Permanent home-loan modifications under Obama program jump 30% in April

The Obama administration said Monday that its program to prevent foreclosures gained ground in April as more homeowners won permanently reduced monthly payments. But in a new sign of trouble, nearly a quarter of temporary reductions offered since last year have been canceled.

The number of permanently modified mortgages jumped about 30% in April. The 295,348 permanent modifications amount to about a quarter of the 1.2 million trial modifications started under the program, which began last spring.

During the trial period, banks and mortgage servicers reduce a homeowner’s monthly payment for 90 days, with a median reduction of about $500. If the homeowner makes the payments and submits additional paperwork, the servicer makes the modification permanent and becomes eligible for cash incentives from the government.

The Los Angeles-Orange County area now accounts for the most active trial and permanent modifications under the Obama administration’s Home Affordable Modification Program, with 57,758, or 6.2% of the total, nudging past the New York City area. The Inland Empire is fourth, with 45,269 modifications.

But the new Treasury Department data show that servicers also canceled a total of 277,640 trial modifications through April. That was up sharply from the 155,173 modifications that had been canceled through March.

In addition, 3,744 permanent modifications have been canceled, including 81 that ended because the loans were paid off.

All together, the cancellations account for 23% of modifications started under the program.

The cancellations largely were caused by many servicers’ granting temporary modifications without verifying the homeowners’ income, Treasury officials said. Starting June 1, the program will require all modifications be made based on verified income statements.

“We expect a much lower rate of cancellations going forward as the percentage of verified income modification increases,” said Herbert Allison, assistant Treasury secretary for financial stability.

The $75-billion program has been criticized for moving too slowly to reach its goal of lowering payments for 3 million to 4 million people by the end of 2012.

In December, the Obama administration began pushing mortgage servicers to move more quickly to convert eligible trial modifications to permanent ones.

Since then, the number of permanent modifications has nearly tripled. Large servicers such as Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., which had been lagging behind smaller firms, have improved their performance.

Those large companies account for more than half of the active trial and permanent modifications. Still, they have turned only about 25% of their temporary modifications into permanent ones, compared with 50% or higher for some other lenders, such as GMAC and U.S. Bancorp.

Many homeowners and housing advocates have complained about bureaucratic runarounds by mortgage servicers in trying to get their mortgages modified. Treasury officials said they planned to collect new data about the performance of companies and release the figures beginning in July.

“The number of homeowners receiving significant relief through a mortgage modification continues to rise,” said Phyllis Caldwell, head of the Treasury’s Homeownership Preservation Office. “Our focus now is on improving the homeowner experience and holding servicers accountable for their performance.”

The new data will focus on the eight largest mortgage servicers. The figures will include the average time from the start of a trial modification to a permanent modification, how long it takes servicers to answer phone calls from homeowners and the time it takes them to respond to homeowner problems reported by housing counselors, attorneys and other third parties.

jim.puzzanghera@latimes.com