The signature Obama program to ameliorate this crisis was the Home Affordable Modification Program, or HAMP, which helps homeowners modify their mortgages for lower monthly payments.

But the program has proven frankly disastrous — in many cases hurting the families it was meant to help. The administration expected it to help 3 to 4 million homeowners. It has aided a fraction of that, completing just 434,700 permanent modifications, according to the last scorecard. The process frequently takes months and requires applicants to file extraordinary amounts of paperwork. About half of applicants are rejected during the trial modification period. Worst, for many HAMP participants, their monthly mortgage payment barely goes down. Those homeowners often keep paying a mortgage they can’t afford for a while  before defaulting anyway, meaning the bank is the real winner.

Now, rather than doubling down and helping homeowners, the administration is shuttering, or at least shrinking, the program. As David Dayen noticed, a recent Treasury report on the Troubled Asset Relief Program tucks in the detail that the government is granting HAMP just half of the funds it originally allocated.

As for President Obama’s mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That’s because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

When Obama announced the program in February 2009, he said up to 4 million people could save their homes through the loan modification program, which lowers eligible borrowers’ monthly payments to no more than 31% of their pre-tax income. But more recently, officials have backtracked and said up to 4 million people could qualify for trial modifications, during which loan servicers assess their borrowers’ eligibility and ability to pay.

Through February, around 170,000 distressed homeowners have received long-term modifications under the program. Another $1.5 billion in TARP funds will be used to provide grants to state housing agencies in California, Arizona, Nevada, Florida and Michigan. These agencies are tasked with coming up with programs to assist the unemployed, the underwater who owe more than their homes are worth, and the second-lien holders.

All I can say is that I hope they funnel the additional $30 billion into other, better initiatives to help homeowners.

Julio Angulo was evicted from his Virginia home last December. (American News Project)

It was last December when Julio Angulo ignored the bitter cold and sat on a rusted patio chair in the front yard of his foreclosed home in suburban Manassas, Va. He sighed, resting his hand on his knee. He stared despondently at the sky. His lender had foreclosed on his house in July. He had just been evicted.

[Economy1]Angulo, then 55 years old, had nowhere to go. His wife and two children already had returned to El Salvador. He had refused during the summer to accept a cash-for-keys transaction, in which he could turn the house over to the lender in exchange for a cash payment. Instead, he remained, alone, in the three bedroom townhouse, in a modest working-class neighborhood called Georgetown South, until a Prince William County Sheriff’s Deputy knocked on the door on Dec. 1, 2008 for the foreclosure eviction.

A house painter, Angulo couldn’t afford the market rents of $1,500 a month for apartments elsewhere in the neighborhood. Most of Prince William County’s shelters also were full that day.

A year later, Angulo is gone. A legal resident of the United States, he joined his family in his native El Salvador, to let a knee injury heal, and to recover from his lost dream of owning a home. With nowhere to go immediately after the eviction, he luckily ran into a neighbor that night who offered to rent him a room for two weeks. He went to a public health clinic, to see a doctor about the arthritis in his injured knee. Then he left for El Salvador.

The house he paid $280,000 for in July of 2005 sold for $69,900 on March 16, 2009, according to local real estate agent Keith Elliott Jr. Real estate investors bought it.

And a year later, the hopes of those who thought the government could come up with a plan to stop foreclosures and help keep people like Angulo in their houses seem in tatters as well.  The Obama administration’s signature effort remains its $75 billion Making Home Affordable program, which was set up to aid as many as 4 million homeowners. But Making Home Affordable has in most ways been a crushing disappointment, housing advocates say.

At the beginning of this year lenders on their own were doing far more permanent loan modifications than the government has been able to accomplish since rolling out its program in April, noted Diane Thompson, an attorney with the National Consumer Law Center. Private lenders were completing 120,000 permanent loan modifications per month during the first quarter of this year. Under the Obama administration’s initiative, some 650,000 homeowners have entered into trial loan modifications, but only about 10,000 permanent loan modifications had been completed by the end of October, a Congressional oversight panel reported on Wednesday. Treasury Department figures released Thursday showed that only 31,382 permanent loan modifications had been completed under the government program as of Nov. 30.

