Treasury Moves to Improve the Loan Modification Process

It appears that many at the Treasury Department are keeping their fingers crossed as December 31rnapproaches.

That is the date by which a largernnumber – nearly 375,000 – of loan modifications will have completed thernthree-month trial period required under the Home Affordable ModificationrnProgram (HAMP) designed to keep homeowners out of foreclosure.  No one appears to know at this point how manyrnhomeowners will actually be able to transition from the trial into arnpermanently restructured loan. 

This information was presented todayrnby Treasury Assistant Secretary for Financial Stability Herbert Allison in arnwritten report to the House Financial Services Committee.  

Allison told the Committee that “wernare disappointed in the permanent modification results thus far,” and said thatrn”we need to do better at converting borrowers to permanent modifications.”

Over 900,000 troubled homeownersrnhave received offers to begin trial modifications but Allison described thernnumbers which have successfully converted into permanent modifications as “thousands.”  He said that the large majority of those inrntrial programs are current on their payments but have some of the requiredrndocumentation missing from their applications for permanent status.  “Housing counselors and homeowners reportrnthat servicers are losing documents, while services are not providing documentsrndespite repeated outreach.”

The Assistant Secretary said thatrnTreasury last week kicked off a “Mortgage Modification Conversion Drive” tornincrease the rate of permanent modifications. rnAmong the steps planned are:

• Streamlining the applicationrnprocess with standardized paperwork to make it easier for both borrowers andrnservicers to complete and evaluate the application.
• Publishing servicer-specificrnconversions rates starting with the next public report.
• Punitive measures againstrnservicers including withholding incentive payments.
• Increased communication withrnservicers including a meeting last Monday focused on conversion issues.
• Requiring each servicer to reportrntwice daily on conversion progress.
• Forming SWAT teams made up ofrnTreasury and Fannie Mae staff to visit the seven largest servicers to work onrnconversion issues.
• New tools for borrowers. These are available on the Department'srnwebsite and include an instructional video, links to required documents, and arnconversion guide.
• Outreach to local organizationsrnto enlist their assistance in helping borrowers through the process.

Despite the problems with conversions,rnAllison said that strong progress had been made in ramping up the HAMP programrnwith over 680,000 borrowers now in modifications.  These homeowners are already seeing monthlyrnsavings that average $550.

The Treasury Department hopesrnthat the HAMP program will eventually provide assistance to 3 to 4 millionrnhomeowners.  While the conversions are arnworry, the trial programs are on-track to meet that goal with over 20,000 borrowersrnnow entering a trial each week.

He said that other aspects ofrnAdministration efforts to stabilize the housing market are also paying off.  Continued support for Fannie Mae, Freddie Macrnand Treasury's Mortgage Backed Securities (MBS) purchase program along with thernFed's purchase of MBS have helped keep interest rates near all-time lows.  This has allowed over 3 million people tornrefinance.  Treasury is now working tornprovide increased access to financing for local housing agencies.  He also credited contributions by the homernbuyers' tax credit and two Treasury sponsored programs designed to shore up thernrental housing sector.

There are, he said, signs ofrnstabilization in housing.  In addition tornlow interest rates and high numbers of refinances, housing inventories arerncontinuing to fall and house prices are not dropping as rapidly as in the pastrnwith some house price measures actually posting increases in recent months.

While MND's managing editor, Adam Quinones, does agree that the housing market has stabilized from anemic activity levels, he remains skeptical of a recovery: “Ignoring the laundry list of issues one could present as an argument against housing expansion, the simple combination of two structural inefficiences:  tighter lending guidelines — DU 8.0 and new FHA initiatives for example– and a stagnate labor market,  creates a dynamic that will prohibit notable progress in the housing recovery process.”

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