UPDATE: Obama Administration Turns Up Heat On Mortgage Servicers
By Jessica Holzer, Of DOW JONES NEWSWIRES
(Updates with more details and comment from analyst)
WASHINGTON -(Dow Jones)- The Obama administration is increasing pressure on
mortgage servicers to put more borrowers into permanent loan modifications in a
bid to bolster its $75 billion foreclosure-prevention plan.
Participating mortgage servicers will be required to submit plans about how
they will decide whether a loan will graduate to a permanent modification, the
Treasury Department said Monday.
U.S. Treasury officials and Fannie Mae (FNM) personnel will also be assigned
to monitor servicers' progress on these plans daily. Servicers that fail to meet
program guidelines could face fines or sanctions, Treasury said.
So far, more than 650,000 borrowers have been given trial modifications under
the program, which relies on hefty incentives to spur mortgage servicers to
change loan terms for strapped borrowers. But only a small fraction have
graduated to a permanent modification, raising doubts about the program's
ability to combat soaring foreclosures.
Critics, including the Congressional Oversight Panel for the Troubled Asset
Relief Program, have argued the program isn't suited to tackle the problems
driving foreclosures--surging unemployment and a wave of resets on complex
mortgages that are difficult to modify.
They say the Obama administration's program is geared toward people with
adjustable-rate mortgages who can't afford higher reset rates. These types of
borrowers were prevalent in the early stages of the foreclosure wave.
"Today's crisis is different," Jaret Seiberg of Washington Research Group
wrote in a note to clients. "People are defaulting on their mortgage because the
unemployment rate is above 10% and the underemployment rate is nearly 20%."
Under the Obama program, borrowers must make three monthly payments and submit
documentation to receive a permanent modification. The requirements are proving
to be high hurdles for borrowers and mortgage servicers alike. Already,
Treasury has granted borrowers more time to submit their paperwork.
Meanwhile, successfully completing the trial period and filing all
documentation is no guarantee borrowers will receive a permanent modification. A
change to a borrower's financial situation, such as lost income, can make them
ineligible, for example.
Treasury said Monday that roughly 375,000 borrowers with trail modifications
are scheduled to convert to permanent modifications by the end of the year. It
will begin in December to report data on the number of trial modifications that
have converted to permanent modifications.
Treasury announced a new post to oversee the effort to push more borrowers
over the finish line. Phyllis Caldwell will serve as the new Chief of
Homeownership Preservation within Treasury.
The administration said it had retooled the program's Web site,
www.MakingHomeAffordable.gov, to make it easier for borrowers to submit the
necessary paperwork. It also plans to publicize the program more aggressively to
state and local governments.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@
dowjones.com
(END) Dow Jones Newswires
11-30-091238ET
Copyright (c) 2009 Dow Jones & Company, Inc.
|