The Obama administration’s Home Affordable Modification Program was originally conceived to help a projected 3 million to 4 million homeowners modify the terms of their mortgages so they might avoid foreclosure and hold on to their homes in tough economic times.

HAMP gives mortgage servicers $1,000 incentive payments to provide eligible homeowners with a five-year mortgage loan modification, called a permanent modification, after a three-month trial loan modification.

The program has underperformed generally, enrolling only a fraction of the homeowners it was designed to handle and offering permanent loan modifications to only a small percentage of those.

But at Bank of America, the level of underperformance has been particularly woeful.

The bank, says Alan White, a Valparaiso University Law School professor, has “mastered the art of false hopes.”

“[Bank of America] has converted only 26 percent of trial modifications to permanent ones, while servicers as a whole have achieved a rate of over 50 percent,” White noted.

Meanwhile, more than half of the bank’s trial loan modifications are over six months old, “despite the fact that they are supposed to convert to permanent or be cancelled after three months,” he continued.

And even though home loan servicers are offering their own mortgage modifications to homeowners who either failed to qualify for HAMP or had their trial HAMP modifications cancelled, “Bank of America seems to be stubbornly refusing to go along with the program,” White said.

Overall, among the pool of delinquent home loans being administrated by the nation’s eight largest home mortgage servicers, 44.5 percent of homeowners whose trial HAMP mortgage modifications were cancelled ended up receiving alternative modifications from the servicers. At Bank of America, on the other hand, customers in the same situation received alternative loan modifications just 24 percent of the time.

For homeowners who were denied trial HAMP mortgage modifications from the start, the eight largest servicers, collectively, offered their own alternative modifications to 31.3 percent of those homeowners. At Bank of America, that number was only 11 percent.

A $2 billion lifeline from the Treasury Department, to come out resources from the $700 billion Wall Street bailout, will go toward the existing Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (the Hardest Hit Fund). The Department of Housing and Urban Development is putting forward an additional $1 billion in homeowner assistance through its newly created Emergency Homeowners Loan Program (“Jobless Homeowners to Get $3 Billion in Aid,” Chicago Tribune, Aug. 11, 2010).

Hardest Hit Fund

The Hardest Hit Fund, which was created by the Obama administration in February, initially provided $1.5 billion in aid to help the five states with the highest unemployment rates and largest declines in home values obtain federal aid and provide services such as mortgage payment subsidies and mortgage loan modifications. The fund was expanded in March with $600 million in aid for five more states.

Now, for the program’s second expansion, an additional $2 billion will be provided to assist 17 more states — Alabama, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee — along with the District of Columbia.

Emergency Homeowners Loan Program

The new HUD program, the Emergency Homeowners Loan Program, will get $1 billion to provide interest-free emergency “bridge loans” to struggling homeowners who are at risk of foreclosure due to involuntary unemployment, underemployment, or a medical condition. These loans will provide distressed homeowners with as much as $50,000 a year for up to two years.

To be eligible for the Emergency Homeowners Loan Program, homeowners must be at least three months delinquent on their mortgage payments — but considered likely to be able to resume repaying their mortgage within two years — and must show a good repayment record prior to the event that resulted in their reduced income. The bridge loans can be used to help pay mortgage principal, interest, mortgage insurance, taxes, and hazard insurance.

HUD will announce program specifics and additional details when the loan program is officially launched in the coming weeks.

Critics Question Effectiveness of Mortgage Debt Relief Initiatives

These two mortgage relief programs “will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the administration’s efforts to stabilize housing markets and communities across the country,” Bill Apgar, HUD senior adviser for mortgage finance, said in a statement.

Critics of the aid package, however, are not convinced.

Given the grim housing forecast, “it’s a drop in the bucket,” said Campbell Harvey, a professor of international business at Duke University.

“It will certainly help the people that actually get the loan. But in terms of the overall situation, it’s so small that it’s not going to have an economy-wide impact, and that’s the sort of thing people are looking for,” Harvey said.

The modifications, completed between December 2008 and March 2009, were part of an agreement with state attorneys general in California and Florida, among other states, over charges of predatory lending against Countrywide Financial Corp., which Bank of America acquired in July of last year.

The charges against Countrywide came in October after Bank of America had already taken over the country’s formerly largest home lender, resulting in a settlement that could ultimately end up saving almost 400,000 homeowners as much as $8.4 billion.

The settlement targeted subprime loans — typically offered to homeowners with the weakest credit — and adjustable rate mortgages, which allowed homeowners to make interest-only payments and defer payments on their loan’s principal balance.