Making Home Affordable’s loan modification effort is known as HAMP, or the Home Affordable Modification Program. The small number of permanent loan modifications so far is due in part to a new program getting established, and to the fact that borrowers in the government program have to complete three-month temporary trial loan modifications first, in order to qualify for permanent ones. Getting the permanent trial modification isn’t automatic — trial program borrowers must submit paperwork documenting their incomes to convert to permanent loan modifications, and they must make three months of payments under their trial agreements.

Treasury expects some 375,000 trial modifications to be finished by the end of this year, but it’s not clear how many will become permanent. Updated numbers are expected this week. But none of this fully explains the glaring lack of progress so far, Thompson said.

“We’re more than nine months into the program, and trial modifications account for only about 11 percent of all the seriously delinquent loans, and permanent modifications aren’t even on the radar screen,” Thompson said. “The HAMP servicer participation agreements do not provide for any penalties, other than termination from the program, for the failure to make modifications.  Until those agreements are revised, the administration has little recourse other than public shame to compel servicers to make loan modifications. Meanwhile, the number of homes seriously delinquent and in foreclosure continues to rise every quarter.”

This is hardly what Thompson expected, just a year ago.

“It’s been very distressing,” she said.

In testimony submitted to the House Financial Services Committee on Tuesday, officials from JP Morgan Chase reported that of every 100 homeowners who sought to have their loans reworked under the government’s program, just 15 have or will end up with, a permanent loan modification.

Thompson and others who follow loan modifications said they were aware from the beginning that the government program couldn’t prevent all foreclosures, especially as job losses mounted and even prime borrowers fell behind on their payments. Experts also knew there would be some slowdown under the administration’s new program, as servicers worked to convert temporary loan modifications into permanent ones.

Servicers and borrowers are pointing the finger at each other over the lack of more permanent loan modifications. Servicers contend borrowers aren’t coming up with the necessary paperwork, such as documenting their incomes, that is required for permanent loan modifications. But housing counselors say just the opposite — that borrowers supply servicers with pay stubs and other paperwork, only to have their servicers lose them, or sit on them so long they aren’t current.

Thompson said there are even bigger problems with the program that leave her feeling very differently about the effort today, compared to her optimism when it was first announced.

“I don’t yet see any of the work on HAMP by the administration addressing the core problems in the program–a lack of accountability and transparency–so I am not optimistic, although I do believe that some of the incremental changes to the program are helpful and may help tens of thousands of people,” she said. “The problem is that we need to help millions, not tens of thousands.”

Alan White, a Valparaiso University law professor who studies loan modifications, was even more blunt:

“If we don’t see more permanent mods soon,” he said, “it will look like the HAMP program is a failure. We’ve seen a net reduction in permanent loan modifications. That’s not good.”

The failure to get more permanent loan modifications done “should be considered a breach of contract” by servicers and lenders that have accepted taxpayer bailout money and are eligible for financial incentives from the government for reworking loans, White said.

He and others never expected things to end up like this. In November 2008, mortgage giants Fannie Mae and Freddie Mac announced a foreclosure moratorium for the holidays, beginning in Thanksgiving, to allow the government to work out the details of streamlined loan modification efforts. Hopes were high that many borrowers would stay in their homes.

In Angulo’s case, the help was too late. He was evicted regardless, because the policy applied only to new foreclosures, not those already in the pipeline.
Fannie Mae announced last month a new policy to allow qualified owners facing foreclosure to rent back their homes for as long as a year. But Angulo most likely would not have qualified for that help, either, had it been available a year ago, since he couldn’t afford market rents in the area, a requirement of the program.

Angulo had covered his mortgage by renting out some of the bedrooms. In the spring of 2008, his renters left and the monthly payment on his adjustable rate mortgage also jumped from $1,400 to $2,600. As a house painter, he earned $500 a week.

Angulo said at the time that he tried to contact his lender, Aurora Loan Services, a subsidiary of Lehman Bros. that specialized in Alt-A and interest-only loans. But the servicer wouldn’t help him, he said.

Since his eviction, his old neighborhood isn’t the only location were housing values have fallen. In November, Zillow, an online real estate service, reported that year over year housing values nationwide had declined for the 11th consecutive quarter.

