Loan Modification Program could Receive Boost

The Mortgage Blog has reported at length on the government’s loan modification program, focusing mainly on its failures. This week, the government itself, confirmed this failure, by issuing a report card on the banks charged with carrying out the program. “The Treasury Department said on Tuesday that only a small number of homeowners — 235,247, or 9 percent of those eligible — had been helped…The assistant secretary for financial institutions, said in a news conference that there were ’significant variations’ in performance and that some institutions had made ‘an infinitesimally small amount’ of progress.

Bank of America and Wells Fargo received the worst grades, having modified only 4% and 6%, respectively, of eligible mortgages. Citigroup and JP Morgan, at 15% and 20%, were the two standouts, though some unnamed banks were reported to have achieved modification rates in excess of 25%. Disturbingly, “The first monthly progress report showed that 10 lenders had not changed a single mortgage.” To be fair, some banks have also modified loans that fall outside the scope of the government program, which don’t get includes as part of the official statistics; Wells Fargo, for example, modified 220,000 such loans.

Notwithstanding these exceptions, the report card indicates that the loan modification program has fallen well short of helping the majority of borrowers with distressed mortgages, of which the Treasury Department has identified nearly 3 million. Compare this to the”Obama administration’s original projections of up to 4 million loan modifications and 5 million refinanced loans. The report card, then represents an effort to shame the banks into compliance. Sure enough, Bank of America has declared, “Despite our aggressive efforts to find solutions for homeowners in default, we must improve our processes for reaching those in need.” Wells Fargo issued a similar promise.

The government has also moved to apply more direct pressure. “In an effort to get things moving, the government has summoned mortgage executives from 25 companies to meetings Tuesday with top staffers from the departments of Treasury and Housing and Urban Development,” reported one source. The result of this meeting was “a verbal agreement with the executives for a new goal of about 500,000 loan modifications by Nov. 1.” Unfortunately, the government has yet to release a new version of its plan – the now famous $50 Billion Hope for Homeowners Act. It seems unlikely that banks will receive additional compensation as part of the new plan, on top of the $4,500 per modified mortgage that they already receive. The government evidently is betting that bad PR and public outcry will be enough to bring about changes.

For those of you who haven’t yet been granted a modification, don’t give up! “Eligible loans 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.”