The Obama administration's Making Home Affordable plan offers financial incentives but no safe harbor for servicers that voluntarily perform loan modifications – a point that could make servicers vulnerable to litigation, the Congressional Oversight Panel said in a recently published report.
The panel is required by the Emergency Economic Stabilization Act of 2008 to report on the foreclosure crisis and gauge the adequacy of current programs to address the crisis. "The Foreclosure Crisis: Working Toward a Solution" was prepared prior to March 4, when the U.S. Treasury released guidelines for the government plan.
In addition to a lack of safe harbor provisions, second mortgages were pointed to by the panel as an area where the government plan lacked sufficient attention. The guidelines provided by the Treasury indicate servicers can receive compensation for extinguishing junior liens on homes with first-lien mortgages that are modified under the program.
The Making Home Affordable plan also includes bankruptcy cramdown as a main component. Cramdown legislation was approved by the House of Representatives last week, and a companion bill is expected to be voted on soon in the Senate. Without the availability of cramdowns, however, the program's reach is limited to notes carrying loan-to-value ratios below 105%, which the panel report says "could limit the relief it provides in parts of the country that have experienced the greatest price declines."
"The foreclosure crisis seems to be getting deeper every day," says Elizabeth Warren, the panel's chair. "Despite everyone's good intentions, nothing seems to be working. The panel wanted to examine why this was the case. We looked at the causes of the crisis and the impediments to sensible foreclosure mitigation. We were able to create a road map for policy-makers to use to create successful programs to address this crisis."
The panel says its road map can be used by those who are developing programs to address foreclosure mitigation, whether they are local, state or federal policy-makers, or private groups looking to help. The panel also outlines concerns it says need to be addressed, such as those relating to pooling and servicing agreements, borrower outreach strategies and scalability.
The full report can be found at www.cop.senate.gov.
SOURCE: Congressional Oversight Panel