LevonP
12-01-2009, 04:28 PM
In horse racing, it's called showing the horse the stick, and the U.S. Department of Treasury gave the nation's largest mortgage companies a long look at it Monday.
Now, it will have to see how they respond.
Concerned that mortgage firms were moving too slowly to get struggling homeowners into affordable permanent loans, the Obama administration announced a series of immediate steps, sending so-called SWAT teams into lenders' offices; promising twice-daily progress reports and threatening financial sanctions and public shame if results don't improve.
Assistant Treasury Secretary Michael Barr said the banks simply have "not done a good enough job" in moving people to permanent loans.
What has happened so far
Overall, the administration considers its Making Home Affordable program -- announced last February -- a success, at least so far. With financial incentives for companies that service loans and collect payments, as well as for the lenders themselves, the intent remains to modify 3 million to 4 million home loans by 2012 for people paying more than 31% of their income for their monthly mortgage.
But nine months in, only 651,000 loans -- about 1 of 5 eligible loans nationwide -- is under a trial modification, envisioned as a 3-month-long period during which the mortgage companies collect documentation from the borrower and make sure he or she can afford the new amount. If not, the loan can revert to earlier terms, making foreclosure more likely.
2 sides of the problem
The administration said its problem is with homeowners who haven't provided documentation needed to convert trial modifications to permanent ones and with lenders and servicers that have lagged in moving borrowers from one plan to the other.
Barr and Phyllis Caldwell, the new chief of the treasury's Homeownership Preservation Office, told reporters Monday they would be sending teams into the biggest servicers' offices this week to determine what is needed.
Barr declined to say what sanctions could follow if lenders and servicers don't meet terms of contracts they signed earlier this year.
A report due next week will indicate how many trial modifications have been made, how many permanent ones and which banks are having the most success. About 375,000 trial modifications are expected to expire by year's end unless they are converted to permanent ones -- including a portion of the 22,000 modifications made to date in Michigan.
Trial loans that would have expired in early December will be extended to the end of the month to give borrowers more time to provide records.
The bigger issue
John Courson, president and chief executive of the Mortgage Bankers Association, said lenders and servicers are not dragging their feet because the incentive is already there for them not to. The payments they stand to get under the program are withheld until modifications are permanent.
It has become clear, he said, that some people can't document the income they say they have to qualify for the program; in other places -- particularly in hard-hit areas like Michigan, where joblessness is high -- people have trouble paying even the lesser amount.
Now, it will have to see how they respond.
Concerned that mortgage firms were moving too slowly to get struggling homeowners into affordable permanent loans, the Obama administration announced a series of immediate steps, sending so-called SWAT teams into lenders' offices; promising twice-daily progress reports and threatening financial sanctions and public shame if results don't improve.
Assistant Treasury Secretary Michael Barr said the banks simply have "not done a good enough job" in moving people to permanent loans.
What has happened so far
Overall, the administration considers its Making Home Affordable program -- announced last February -- a success, at least so far. With financial incentives for companies that service loans and collect payments, as well as for the lenders themselves, the intent remains to modify 3 million to 4 million home loans by 2012 for people paying more than 31% of their income for their monthly mortgage.
But nine months in, only 651,000 loans -- about 1 of 5 eligible loans nationwide -- is under a trial modification, envisioned as a 3-month-long period during which the mortgage companies collect documentation from the borrower and make sure he or she can afford the new amount. If not, the loan can revert to earlier terms, making foreclosure more likely.
2 sides of the problem
The administration said its problem is with homeowners who haven't provided documentation needed to convert trial modifications to permanent ones and with lenders and servicers that have lagged in moving borrowers from one plan to the other.
Barr and Phyllis Caldwell, the new chief of the treasury's Homeownership Preservation Office, told reporters Monday they would be sending teams into the biggest servicers' offices this week to determine what is needed.
Barr declined to say what sanctions could follow if lenders and servicers don't meet terms of contracts they signed earlier this year.
A report due next week will indicate how many trial modifications have been made, how many permanent ones and which banks are having the most success. About 375,000 trial modifications are expected to expire by year's end unless they are converted to permanent ones -- including a portion of the 22,000 modifications made to date in Michigan.
Trial loans that would have expired in early December will be extended to the end of the month to give borrowers more time to provide records.
The bigger issue
John Courson, president and chief executive of the Mortgage Bankers Association, said lenders and servicers are not dragging their feet because the incentive is already there for them not to. The payments they stand to get under the program are withheld until modifications are permanent.
It has become clear, he said, that some people can't document the income they say they have to qualify for the program; in other places -- particularly in hard-hit areas like Michigan, where joblessness is high -- people have trouble paying even the lesser amount.