Story from Bloomberg about how the US Treasury is pushing lenders to do more home loan modifications and faster. This should be good for anyone in trouble since it might benefit them sooner.
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The U.S. Treasury Department plans to intensify public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures.
Almost 651,000 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,080 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed. That failure is getting the administration’s attention.
“We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications,” Treasury spokeswoman Meg Reilly said in an e-mail. The Obama administration plans to announce additional steps today, including new private-public partnerships and resources for borrowers.
The Treasury in December will also begin releasing data on how many trial modifications have become 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. It hasn’t stopped foreclosures, which are being driven by unemployment that rose to a 26-year high of 10.2 percent in October.
The Mortgage Bankers Association, the industry’s largest trade group, predicts foreclosures won’t peak until after unemployment rates crest, some time in the second half of next year.
Robert Davis, executive vice president of the American Bankers Association in Washington, said yesterday that unemployment is “the primary driver of defaults right now.” He said he was “puzzled” by the stepped-up pressure.
Protecting the Taxpayer
One purpose of the trial period “is to protect the taxpayer by making sure these loan modifications will work before anything is paid out to the lender,” Davis said. “Suddenly, for that to become a measure of bad performance when institutions are doing everything they can, is just baffling.”
The administration’s initiative provides a cash incentive of $1,000 to the mortgage servicer once a loan is converted from a trial to a permanent modification plus annual payments of $1,000 for as long as three years provided the loan remains in good standing.
Bank of America Corp. was among the worst performers in the program, with 14 percent of loans in modification in October, according to the Treasury. The bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury’s list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, has said the eligibility data may be overstated.
Vacant Homes
“As many as one in three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31 percent or is unemployed,” Frahm said in a Nov. 10 interview.
Eligible loans under the program are at least 60 days past due, 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 excludes Federal Housing Administration and Veterans Affairs loans. A borrower’s mortgage payment must be 31 percent or more of their gross monthly income to qualify.
Morgan Stanley, Citigroup Inc. and JPMorgan Chase & Co. led the pack of U.S. banks modifying home loans to troubled borrowers through October under the foreclosure prevention plan, the Treasury Department said.
Trial Modifications
Citigroup, the third-largest U.S. bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages. JPMorgan, the second-largest U.S. bank, has started 133,988 modifications, or 32 percent of those eligible, the Treasury said.
Morgan Stanley’s Saxon Mortgage Services had begun trials for 44 percent of its 80,477 eligible loans. In all, 20 percent of eligible U.S. homeowners have received trial modifications through the government program, according to the data.
Bank of America’s modifications started rose to 136,994 in October from 94,918 in September. The bank also accounted for 31 percent of the 3.2 million loans eligible for the program and about 22 percent of the 919,965 modification offers extended to borrowers by all the participating banks combined.
TARP Recipients
The administration program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default.
Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.
President Barack Obama announced the program in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government, were released in April.
Specific program guidelines for loans owned by other investors were provided in June and the Treasury later gave new details for loans backed by the Federal Housing Administration.
The administration’s $75 billion Making Home Affordable program includes the mortgage modification initiative and loan refinancing through Fannie Mae and Freddie Mac.
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The reason that loan modifications have only “trial” modifications is because a permanent contract would require identification of the actual owner/creditor of the mortgage/note. In response to the May 2009 TILA Amendment that requires identification of the actual owner/creditor of the mortgage/note, the Federal Reserve submitted an Interim Opinion. The Opinion clearly states that servicers, trustee, trusts (investors) in pass-through securities – are not the owner/creditor. The owner/creditor is the bank on whose balance sheet the mortgage/note is accounted for. The FASB (Financial Accounting Standards Board) has already issued mandatory rules that require all off-balance sheet conduit “trusts” to be accounted for on the actual balance sheet of the acquiring bank by January 1, 2010. Thus, no longer can attorneys hide behind “trustees” or “trusts” to conceal the actual identity of the balance sheet owner/creditor of mortgages/notes. Further, loan modifications, in order to be permanent, MUST identify the actual owner/creditor of the mortgage/note, and cannot be executed under the name of a mortgage servicer (unless the servicer has purchased the mortgage/note – in which case the servicer must disclose this information).
When Congress initiated the TARP program to bail out financial institutions (apparently to save the US economy/financial system), Congress trusted that the financial institutions would play fair to modify outstanding mortgages/notes for Americans that were also victims of the financial collapse. However, Congress placed too much trust in the financial institutions, as few financial institutions had any intention to cooperate.
All must be warned. Do not sign a loan modification without identification of the actual current owner/creditor of your mortgage and mortgage loan. Any such signature continues the fraud that perpetrated the original financial crisis, and causes a future crisis by fraudulent conveyance of mortgage title to American homes. Our courts will be overwhelmed with challenges that will not be resolved for years – if ever. Taxpayers will find that the burden is placed on their children and grandchildren – to bail out. At this point, a bail out may not ever be possible.
Proceed with caution.