No rest in averting foreclosures; Director of Making Home Affordable faces challenges as the program evolves

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The Washington Post
By: Renae Merle
May 11, 2010

By the time Phyllis Caldwell signed up to lead the Treasury Department team overseeing the government's massive foreclosure-prevention effort six months ago, the federal program had reached a precarious point.

Although 650,000 homeowners had enrolled, most had been waiting for months to learn whether they would be able to keep the federal aid that slashed their mortgage payments.

As chief of the Treasury's Office of Homeownership Preservation, Caldwell immediately began to push mortgage lenders to convert the homeowners' aid into permanent loan modifications.

So began Caldwell's crash course into the largest government effort to stabilize the housing sector in a generation.

"I think the first month was a very steep learning curve on the program," she said.

Caldwell, 50, joined the Treasury team after two years as leader of the Washington Area Women's Foundation, which provides grants to groups aiding low-income and women-headed families. But most of her career has been in the financial services industry. After graduating from the University of Maryland at College Park, where she also received a master's degree in business, Caldwell worked at several banks. In addition to holding positions at Citigroup and First Chicago, now part of J.P. Morgan Chase, she spent 11 years at Bank of America, where she was president of community development banking.

Now she manages a staff of 30 that oversees the government's response to the housing crisis, known as Making Home Affordable. The office's initiatives include a program to allow underwater borrowers to refinance and one that offers grants to states testing their methods of stopping foreclosures. Its best-known program, however, is a $75 billion mortgage-relief effort that pays lenders to lower the payments of distressed borrowers. Caldwell's job also includes supervising about 470 employees and contractors at Fannie Mae, which acts as the program's administrator.

Three interim leaders held the position before Caldwell was hired in November.

"I think she inherited a mess, a challenge I wouldn't envy," said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing advocacy group. "But I do know that because of her background, she knows what the solutions need to be."

One of the chief challenges, Caldwell said, has been building the operational structure, including technology to track lenders' performance, as well as developing government and industry guidelines on how it should work.

The program has faced fierce criticism from some lawmakers and housing analysts for not doing more and doing it faster. Six months after Caldwell helped launch the drive to get more program enrollees into permanent loan modifications, more than 200,000 borrowers have finished the process. That is a small piece of the up to 4 million borrowers the Treasury has said it wants to help avoid foreclosure.

Last month, government officials outlined several program changes. For the first time, lenders will be eligible for incentive payments if they cut the mortgage balance for an underwater homeowner, or someone who owes more than his or her home is worth. Caldwell said she also pressed for lenders to stop sending borrowers foreclosure notices once they had entered the mortgage relief program, even if they had yet to receive a permanent loan modification. Housing advocates have complained that borrowers were often left confused and distressed by the notices. But all of the changes are not expected to be in place until September or October. In the meantime, the program remains under fire.

Last week, Treasury Secretary Timothy F. Geithner told a Senate subcommittee that lenders that do not fulfill their obligations under the program risk losing their taxpayer-funded program payments.

In many cases, Caldwell holds those thorny talks.

"I certainly had to have a number of difficult conversations with [mortgage] servicers who may not understand why they need to do everything they need to do for this program," she said. "If servicers are going to get taxpayer dollars for modifying these loans, they have to modify them the right way."

The foreclosure prevention program will probably continue to evolve, she said. A large population of seriously delinquent borrowers will not be eligible for federal mortgage relief, Caldwell said. Many of those homeowners eventually will face the loss of their house. To avoid foreclosure, they will have to consider other options such as a short sale, or when a borrower sells their home for less than they owe -- with their lender's permission.

The number of short sales approved by lenders has started to increase. The deals completed, however, largely reflect borrowers who already wanted to sell their home, perhaps because they needed to move for a new job, Caldwell said. "Psychologically, those are homeowners who have made the decision not to stay in their house," she said.

"I think there is a very different mental process for the homeowner who wants to stay in that house" but does not qualify for a loan modification, Caldwell said.

"That process of shifting from [loan] modification as foreclosure alternative, to foreclosure alternatives that involve transition from the home to another living situation, I think that is going to be very challenging," she said. "It's a correction that is needed in the market, but it's going to be a very painful part of the industry."

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