Investors, who own 88 percent of the loans that may be eligible for modification under the settlement and who are wary of huge potential losses that may result from these mortgage modifications, are suing Bank of America in U.S. District Court in New York over who should pay for the modifications.

In Arizona, foreclosure-rescue scams have skyrocketed 30 percent in the past few months, Arizona Attorney General Terry Goddard revealed at a recent meeting of the Arizona Foreclosure Prevention Task Force (“Foreclosure Scams on the Rise,” The Arizona Republic, May 20, 2009).

“Firms are contacting homeowners on the verge of foreclosure, offering help and instead taking the money the homeowner has,” Goddard said. “We have a real obligation to find these people and prosecute them.”

New foreclosure-rescue scams have arisen under the federal government’s mortgage loan modification plan that began in March, in which lenders work with homeowners who are at risk of losing their homes to reduce the interest rate or principal on a mortgage in an effort to help these homeowners avoid foreclosure. The federal program was recently expanded to assist homeowners who previously didn’t qualify for mortgage loan modifications due to the fact that they owed more on their home than what the home was worth.

Just-released data shows that mortgage companies have made more than 55,000 offers to modify mortgage loans since the government mortgage modification program’s March inception date, according to The Arizona Republic. Currently, 14 companies, which service 3 out of every 4 of all U.S. mortgages, have signed up to do mortgage modifications under the new government plan.

According to foreclosure data service RealtyTrac, more than 324,000 homeowners received at least one foreclosure-related notice in April. One in every 374 U.S. housing units received such a notice last month, the highest monthly foreclosure rate since RealtyTrac began collecting data in 2005.

“We’ve never seen two consecutive months like this,” said Rick Sharga, senior vice president for marketing at RealtyTrac. “It’s the volume that’s surprising.”

Nevada, Florida, and California posted the highest rates of foreclosure of all states, with Arizona, Idaho, Utah, Georgia, Illinois, Colorado, and Ohio rounding out the other top 10 states in the nation. In Nevada, one in 68 homeowners received a foreclosure filing, compared to 1 in 135 in Florida, and one in 138 in California, RealtyTrac data showed.

Although the number of homes repossessed by banks was down by about 11 percent since March, RealtyTrac cautions that what seems to be good news may not be as positive as it appears. The decline in home repossessions is likely the result of widespread mortgage moratoriums implemented earlier this year, in which banks suspended foreclosure proceedings as they waited for the launch of the government’s new Making Home Affordable plan in April.

Now that many of those moratoriums have been lifted, experts project that home repossessions may soon go back to their previous levels.

Whether Obama’s housing plan will actually help the projected 9 million homeowners seeking debt relief through mortgage modifications or refinancing remains unclear, as initial reports by homeowners indicate that lenders have been extremely slow or unresponsive to homeowners’ attempts to take advantage of the government programs.

Homeowners on the brink of foreclosure fear that the government’s housing plan may not do enough to help them keep their homes and stem the tide of foreclosures.

The legislation, which passed the state House last week by a narrow 53–42 margin and now faces Senate approval, requires landlords to give renters written notice of foreclosure within 60 days of when the court notifies the property owner of default.

If a foreclosed house has been sold, the bill specifies, the new owner or landlord must honor a tenant’s lease, which will automatically be converted to a month-by-month lease arrangement. The legislation also stipulates that landlords must give tenants a 21-day notice after a sheriff’s sale of a foreclosed property.

Republican Rep. Shannon Jones, who voted against the bill, said there was “much to like about the legislation,” but was worried that it would discourage investors from purchasing foreclosed properties since the bill would force investors to take on the previous owner’s tenant.

The bill’s chief co-sponsor, Democratic Rep. Ted Celeste, on the other hand, thinks the new legislation is a good idea, considering a third of the foreclosures in the state are on rental properties, according to the Coalition on Homelessness and Housing in Ohio (“Collateral Damage: Renters in the Foreclosure Crisis,” June 2008).

Celeste said, “Tenants who play by the rules … should never be penalized because of their landlord’s foreclosure.”

“I faxed my loan-modification application six times to the two banks and everybody keeps saying, ‘We didn’t get your application yet, we didn’t get your application yet,’” says Dorothea Wang, a California homeowner who hasn’t been able to pay her mortgage since January and is about to default on her home loan with Wells Fargo. Wang says she’s called and left several messages with the bank, but nobody ever returns her calls.

“Unfortunately, that’s a true story and I hear it all the time,” says Yolandra McClinton, a Los Angeles Neighborhood Housing Services counselor. McClinton says this has been typical of mortgage holders since they‘ve become overwhelmed with the large number of homeowners attempting to get their loan modified through government programs.

