The US Treasury is planning to announce a new program Monday intended to place pressure on uncooperative mortgage lenders to offer more loan modifications for struggling homeowners. The name of the new mortgage strategy to stem the foreclosure crisis by the White House will be called “name-and-shame.”
For over year, the Obama administration’s Making Home Affordable $75 billion loan modification plan has been in place, but many claim that mortgage servicers are not adhering to the foreclosure prevention program. The program’s goal is to help up to 4 million delinquent homeowners avoid foreclosure.
Approximately 650,000 people have been offered loan modifications or had had their mortgage payments temporarily lowered, but only a few have received permanent modifications.
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The problems mount
Under the president’s plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.
Borrowers that qualify for a long-term modifications can keep making the lower payments for five years. At that point, the interest rate will be set at the rate at the time of the adjustment, or about 5% today.
Loan servicers, however, say they are having trouble getting the necessary documents from borrowers, while homeowners maintain that their financial institutions are repeatedly losing the paperwork.
And once homeowners send in their forms, servicers may find these borrowers don’t have enough income or have too much equity or savings to qualify. Or it may just be more profitable for the bank to foreclose on the home than modify the mortgage.
The New York Times in its Sunday edition quoted Michael Barr, the Treasury Department’s assistant secretary for financial institutions, as expressing dissatisfaction with lenders over the slow pace at which they are amending loan agreements to help borrowers make their monthly payments.
“The banks are not doing a good enough job,” the Times quoted Barr saying in a Friday interview. “Some of the firms ought to be embarrassed, and they will be.”
Treasury spokeswoman Meg Reilly said on Saturday the department was “taking additional steps to enhance (mortgage) servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications.”
That could include new resources for borrowers, Reilly said without offering details. The department will announce new measures on Monday, Reilly added.
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