In Georgetown South, since last December, the highest priced home that has been sold went for $120,000, and it most likely resulted from an investor flip, Elliott said. In Prince William County overall, the first-time homebuyer tax credit helped boost sales of bank-owned foreclosed properties – but that doesn’t mean the local housing market has recovered, he said.

“Banks are probably planning on trickling out these additional foreclosures slowly while the market continues to improve,” he said. “How big is the shadow market? Honestly, I think it’s anybody’s guess. The banks could be sitting on a whole bunch just waiting to trickle them out a few at a time.”

As neighborhoods like Georgetown South continue to absorb the effects of a collapsed housing market, NCLC’s Thompson noted that growing foreclosures are spreading damage throughout the economy, hurting neighborhood property values, and cutting into state and local tax revenues.

That’s why Julio Angulo’s story is much more than just the eviction of another former homeowner on a cold December day, a year ago.

“This isn’t just about homeowners who need help,” Thompson said. “Unless officials take forceful action on foreclosures, things will only get worse. I never thought, at this point, that foreclosures still would not be effectively addressed by the administration. If we don’t get foreclosures under control, and soon, they’re going to drag down the whole economy.”

Angulo, for his part, promised to call if he ever could make his way back to Virginia, to try again to find work, and to buy another home.

He hasn’t been heard from since he left.

This article was to include new Treasury Department loan modification figures released Thursday.

Read Mary Kane’s December 2008 article about Julio Angulo’s eviction here.

Gillam, a widow, said she has owned hair salons and baby supply stores for decades. When her baby store hit a rough patch, she borrowed $412,500 in 2005 and then refinanced with Fremont Investment & Loan for $556,000 in 2006. Before those two loans, her home had been paid for, she said.

The $556,000 is gone and so is her business, Gillam said.

“I am broke,” she said.

Gillam has no one to turn to for help, she said.

“I have no family,” she said. “All mine are dead.”

Mortgage Insider’s Matthew Padilla says he’s seeing evidence that more new foreclosures involve people who cashed out the equity from their homes, as Gillam did, and not from people who bought homes at the height of the boom.

The lender in this case, Fremont, was a major subprime firm that went out of business last year, done in by the subprime market meltdown. Fremont was the target of several state investigations into predatory lending, accused of selling high-rate loans to borrowers who couldn’t afford them.

Gillam isn’t alone in her inability to save her house. The New York Times reported that the Obama administration’s housing rescue plan hasn’t rescued all that many homeowners so far. It highlighted the case of Eileen Ulery, who called her lender, Countrywide (now Bank of America), to alter her loan after she lost her job. Countrywide tried to sell her another loan with a higher interest rate.

Ulery is 63 and lives alone in a modest, two-bedroom condo in suburban Mesa, Ariz. She used equity from her home during the boom to buy a car, a Hyundai, and fix her roof. She used to bring home $1,000 every two weeks from her job as an executive assistant at Arizona State University. But she lost the job in a round of budget cuts. She’s not late on her mortgage yet — but she’s headed there.

Ulery should be eligible for a loan modification under the Obama administration’s plan. But a Bank of America spokesman told the Times she was offered refinancing instead because the bank doesn’t yet have a system in place to offer loan modifications to borrowers who aren’t seriously delinquent.

As you go about your day today — maybe buying coffee, going for a run, rushing off to work — it’s unlikely you’ll have on your mind the nation’s housing crisis and the people who represent the statistics behind all those foreclosures.

But sometime today an 85-year-old widow in California will lose her home of 50 years in an auction at a civic center, and a 63-year-old woman in Arizona will prepare to lose hers, with nowhere to turn for help.

As Economic Principals notes, Andrews even revealed his predicament while interviewing former Federal Reserve Chairman Alan Greenspan about the crisis.

“Why did you do it?” That’s Alan Greenspan, interrupting, on the first page of Busted: Life Inside the Great Mortgage Meltdown – shocked, appalled, perplexed and finally curt – as Times reporter Edmund L. Andrews mentions, in the course of interviewing the Fed chairman in December 2007, that he thinks he’s about to lose his own family’s home to foreclosure. “I felt like a teenager who had just told his father that he had crashed the family car.”

In an excerpt to appear Sunday in The New York Times Magazine, Andrews traces the path that led to his downfall, describing but not necessarily condemning the mortgage brokers who enabled him along the way. He offers a glimpse into how the era of easy money worked, while suggesting that if this happened to him, it could have happened to anyone.

