Obama administration pushes to make mortgage modifications permanent
The Obama administration today announced a renewed push to get mortgage companies to convert hundreds of thousands of temporarily restructured home loans into permanent ones by the end of the year to help keep struggling homeowners from falling into foreclosure.
As part of its aggressive action, the administration is summoning executives from the nation’s top mortgage servicers to Washington next week to prod them to speed up their efforts.
It also is sending what administration officials described as three-person “SWAT teams” to the offices of those firms to help them obtain the necessary documents from borrowers and trouble-shoot problems.
“In our judgment, servicers to date have not done a good enough job in bringing people a permanent modification solution,” Assistant Treasury Secretary Michael Barr said.
The administration is hoping to embarrass mortgage servicing companies into doing more to make trial modifications permanent by highlighting those that are not performing well. But it also could levy penalties or other sanctions against laggards based on the agreements they signed to participate in the program.
“Servicers that don’t meet their obligations under the program are going to suffer the consequences,” Barr warned.
The moves come amid complaints of bureaucratic nightmares from people who have received the short-term reductions in their payments but have been unable to get their servicer to make the changes permanent. The mortgages have been altered under the administration’s $75-billion Home Affordable Modification Program, which uses financial incentives to get banks and other mortgage holders to reduce the payments for homeowners who meet certain qualifications.
The program has temporarily modified more than 650,000 mortgages as of Oct. 30, with an average monthly payment reduction of $576. But few of those three-month trials are estimated to have been made permanent. As of Sept. 1, only 1,711 trial modifications had become permanent, according to the oversight panel monitoring the $700-billion Troubled Asset Relief Program. TARP money is used to fund the program.
The Treasury Department, for the first time, will release its own numbers next week. But Barr said the number was “low.”
About 375,000 of the trial modifications are eligible to be made permanent by the end of the year. About a third of the homeowners with those temporary reductions have submitted the needed documents, including current income statements, so servicers can decide on permanent modifications, said Phyllis Caldwell, head of the Treasury Department’s Homeownership Preservation Office.
“These homeowners, who took the time and effort to complete documentation, deserve a decision by their servicer,” she said.
The administration’s new plan focuses on increasing accountability by mortgage servicers. The leading mortgage servicers will be required to submit a schedule of their plans to reach a final decision on each loan for which they have the proper documentation and to send the borrower a permanent modification agreement or denial letter.
Many people in the program have complained of a bureaucratic runaround and inability to get a straight answer on their status from their mortgage holder.
Special account liaisons from the Treasury Department and Fannie Mae will be assigned to the eight largest servicers and monitor the progress as frequently as daily. The administration will require those companies to submit twice-daily updates throughout December on their progress. Mortgage servicers that fail to meet standards they agreed to as part of the program “will be subject to consequences, which could include monetary penalties and sanctions,” administration officials said.
The administration also is providing new information for homeowners on its website, www.makinghomeaffordable.gov, including links to lists of documents and a new instructional video, to help them get their trial modification made permanent.