Wells Fargo just received its $3 billion subsidy from the government to help struggling homeowners like Wang, but according to Ed Delgado, senior vice president of default and retention operations at Wells Fargo Home Loans, his company has been busy getting up to speed with the new program.

It takes time to roll out the “decisioning” software that helps lenders determine if homeowners qualify under the new program, Delgado says. Lenders use the software, in part, to determine if homeowners actually live in their home and if they spend more than 31 percent of their gross monthly income on their mortgage payment.

Those customers who meet the eligibility requirements, Delgado explains, would typically have the interest rate on their mortgage reduced for at least five years under the government’s plan.

Many industry insiders including Lori Gay, president of the Los Angeles Neighborhood Housing Services, believe that lenders are just too busy dealing with foreclosures and don’t have the time to help homeowners with mortgage modifications.

“Are they ready to make this a massive program yet, or do they need three months to get their systems in place?” Gay asks. “This is where people get lost in the cracks.”

In March, the Obama administration announced a plan to help homeowners avoid foreclosure that would provide billions of dollars in incentives to lenders for modifying home loans.

As part of that plan, government–owned lenders Fannie Mae and Freddie Mac, the two largest mortgage holders in the nation, unveiled a flexible refinancing program that would assist homeowners in obtaining a lower interest rate on their mortgage and mortgage payments homeowners could afford.

South Carolina’s temporary mortgage suspension plan comes as a result of a request from Fannie Mae’s attorney, Ronald Scott, who argued that a temporary suspension of foreclosure sales was necessary to ensure that homeowners who qualify for the federal programs wouldn’t lose their homes before being able to take advantage of the program.

Under the court’s ruling, South Carolina judges will be prevented from finalizing foreclosure sales statewide on properties with mortgages held by Freddie Mac, Fannie Mae, or any other lender that is participating in a federal housing assistance program.

Mortgage experts say that the ruling may be the nation’s first court-ordered foreclosure stop for an entire state.

Freddie Mac spokesman Brad German said that this ruling, issued by a court that has statewide jurisdiction, is the first he’s heard of in the country. He said, “We’re not aware of anything like this, anywhere else.”

Foreclosure Solutions, a Cincinnati-based foreclosure rescue company, solicited Ohio homeowners using direct mail marketing and promised homeowners the company could help save their homes, according to the judgment. Despite charging homeowners fees ranging from $750 to $1,300, Cordray says the company failed to provide any of the promised services, resulting in many Ohio residents losing their homes.

Cordray’s office has ordered Foreclosure Solutions to close down its operations and has forced owner Timothy Buckley to pay $225,000 in civil penalties and $79,565 in restitution for taking advantage of Ohio homeowners who were facing foreclosure.

“This is a textbook example of how these predators operate,” Cordray said. “They identify people who are in a vulnerable situation, persuade and manipulate them, and then take their money and run. It’s predatory and atrocious. We will not stand for it.”

The attorney general has also targeted 10 other companies suspected of running illegal foreclosure rescue operations in Ohio, the first part of a widespread investigation by the attorney general’s office into foreclosure rescue scams in the state.

Cordray’s office has issued 10 cease and desist orders requiring businesses to halt all predatory practices immediately. The Ohio attorney general has also subpoenaed those same organizations to produce documentation substantiating their current business practices.

“This is a strong, preventative measure to keep foreclosure rescue scammers out of Ohio,” Cordray said. “It is a warning shot announcing that we have no tolerance for these predatory practices in our state.”

“As foreclosures menace more and more hardworking homeowners, they become more desperate for help,” said Senate Majority Leader Harry Reid, D-Nev. “Unfortunately, schemers, swindlers, and scam artists are all too happy to pounce.”

To protect homeowners from such scams, the proposed legislation would allow the government to hire 160 special FBI agents dedicated to investigating mortgage fraud, along with 200 support staff. According to current data, despite the doubling of caseloads in the last three years, the FBI has fewer than 250 special agents devoted to financial fraud cases.

Under the proposal, the Justice Department would also be allowed to hire an additional 200 prosecutors and civil enforcement attorneys as well as 100 support staff.

Although the bill — sponsored by Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa — may end up costing more than $265 million a year for the next two years, supporters, including President Obama, say that the legislation would more than pay for itself, reports The Associated Press. Regulators anticipate that the large number of fines and penalties that would result from more aggressive government investigations would subsidize the new legislation.

If approved, the measure would go into effect beginning Oct. 1, 2009, and would cover the 2010 and 2011 budget years.