The WSJ reports the Obama administration is getting it with both barrels from both sides of the aisle.
House Financial Services Chairman Barney Frank (D, Mass.) harshly criticized the Obama administration’s efforts to keep people in their homes.
“We have a great frustration with the failure of the combined efforts of elements of the federal government to make a substantial impact on the foreclosure crisis,” Mr. Frank said in opening remarks at a hearing before his panel Tuesday on lender and government responses to soaring foreclosures.
“No one should think we are doing a satisfactory job,” Mr. Frank added.
Rep. Shelley Moore Capito (R., W.V.) said she had serious concerns about the government’s ability to make a significant dent in mounting foreclosures. And Rep. Jeb Hensarling (R., Texas) slammed such programs as “abject failures.” He argued that no taxpayer-funded program would work to prevent foreclosures without significant improvements in the job market.
Critics have ratcheted up attacks on the administration’s Making Home Affordable Program, which they say is ill-suited to address what they contend are the current causes of spiking foreclosures: negative equity, high unemployment and a wave of resets on complex mortgages that are difficult to modify. The program relies on hefty incentives for servicers to lower borrower payments to 31% of income.
While more than 680,000 people have received trial modifications under the program, just a tiny fraction have graduated to permanent modifications.
Executives from J.P. Morgan Chase & Co. and Bank of America Corp. testified that the banks were struggling to move borrowers into permanent loan modifications because eligible borrowers weren’t submitting the required paperwork.
Of the roughly 65,000 customers who have made the required three payments during the trial period, 50,000 haven’t submitted any or all of the required documents needed to graduate to a permanent modification, according to Jack Schakett, risk management executive, credit loss mitigation strategies, at Bank of America.
Meanwhile, Molly Sheehan of J.P. Morgan Chase said that, for every 100 borrowers offered trial modifications under the administration’s program from April through September, only 16 borrowers are likely to be approved for a permanent modification. Though 71 of those 100 borrowers made all three required trial period payments, 51 failed to submit the required documents. Others were denied because they don’t meet the program’s guidelines, said Ms. Sheehan, who is senior vice president, Chase home finance.
A top U.S. Treasury official will acknowledge in testimony before the panel later Tuesday that the program faces challenges.
Treasury Assistant Secretary for Financial Stability Herbert Allison will argue that the administration should reach more borrowers in need of assistance and help more of them to convert to permanent modifications.
“We can all do better in ensuring that the Making Home Affordable programs are a success,” he will say, according to his prepared remarks.
Douglas W. Roeder of the Office of the Comptroller of the Currency will argue the dismal conversion rate in the Home Affordable Mortgage Program is being driven more and more by the worsening finances of borrowers.
“Increasingly, however, the inability to qualify under HAMP reflects borrowers whose financial conditions have deteriorated to the extent that it is not possible to structure an effective modification that meets the net present value requirement of the program,” Mr. Roeder will say.
