The failures of the current voluntary, case-by-case approach to loan modifications are highlighted in a joint policy paper released today by the Center for Responsible Lending and PICO National Network.

In the paper, entitled "Common-Sense Solutions for Saving Homes & Communities," the two nonprofit groups call for a different approach, one that is comprehensive and could prevent as many as three million of the foreclosures expected in the next several years. The need for this approach comes as both Democratic and Republican members of Congress increasingly agree on the need to help struggling homeowners and as the new White House prepares to announce its foreclosure prevention plan next week.

In addition to policy recommendations, the paper also includes stories of families in California, Florida, and Missouri, struggling to save their homes. 

With approximately 40,000 foreclosures every week ravaging communities across the country and continuing to undermine family wealth and the economy, CRL and PICO have documented the specific flaws in current loan modification programs and are calling for a new approach to keep families in their homes:

The paper's key points include:

• That most current loan modifications have been too little too late to substantially decrease the number of foreclosures. They oftentimes lead to short-term workouts that fail because they have not substantially cut a borrower's monthly payments;
• That multiple marketplace obstacles can be overcome with a streamlined system that addresses investor concerns; deals with  second liens; creates incentives for servicer to modify loans rather than foreclose on houses, and bolsters the limited staff and technology servicers now have;
• That the federal government should require all banks receiving taxpayer money under the TARP to adopt the FDIC's loan modification model, which has been used successfully at  IndyMac Federal Bank.

"Unless we remove the obstacles to large-scale loan modifications, 8.1 million American families will lose their homes over the next four years," said Eric Stein, Senior Vice President at the Center for Responsible Lending.  "And, if lenders will not or cannot modify loans, as a backstop Congress should empower homeowners to seek loan modifications through the court system."

"Our congregations have been flooded by people looking for help to stay in their homes," said Fr. Ernie Davis, a pastor with PICO from Kansas City, Missouri, who has been working over the past year to help families avoid foreclosure. "It's in the interest of everyone for people to not walk away.  But the banks don't seem to get it."

The Center for Responsible Lending and PICO call on the Obama Administration and Congress to embrace the policies necessary to avoid preventable foreclosures quickly enough and in the numbers needed to make a difference to communities and to the economy, including:

• Changing rules so the government can purchase whole loans out of mortgage-backed securities and change other terms of these contracts that now impede reasonable modifications;
• Ensuring mortgage modifications don't come with income tax burdens that effectively make the loan unaffordable and therefore likely to fall into default again. 
• Lifting the ban on judicial loan modifications, which would prevent hundreds of thousands of foreclosures with no cost to the taxpayer.

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The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions. For more information, please visit: www.responsiblelending.org.

PICO National Network is a network of 53 faith-based organizations and more than 1,000 religious congregations representing more than 1 million families working to revitalize low and moderate-income communities in 150 cities and towns in the United States.  PICO has been working in communities hard-hit by the foreclosure crisis to help homeowners get the help they need to stay in their homes, and to develop local, state and federal strategies to reduce foreclosures.  For more information please visit: www.piconetwork.org