard A. Smith said that the program to reduce the number of bank REO properties is suffering, adding that banks are not prepared to deal with the deluge of requests for loan modifications.

Several senators have sent a letter to Housing and Urban Development Secretary Shaun Donovan requesting for a new strategy to force lenders to respond immediately to homeowners’ request for help to save their homes from bank REO properties.

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