Why anti-foreclosure programs fail – Part 1

President Obama’s anti-foreclosure program is off to a better start than either of President Bush’s completely failed efforts.

But that’s not saying much. Only about 100,000 homeowners have been offered mortgage modifications through “Making Home Affordable” since the program began this spring.

At that rate, it will never reach its stated goal of saving 4 million homes from foreclosure.

It’s also becoming quite clear why none of these heavily-hyped government programs seem to work — and the blame can be squarely laid on the banks and mortgage servicing companies.

The first reason is that lenders have never increased their loss mitigation staffs to anywhere near the size needed to deal with the crisis they created with all of their reckless loans.

After seeing story after story about how hard it is to get anyone on the phone, how borrowers are passed from loan specialist to loan specialist and asked to submit the same paperwork time and time again, I think we get the picture.

“This process has been extremely frustrating, with a lack of returned calls from BofA, and me having to contact different loan officers,” Jose Rivera of Manchester, Conn., recently told CNNMoney.com. “As a taxpayer whose taxes have been used to assist these large financial institutions, it is extremely frustrating, disappointing and discouraging to receive such a lack of assistance and poor customer service from these banks.”

The banks and mortgage servicing companies were more than willing to hire the thousands of employees it took to sell the mortgages that created the housing bubble because they made money off of that.

But it costs money to hire the thousands of employees it will take to fix those mortgages and they aren’t going to do it.

Charles Scharf, who runs J.P. Morgan’s consumer banking operation, acknowledged that customers are frustrated with all of the delays in an interview published in Wednesday’s Wall Street Journal.

“It is taking us longer than we want it to take,” Scharf said, “but we will do everything we can to build up our resources.”

Excuse me? This crisis didn’t start last week. It started two years ago. If you were serious about hiring the staff needed to deal with it, you would have done so by now.

The banks simply figure that if they drag their heels long enough, all of the homeowners that need help will default, fall into foreclosure and the problem will go away.

I’ll cover the second reason these programs are failing in my next post.