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Foreclosures Still Dragging Down Housing, Economy

Chris Arnold

Debra Dahlmer has been trying to get a loan modification through Bank of America for more than a year. She’s legally blind in one eye and can barely see with the other. (Chris Arnold/NPR)

The housing market has remained at the center of the nation's
economic troubles throughout 2010. The housing market started the year
flat on its back, and it's ending the year in nearly the same condition.

sales are still depressed, home-building remains near a 50-year low,
and home prices are still about 30 percent below their peak.

of the problem this year has clearly been high unemployment. But the
ongoing foreclosure crisis also keeps glutting the market with unsold
homes. Meanwhile, the government's efforts to prevent foreclosures over
the past year were a pretty big disappointment to many people.

A Homeowner's Struggle With The Foreclosure Prevention Program

Dahlmer, 55, has lived in her home in Gloucester, Mass., for most of
her life. Over the years, most of the family has worked at the nearby
Gorton's frozen fish processing plant.

back in 2008, Dahlmer's husband passed away. She never missed a mortgage
payment. But she could see she was running out of money and would soon
fall behind.

"I just found when the life insurance was gone, and with the medical expenses, I just couldn't do it," Dahlmer says.

is a diabetic and is legally blind in one eye. Dahlmer also has such
limited sight in the other eye that she has to read with a magnifying
glass pressed tight against her face.

The prospect of losing her home was scary, especially since her 80-year-old mother lives downstairs.

"Where would my mom go?" Dahlmer says. "Where would I go?" She worried about being on the street.

Dahlmer has guaranteed income because she's on disability, and she has a
tenant living in part of the house. With the rental income, and the
outstanding balance of the mortgage on the house, she appears to be a
perfect candidate for President Obama's foreclosure prevention program,
called the Home Affordable Modification Program (HAMP).

HAMP was supposed to help up to 4 million Americans keep their homes. But it's only assisted a small fraction of that number.

situation offers a case study in the program's failures. Despite her
efforts over the past year, she hasn't been able to obtain a permanent
fix — in the form of a more affordable mortgage payment — approved
through the program.

She's been working through her lender, Bank of America. But that has turned into a paperwork nightmare.

"I thought a big business was supposed to know what they’re doing," Dahlmer says.

A Frustrating Pattern: Banks Losing Documents

many other homeowners, Dahlmer says she's been tearing her hair out
faxing in proof of income and tax documents, only to have the bank lose

her that's especially hard because of her vision problems. Still, she
takes notes about the process in huge print with a black magic marker.

the past year, she's repeatedly asked call center workers what's going
on. She says they tell her, " 'I'm sorry, but you haven’t sent in the
documentation.' "

Dahlmer says she has sent
in all the documentation. But it gets lost again in a never-ending
cycle. The bank then asks for something they never asked for before.

"It just goes on and on," she says.

Dahlmer says she's been getting all kinds of foreclosure-related junk mail, and that's getting her very nervous again.

NPR contacted Bank of America, the bank says they're looking into
Dahlmer's case and hope to resolve it within a few weeks.

Sharp Criticism From A Government Oversight Panel

congressional oversight panel this year has been harshly critical of
the Treasury Department for failing to enforce the agreements the major
banks made to take part in the administration's HAMP program.

All of the major banks have been having similar problems
— losing documents and rejecting homeowners who appear to qualify for
unknown reasons. Hundreds of thousands of homeowners are now falling out
of the federal program.

"The foreclosure
modification effort has been a real mess," says Mark Zandi, the chief
economist of Moody's Analytics. With millions of people facing
foreclosure, he acknowledges that it's been a very difficult challenge
for the banks. But, he says, "even considering that, it just hasn't gone

A Housing Bottom In 2011

all these problems, Zandi thinks housing is finally approaching a
turning point. He expects the market to bottom out in 2011.

been a five-year road south, and it's been a complete cratering of the
market," he says. "But I think 2011 marks the end of that crash."

says there are some more housing price declines ahead, as all these
foreclosures continue to glut the market with millions of homes at
fire-sale prices.

But by next summer, he expects prices to start stabilizing, with some price growth in 2012.

Access To Credit, Fannie And Freddie's Future

big issue for the housing market this year was access to credit.
Interest rates have been very low by historical standards. But many
people can't qualify for those low rates.

"This is one of the variables that we have to correct," says Brian Chappelle, a mortgage consultant with Potomac Partners.

thinks the pendulum has swung too far and lenders are being too
tightfisted. One problem, he says, is that Fannie Mae and Freddie Mac,
the government-backed mortgage giants, have been in a wrestling match
with lenders of all sizes — forcing them to buy back loans that have
gone bad.

Some of this wrangling is good for
taxpayers because it saves them money. But Chappelle says it's got the
banks nervous and less willing to make new loans.

In 2011, Congress will debate what to do with Fannie
and Freddie. Right now, the government is using them to prop up the
housing market. But all sides want to see a major overhaul of the
government's role in housing.

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