LevonP
12-01-2009, 05:39 PM
The Obama administration said Monday that it would increase the pressure on banks to help troubled homeowners permanently lower mortgage payments, The New York Times’s Peter S. Goodman reports.
The Treasury Department said that mortgage servicers would be required to submit plans on how they would decide whether a loan would be permanent modified. Banks that fall short of the guidelines of their agreement could face fines or sanctions, the Treasury said.
Monday’s push was the latest evidence that a $75 billion taxpayer-financed effort aimed at stemming foreclosures was struggling. Even as lenders have accelerated the pace at which they are reducing mortgage payments for borrowers, most loans modified remain in a trial stage lasting up to five months, and only a fraction have been made permanent.
In its statement on Monday, the Treasury Department said that more than 650,000 borrowers have received trial modifications under the program, called Making Home Affordable, and that about 375,000 borrowers were scheduled to convert to permanent modifications by the end of the year.
That would represent a sharp turnaround — last month, an oversight panel created by Congress reported that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent.
The chief of the Treasury’s Homeownership Preservation Office, Phyllis Caldwell, said Monday that the administration was refocusing efforts “to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”
In addition, the department will begin including data in its report that shows the number of permanent modifications by bank, a move intended to pressure the banks to speed up modifications. The listing currently only shows temporary modifications.
“The banks are not doing a good enough job,” Michael S. Barr, the Treasury’s assistant secretary for financial institutions, said Friday. “Some of the firms ought to be embarrassed, and they will be.”
“We’re seeing a failure by some of the bigger banks on execution,” Mr. Barr said. “We’re going to be quite focused and direct on particular institutions that are not doing a good job.”
From its inception early this year, the administration’s program has been dogged by persistent questions about whether it could diminish a swelling wave of foreclosures. Some economists argued that the plan was built for last year’s problem — exotic mortgages whose payments increased — and not for the current menace of soaring joblessness. Lawyers who defend homeowners against foreclosure maintained that mortgage companies collect lucrative fees from long-term delinquency, undercutting their incentive to lower payments to affordable levels.
Though the program was initially proclaimed as a means of sparing three million to four million households from foreclosure, “they’re going to be lucky if they save one or one-and-a-half million,” said Edward Pinto, a consultant to the real estate finance industry who served as chief credit officer to the government-backed mortgage company Fannie Mae in the late 1980s.
A White House spokeswoman, Jennifer R. Psaki, said last week that the administration would continue to refine the program as needed. “We will not be satisfied until more program participants are transitioning from trial to permanent modifications,” she said.
The banks say they are making good-faith efforts to comply with the program and provide relief.
“We’ve poured resources into this,” a spokesman for JPMorgan Chase, Tom Kelly, said Friday. “We’ve made dramatic improvements, and we continue to try to get better.”
Some senators contend that the Treasury program, addressing mortgages whose low promotional interest rates had soared, is outmoded. At this point, foreclosures are being propelled by joblessness, which is sending millions of previously creditworthy people with ordinary mortgages into delinquency.
Within the Senate, some discussion focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before the companies are allowed to proceed with the sale of foreclosed homes.
Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions.
Lawyers who defend homeowners against foreclosure increasingly say they doubt the Treasury program can be made effective. Under the plan, companies that agree to lower payments for troubled borrowers collect $1,000 from the government, followed by another $1,000 a year for up to three years. The program is premised on the idea that a small cash incentive will induce the banks to cut their losses and accept smaller payments.
But the mortgage companies that collect payments from homeowners — servicers, as they are known — generally do not own the loans. Rather, they collect fees from investors that actually own mortgages, and their fees often increase the longer a borrower remains in delinquency.
Under the Treasury program, borrowers who receive loan modifications must make their new payments on a trial basis and then submit new paperwork validating their income to make their modifications permanent.
But borrowers and their lawyers report that much of the required paperwork is being lost in a haze of bureaucratic disorganization. Servicers are abruptly changing fax numbers and mislaying files — the same issues that have plagued the program from its inception.
“People continue to get lost in the phone tree hell,” said Diane E. Thompson, a lawyer with the National Consumer Law Center.
Some lawyers who defend homeowners against foreclosure assert that mortgage companies are merely stalling, using trial loan modifications as an opportunity to extract a few more dollars from borrowers who would otherwise make no payments.
“I don’t think they ever intended to do permanent loan modifications,” said Margery Golant, a Florida lawyer who previously worked for a major mortgage company, Ocwen Financial. “It’s a shell game that they’re playing.”
The Treasury Department said that mortgage servicers would be required to submit plans on how they would decide whether a loan would be permanent modified. Banks that fall short of the guidelines of their agreement could face fines or sanctions, the Treasury said.
Monday’s push was the latest evidence that a $75 billion taxpayer-financed effort aimed at stemming foreclosures was struggling. Even as lenders have accelerated the pace at which they are reducing mortgage payments for borrowers, most loans modified remain in a trial stage lasting up to five months, and only a fraction have been made permanent.
In its statement on Monday, the Treasury Department said that more than 650,000 borrowers have received trial modifications under the program, called Making Home Affordable, and that about 375,000 borrowers were scheduled to convert to permanent modifications by the end of the year.
That would represent a sharp turnaround — last month, an oversight panel created by Congress reported that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent.
The chief of the Treasury’s Homeownership Preservation Office, Phyllis Caldwell, said Monday that the administration was refocusing efforts “to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”
In addition, the department will begin including data in its report that shows the number of permanent modifications by bank, a move intended to pressure the banks to speed up modifications. The listing currently only shows temporary modifications.
“The banks are not doing a good enough job,” Michael S. Barr, the Treasury’s assistant secretary for financial institutions, said Friday. “Some of the firms ought to be embarrassed, and they will be.”
“We’re seeing a failure by some of the bigger banks on execution,” Mr. Barr said. “We’re going to be quite focused and direct on particular institutions that are not doing a good job.”
From its inception early this year, the administration’s program has been dogged by persistent questions about whether it could diminish a swelling wave of foreclosures. Some economists argued that the plan was built for last year’s problem — exotic mortgages whose payments increased — and not for the current menace of soaring joblessness. Lawyers who defend homeowners against foreclosure maintained that mortgage companies collect lucrative fees from long-term delinquency, undercutting their incentive to lower payments to affordable levels.
Though the program was initially proclaimed as a means of sparing three million to four million households from foreclosure, “they’re going to be lucky if they save one or one-and-a-half million,” said Edward Pinto, a consultant to the real estate finance industry who served as chief credit officer to the government-backed mortgage company Fannie Mae in the late 1980s.
A White House spokeswoman, Jennifer R. Psaki, said last week that the administration would continue to refine the program as needed. “We will not be satisfied until more program participants are transitioning from trial to permanent modifications,” she said.
The banks say they are making good-faith efforts to comply with the program and provide relief.
“We’ve poured resources into this,” a spokesman for JPMorgan Chase, Tom Kelly, said Friday. “We’ve made dramatic improvements, and we continue to try to get better.”
Some senators contend that the Treasury program, addressing mortgages whose low promotional interest rates had soared, is outmoded. At this point, foreclosures are being propelled by joblessness, which is sending millions of previously creditworthy people with ordinary mortgages into delinquency.
Within the Senate, some discussion focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before the companies are allowed to proceed with the sale of foreclosed homes.
Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions.
Lawyers who defend homeowners against foreclosure increasingly say they doubt the Treasury program can be made effective. Under the plan, companies that agree to lower payments for troubled borrowers collect $1,000 from the government, followed by another $1,000 a year for up to three years. The program is premised on the idea that a small cash incentive will induce the banks to cut their losses and accept smaller payments.
But the mortgage companies that collect payments from homeowners — servicers, as they are known — generally do not own the loans. Rather, they collect fees from investors that actually own mortgages, and their fees often increase the longer a borrower remains in delinquency.
Under the Treasury program, borrowers who receive loan modifications must make their new payments on a trial basis and then submit new paperwork validating their income to make their modifications permanent.
But borrowers and their lawyers report that much of the required paperwork is being lost in a haze of bureaucratic disorganization. Servicers are abruptly changing fax numbers and mislaying files — the same issues that have plagued the program from its inception.
“People continue to get lost in the phone tree hell,” said Diane E. Thompson, a lawyer with the National Consumer Law Center.
Some lawyers who defend homeowners against foreclosure assert that mortgage companies are merely stalling, using trial loan modifications as an opportunity to extract a few more dollars from borrowers who would otherwise make no payments.
“I don’t think they ever intended to do permanent loan modifications,” said Margery Golant, a Florida lawyer who previously worked for a major mortgage company, Ocwen Financial. “It’s a shell game that they’re playing.”