The U.S. Treasury Department will step up public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures.
More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, theTreasury datashowed. 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 spokeswomanMeg Reillysaid in an e-mail yesterday. The Obama administration plans to announce additional steps tomorrow, including new private-public partnerships and resources for borrowers.
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 now being driven by unemployment that was at 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.
Cash Incentive
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.
“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
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.andJPMorgan 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.
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 30.7 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 companiesFannie MaeandFreddie Macto 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.
PresidentBarack Obamaannounced 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.