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THE FORECLOSURE CRISIS 

INITIATIVES TO STEM FORECLOSURES:
“PERSISTENTLY DISREGARD”
The same system that was so efficient at creating millions of mortgage loans over the
past decade has been ineffective at resolving problems in the housing market, includ-
ing the efforts of homeowners to modify their mortgages. As mortgage problems
mounted, the federal and state governments responded with financial incentives to
encourage banks to adjust interest rates, spread loan payments over longer terms, or
simply write down mortgage debts. But to date, federal auditors and independent
consumer watchdogs have given the federal government’s and the banks’ mortgage
modification programs poor grades.
The Home Affordable Modification Program (HAMP) is falling short of the  to 
million families targeted for help by the end of . (The program’s resources come
from the federal TARP funds.) As of December , HAMP has resulted in the per-
manent modification of only , mortgages. Meanwhile, the banks report that

they have independently approved . million loan alterations of various kinds, al-
though many of these modifications simply roll missed payments into a new mort-
gage and thus result in higher monthly payments. 
The effectiveness of state mortgage modification and foreclosure assistance pro-
grams is unclear. Some are just getting started. New Jersey, for instance, will begin a
 million “HomeKeeper Program” in , to offer some residents who face foreclo-
sure because of unemployment or “substantial underemployment” a deferred-payment,
no-interest loan so that they can continue making payments on their mortgages. 
During a series of hearings in communities around the country affected by the
housing crisis, the Commission heard from many witnesses about the extraordinary
difficulties they had encountered in seeking to modify their mortgages and stay in
their homes. Borrowers who have been paying down mortgages for years and have
built up substantial equity are especially susceptible to being turned down for loan
modifications, because the lender would prefer that they simply sell their homes.
Kirsten Keefe, a senior staff attorney with the Empire Justice Center in Albany, New
York, brought this issue to regulators’ attention in March . Speaking to the Fed-
eral Reserve Board’s Consumer Advisory Council in Washington, Keefe identified
trends among borrowers in New York who tried to qualify for the government’s
HAMP program. “We are also routinely hearing that folks who have a lot of equity

are . . . being denied HAMP modifications,” she said. Diane Thompson, from the
National Consumer Law Center, testified to the United States Senate Committee on
Banking, Housing, and Urban Affairs in November  about the challenges of the
program. She stated, “Only a very few of the potentially eligible borrowers have been
able to obtain permanent modifications. Advocates continue to report that borrowers
are denied improperly for HAMP . . . and that some servicers persistently disregard
HAMP applications.” 
Competing incentives may encourage banks to view foreclosure as quicker,
cleaner, and often cheaper than modifying the terms of existing mortgages. 