The Obama administration, scrambling to get its main housing initiative on track, extracted a pledge from 25 mortgage company executives to improve their efforts to assist borrowers in danger of foreclosure.
The Treasury Department reached a verbal agreement with the executives for a new goal of about 500,000 loan modifications by Nov. 1 and stressed the program’s urgency.
The sessions came amid concerns that the Obama administration will fall far short of its original goal of helping up to 3 million to 4 million troubled borrowers with modified loans.
As of the end of July only about 200,000 borrowers were enrolled in three-month trial loan modifications, out of about 370,000 who were offered modifications by mortgage companies.
For months, borrowers, housing counselors and activist groups alike have complained that the process is a confusing, bureaucratic nightmare. Housing counselors say borrowers are being charged upfront fees and given inaccurate or confusing information about the program. The delays are long and, in some cases, lenders continue the foreclosure process while loans are being reviewed for a modification.
Recently, an activist group in Minnesota filed a lawsuit seeking to stop home foreclosures in that state. Mark Ireland, an attorney with the Minnesota-based Foreclosure Law Relief Project, said the government has failed to establish the procedures needed to ensure the fair and uniform administration of the program. Loan servicers are not required to tell a homeowner why they were denied a loan modification.
One reason progress has been sluggish is that loan servicers have had to hire and train thousands of employees. The loans have been bundled and sold to hundreds of investors as securities, which often have differing rules about loan modifications. Plus, mortgage companies have been swamped with thousands of calls from borrowers who want to take advantage of the program, and must sort out who is facing a legitimate financial hardship.
Many servicers didn’t get set up to deal with the surge in problem loans and modifications until this year, said Thomas Lawler, a housing economist in Northern Virginia.
Under the program, servicers can pocket up to $4,500 for each loan they modify. But they won’t start to be paid until homeowners have made on-time payments for three months.
If the program doesn’t kick in high-gear soon, the recent optimism about a real estate and economic recovery could fade as mo
“Foreclosures are still rapidly escalating,” said Andrew Jakabovics of the Center for American Progress, a think tank with close ties to the Obama administration. “If we don’t get a handle on that ... the economy is going to have a difficult time recovering.”
Copyright © 2009 The Associated Press, Alan Zibel and Danie Wagner, AP business writers. Associated Press Writer Steve Karnowski contributed to this report from Minneapolis.
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