The US Treasury Department plans to intensify public pressure on lenders to finish modifying more home loans to troubled borrowers under a US$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, the Treasury said. 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 was expected to announce additional steps yesterday, including new private-public partnerships and resources for borrowers.
The Treasury this month 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.
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 US$1,000 to the mortgage servicer once a loan is converted from a trial to a permanent modification plus annual payments of US$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, the Treasury said. The bank, the largest in the US 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 under the program are at least 60 days past due, in foreclosure or bankruptcy, and originated before this year. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as US$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 US banks modifying home loans to troubled borrowers through October under the foreclosure prevention plan, the Treasury Department said.
Citigroup, the third-largest US bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages. JPMorgan, the second-largest US 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 US homeowners have received trial modifications through the government program, the data showed.
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.
The administration program 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 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.
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