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Loan-modification dropouts rise

May 22nd, 2010 9:21 AM by Lehel S.

The number of homeowners dropping out of the Obama administration's main mortgage assistance plan is growing, and is now almost equal to the number who have received permanent relief.

The Treasury Department's report Monday was the latest evidence of problems in the administration's $75 billion program. While officials insist the program is helping the housing market turn around, critics say it is merely delaying an inevitable surge in foreclosures.

More than 299,000 homeowners had received permanent loan modifications as of last month, Treasury said. That's about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.

However, the number of people who started the process but failed to get their mortgages permanently modified rose dramatically in April.

To complete the program, borrowers must make at least three payments on time. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. That's up from about 155,000 a month earlier, or a 79 percent increase.

Many borrowers are still stuck in limbo, unable to complete the process and caught up in an often-bewildering bureaucracy.

"These mortgage companies have to get it together," said Henrietta Thompson, housing coordinator with United Family Services in Charlotte, N.C. "We're not getting anything done."

Treasury officials acknowledge that long delays have been a problem.

"Homeowners are waiting. We want them to get answers as rapidly as possible," said Herbert Allison, an assistant Treasury secretary.

After a one-year struggle with JPMorgan Chase & Co., Giselle Embry, 56, of Escondido, was finally able to get a loan modification through the program.

"They kept calling me and asking me to send the same things," she said. "I felt like they just wanted to run me around until I got so frustrated that I gave up."

Embry fell behind on her mortgage. An illness forced her to go on disability for six months and her hours as a career adviser were shortened because of state budget cuts. Her new loan payment is $622 a month, more than half of her initial payment.

A Chase spokeswoman declined to comment on Embry's case. She said the bank has hired 9,000 workers to handle foreclosure cases, opened 51 centers around the country where borrowers can meet with bank officials and held foreclosure prevention events around the country.

The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years.

There have been problems from the start. One of the big ones: Initially, many of the participating banks allowed borrowers to state their income verbally and provide proof of their income later. That jammed up the system as many borrowers didn't provide a complete set of documents, and some complained that their information was lost.

The mortgage companies that required homeowners to provide proof of their incomes have had a much better track record. HomEq Servicing Inc. and Ocwen Financial Corp. were able to convert more than 80 percent of their participating borrowers to permanent status, according to the Treasury Department.

By contrast, the four largest banks in the program have been far less successful. Bank of America Corp. and Wells Fargo & Co. have successfully processed about 25 percent of their applications. JPMorgan Chase and Citigroup Inc. have been able to convert 22 percent and 21 percent, respectively, of their applicants to permanent status.

Treasury officials have directed lenders to shift to a new system. Starting with loan modifications that go into effect June 1, they are required to collect two recent pay stubs at the start of the process.

Housing analysts are also watching the number of borrowers who drop out after completing the program.

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Posted by Lehel S. on May 22nd, 2010 9:21 AM

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