Tweaks meant to make mortgage changes ‘stick’
WASHINGTON – The Obama administration took a series of steps Thursday to fortify its $75 billion effort to modify mortgages and planned to unveil more changes today – including a push to reduce principals on difficult loans – to help struggling homeowners and cut down on foreclosures.
In announcing the renewed effort, the administration acknowledged that the year-old program hasn’t done enough. By the end of December, it had permanently lowered monthly payments for only about 170,000 borrowers out of the expected 3 million to 4 million it was aimed at covering through 2012.
Even so, the program and separate efforts by banks and other lenders to rework overdue loans have pushed the rate of new foreclosures down 15.4 percent in the final three months last year, according to a federal report released Thursday.
But the report also sounded alarms about a potential looming tide of foreclosures. The number of borrowers who were 90 days or more past due on their mortgage payments, a key measure of future defaults, swelled 20.4 percent in the last quarter over the previous quarter.
Worse, the modifications, while delaying the foreclosure process, did not appear to be a long-term solution: About 52 percent of those with modified loans defaulted again after nine months, said the report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision, which cover about two-thirds of the outstanding home loans.
The time bomb of delinquencies and repeat defaults has focused more attention on the administration’s Home Affordable Mortgage Program, which President Barack Obama launched with great fanfare more than a year ago.
At a House hearing last week, frustrated Democrats and Republicans labeled the program a bust so far, echoing a stinging report this week by a government watchdog.
“This program is a failure and a waste of taxpayer dollars,” said Rep. Patrick McHenry, R-N.C.
Assistant Treasury Secretary Herbert M. Allison admitted that modifying mortgages has been more difficult than administration officials had anticipated.
Among the changes to take effect June 1 is a prohibition on mortgage servicers from starting or continuing foreclosure proceedings on a borrower who enters the Home Affordable Modification Program.
Companies servicing mortgages also must screen every borrower who has missed two or more payments to determine whether the borrower is eligible for the program. If so, the servicer “must pro-actively solicit those borrowers” to participate. Those companies also are required to make quicker decisions about eligibility and to process documents quickly.
In addition, Allison said, the administration was preparing to move forward with an initiative to modify second mortgages after four of the largest mortgage servicers – Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. – agreed to participate.
That initiative would be part of a greater administration push to have lenders reduce the amount of principal owed on delinquent loans, an action analysts said is a key to limiting foreclosures.
Administration officials today will announce greater incentives for servicers to write down mortgage principal as well as to allow jobless homeowners in the program to skip three months of payments, according to an industry executive who requested anonymity because the changes had not been made public.
“Principal reduction is probably the last remaining significant vital step that needs to be taken in loan modifications in order to make those modifications stick,” said Stuart A. Gabriel, director of the Ziman Center for Real Estate at University of California-Los Angeles.
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