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Real-Time Advice: The government's five mortgage relief programs set out to help 13.4 million homeowners. They actually helped 1.9 million.
US - In the next few months lenders will take new steps to help one million struggling homeowners pay their mortgages. But experts say if recent history is any guide, relief won't make it to that many doorsteps.
Over the past few years, the federal government's major mortgage relief programs helped just a fraction of the homeowners they initially set out to reach. The so-called Home Affordable Modification Program and the Home Affordable Refinance Program, both introduced in 2009, have so far assisted just 20% of the homeowners government officials projected. Other programs shuttered altogether after not gathering enough borrower or lender participation. In fact, the U.S. government's five major programs, which were projected to assist 13.4 million homeowners, only reached 1.9 million.
This week, the government filed the settlements it reached in its $25 billion agreement with banks over alleged foreclosure abuses. The five banks involved -- Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo -- will spend much of that money providing aid to homeowners by reducing mortgage principal, refinancing more mortgages and making payments to those they foreclosed on.
But while the settlement is legally binding, some housing experts predict the efforts may not have the impact government officials expect. For one, borrowers who owe more on their home than it's worth stand to receive a principal reduction of about $20,000 on average -- although those same borrowers are underwater by $51,000 on average, according to CoreLogic. And those who were foreclosed on between 2008 and 2011 stand to receive a meager $1,500 to $2,000. "Potential participants should temper their expectations," says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.
For their part, the lenders say they're committed to helping as many homeowners as possible. (Bank of America says it will even extend benefits to its customers that go beyond the requirements laid out in the settlement).
So far, big government mortgage programs haven't delivered nearly as much relief as they expected for homeowners. In each instance, a much smaller number of homeowners received the help than what was projected. To understand why homeowner assistance so often falls short, here's a look at what experts say went wrong with five of the major government relief efforts.