Our Real Estate Blog

White House to make changes to mortgage modification program

March 25th, 2010 7:03 PM by Lehel S.

White House to make changes to mortgage modification program

The initiative, which has been criticized, will be altered beginning June 1 to make loan servicers more proactive about helping homeowners facing foreclosure and to speed up the entire process.

Reporting from Washington - The Obama administration on Thursday announced changes to its controversial initiative to ease home foreclosures, expanding public outreach and eligibility in response to sharp criticism that the $75-billion program had been ineffective.

Among the changes to take effect June 1 is a requirement that companies servicing mortgages must prescreen every borrower who has missed two or more payments to determine whether he or she is eligible for the Home Affordable Modification Program. If so, the servicer "must proactively solicit those borrowers" to participate. Those companies also are required to make quicker decisions about eligibility and speedily process documents.

And the program is being expanded to include borrowers who have filed for bankruptcy protection.

Assistant Treasury Secretary Herbert M. Allison Jr. announced the changes at a hearing about the program by the House Oversight and Government Reform Committee. Lawmakers from both parties have been critical of the program's effect on home foreclosures.

The program was launched last spring and offered cash incentives to banks and other companies servicing mortgages to reduce monthly payments for borrowers in an attempt to keep them in their homes. The goal was to modify 3 million to 4 million modifications through 2012.

But the program got off to a slow start, and as of the end of February, just 168,708 mortgages had been permanently modified. More than 1 million three-month trial modifications have been started, but conversion to permanently reduced payments has been difficult amid complaints from homeowners of bureaucratic runarounds and delays by servicers.

"We continue to hear numerous reports of borrowers who want to participate in HAMP, but just don't know where to begin," said Rep. Edolphus Towns (D-N.Y.), the committee chairman. "If they do begin, they often encounter unresponsive lenders, repeated incidents of lost paperwork and a variety of other administrative frustrations."

Towns said the number of permanent modifications "appears to be extremely low."

Rep. Darrell Issa (R-Vista) was more blunt. He said the program had been a failure and actually had increased the pain for some homeowners who had been given the false impression that their mortgage payments could be permanently lowered.

"People are making payments in hopes that it would lead to a solution, when it appears as though a great many of them should be looking for more affordable alternate housing," Issa said.

Rep. Jim Jordan (R- Ohio) blasted the Obama administration for constant "technocratic tinkering" with the program and attempts to disguise the program's failures. Those points were echoed by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, which is providing most of the funding for the program. In a report released this week, Barosfky's office slammed the mortgage modification program as poorly planned and ineffective. The goal of permanently modifying 3 million to 4 million mortgages would not be met, he said.

In prepared testimony, Allison defended the program while noting that changes were still being made to make it more effective.

"The administration has made substantial progress in implementation and has seen initial signs of housing stability, but a number of critical challenges remain," he said.

Allison said the program was on track to have at least trial modifications offered to 3 million to 4 million people by the end of 2012. But Barofsky and others said the administration was changing the goal of the program to make it seem more effective.

Posted in:General
Posted by Lehel S. on March 25th, 2010 7:03 PM

Archives:

Categories:

My Favorite Blogs:

Sites That Link to This Blog: