In what can only be described as a D’oh moment for the administration, Bloomberg reports the Treasury says the majority of people targeted for foreclosure prevention by the administration won’t qualify. I believe the official in charge of the program is named Homer Simpson.
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A majority of the 3.2 million borrowers targeted by the U.S. Treasury Department for mortgage relief under the administration’s foreclosure prevention program are unlikely to qualify, an agency official said.
Fewer than 1.5 million homeowners were eligible as of last month for President Barack Obama’s Home Affordable Modification Program, Herb Allison, Treasury’s assistant secretary for financial stability, said in written testimony to be delivered to the House Financial Services Committee today.
“Although we know that not every borrower will qualify for a permanent modification, we are disappointed in the permanent modification results so far,” said Allison, who is the former chief executive officer for federally controlled mortgage- finance giant Fannie Mae.
Banks are rushing to meet a new deadline announced by Treasury Nov. 30 to permanently convert more than half of the 650,994 loans that were in trial modification plans at the end of October into permanent reductions by year’s end. Allison said “thousands” of borrowers have received permanent loan changes so far.
The Treasury summoned Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. officials to Washington yesterday to pressure them to speed U.S. foreclosure-prevention efforts ahead of the year-end deadline to convert trial-loan term changes into permanent modifications.
The program, announced in February, was originally touted to help up to 4 million borrowers at risk of foreclosure to renegotiate lower payments by lengthening loan terms, lowering interest rates and making other changes to mortgage contracts.
Trial Payments
Only 30 percent of borrowers in trial-payment plans have turned in the necessary paperwork to qualify for a permanent loan modification so far, Allison said. An eligible borrower with three months of trial payments who doesn’t turn in all their paperwork by year-end “jeopardizes their chance to get a permanent modification,” Treasury spokeswoman Meg Reilly said in an e-mail.
While Reilly said no one will be eliminated from the Home Affordable Modification Program without “a thorough review,” the Obama administration has so far failed to come close to the 4 million homeowners it set out to help. Allison didn’t say why so few borrowers are unlikely to qualify. Lenders say many borrowers have failed to turn in all their paperwork and are confused about eligibility standards.
Bank of America is trying to move 65,000 trial payment plans into permanent status by Dec. 31. Of those, 50,000 have either not submitted any of their paperwork or have submitted incomplete or inaccurate information, said Jack Schakett, who runs the bank’s credit loss mitigation strategies.
‘A High Degree’
“It is unclear why this has happened to such a high degree,” Schakett said in written testimony to be delivered today. “However, several factors likely contributed to this, including ineffective communications with customers, shortcomings in document maintenance, misunderstandings about program requirements and the inability to comply by some borrowers.”
While JPMorgan Chase & Co. has started trial modifications on 140,988 loans, or about 29 percent of its eligible pool of loans, the bank is “facing challenges with borrowers completing documentation or making trial plan payments as agreed,” said Molly Sheehan, who runs housing policy for the home lending division. About 29 percent of Chase’s borrowers in trial modifications are not paying as agreed, 20 percent haven’t turned in any documents and 31 percent are missing some paperwork, she said in written testimony.
$1,000 a Year
The program pays mortgage servicers $1,000 when a loan is converted from a trial to a permanent mortgage reduction and as much as $1,000 a year for as long as three years for successful repayment, among other cash incentives. Borrowers receive as much as $1,000 a year for five years from Treasury to reduce their outstanding loan balance.
The administration requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, as well as mortgage-finance companies Fannie Mae and Freddie Mac, to lower monthly payments for borrowers in need.
Eligible loans under the program are at least 60 days past due or judged at risk of delinquency, in foreclosure or bankruptcy, and originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data exclude Federal Housing Administration and Veterans Affairs loans. A borrower’s mortgage payment must be 31 percent or more of gross monthly income.
Releasing Date
The Treasury plans to begin releasing data in December on how banks rank in making trial modifications permanent. The modification program was announced in February as a way to combat a surge in foreclosures that has pushed property values lower and curtailed economic growth. The program has been hampered partly by a rising unemployment rate that reached a 26- year high of 10.2 percent in October.
The foreclosure rate as a result jumped to a record 4.47 percent in the third quarter from 3.3 percent at the end of last year, according to Mortgage Bankers Association data. Seriously delinquent loans, those at least 90 days late on payments, reached 8.85 percent from 6.3 percent at the end of 2008.
The Mortgage Bankers Association, the industry’s largest trade group, has said foreclosures won’t peak until unemployment rates crest, some time in the second half of next year.