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love.

Andrews bought a house that was too expensive, given that he had hefty child support payments for his children from a previous marriage. The high mortgage, combined with his new wife’s job loss, mounting credit card bills, and an expensive refinance, caused Andrews to fall behind. JPMorgan Chase was too swamped to help with a loan modification. At the end of the excerpt Andrews hadn’t paid the mortgage in eight months and he’s waiting to be foreclosed on.

I was pretty close to buying the whole notion that this is the sort of thing that could have just happened to any of us during the boom years, until I looked a little closer at his description of living expenses at a time when he couldn’t keep up with his mortgage:

Between humongous loan balances and high rates, we had hung ourselves with the rope they gave us. In the previous December alone, we charged $2,845 on the Chase card for Christmas gifts, food, gasoline, clothing and other expenses. The charges included almost $350 for groceries, $700 in clothes from J. Crew, $179 at GapKids and $700 for airplane tickets for two of Patty’s children to visit their father in Los Angeles. Our balance climbed from $14,118 to $17,135, and in January 2006 we maxed out at our $19,000 credit limit. And there were other expenses on other cards: $1,200 in dental work for Patty’s son Ben; $1,600 to rent a beach house the previous year for us and all the children.

Ok. If you can hardly make your mortgage payment, how do you justify spending $700 at J. Crew? Isn’t the J.C. Penney outlet more appropriate when money is tight? How about consignment stores? Or if the money was for Christmas expenses, how about homemade gifts? Or just switching names? (Andrews acknowledges the beach house was an indulgence, but said his wife had just taken a job and they thought at the time they could swing it. She later lost that job.)

One assumption here is that we’re all still entitled to spend, even when the money is gone. And that the consequences we’ll face for our actions will be … what, exactly? No doubt Andrews will make some money from this compelling and very personal account of his finances, family, and marriage. He lived essentially rent-free in his comfortable suburban home for at least eight months, waiting for the foreclosure notice. Maybe profits from this book will enable him to buy a foreclosed house at a fire sale price. Maybe he’ll end up just walking away. It will all be fodder for another book.

The best you can hope for, after a crisis, is that you gain some knowledge that keeps you from making the same mistakes again. In the wake of the mortgage crisis, we’re still waiting. Banks still carry powerful lobbying clout on Capitol Hill. Financial regulatory reform isn’t a slam dunk. Soon-to-be ex-homeowners continue to sort through just how they got in the messes they’re in. We’ll have to wait for the sequel to see how all this turns out.

From American Banker:

Though the banking industry has opposed such a bill for two years, lawmakers have agreed to narrow the scope of the legislation to win industry support. So far, Citigroup Inc has indicated it would back the compromise. At a press conference this afternoon, lawmakers are expected to unveil a bill that would only apply to nontraditional loans originated before the law’s enactment date. The legislation would also require that borrowers made good-faith efforts to work with their lenders to rework their mortgages before initiating the bankruptcy process. Lenders who violated the Truth in lending Act would also waive certain priority creditor rights afforded under bankruptcy protection.

American Banker’s sources said Citigroup approached Sen. Charles Schumer, D-NY, with the possible compromise in December. The bank, the recipient of government bailout money, feared a tougher version would be enacted in a new Obama administration. Negotiations are ongoing, according to American Banker:

Citigroup’s negotiations continued this week with Sen. Richard Durbin, D-Ill., the primary Senate sponsor of the mortgage bankruptcy bill, and Senate Banking Committee Chairman Chris Dodd, who has been a vocal advocate of the legislation. “The senator has been in touch with Citi since last year and as recent as this week and is working together with Dodd and Durbin to try to make this happen,” said an aide to Sen. Schumer. It’s unclear how quickly the legislation could move — or whether other banks will sign on to the Citi deal. Sen. Schumer said in a statement he wants to attach the bill to the economic stimulus package.

Also there’s no word yet from housing advocates as to whether they’ll support the compromise. Still, considering the idea never had a chance of seeing daylight for the past eight years, any progress is better than nothing. The fact that banks and lawmakers are even tackling this also suggest how severe the foreclosure crisis has become.