(NNPA) – Looking to enhance the success of its signature remedy for the foreclosure crisis, the Obama administration recently announced a new thrust to spur lenders to increase the number of permanent loan modifications.
The move is just another stage in an already successful program, officials told reporters recently.
Assistant Treasury Secretary Michael Barr said the administration is well on its way to helping the more than 3 million homeowners over three years as it had promised, with more than 650,000 homeowners currently in temporary modification plans, each seeing an average of $576 less per month in mortgage payments.
“Now we’re at the stage where we need to turn to the next challenge which is turning these trial modifications into a permanent solution for families,” Barr said, adding, servicers had not done “a good enough job” of converting the trial plans.
Economist Andrew Jakabovics said the move clearly denotes a level of frustration among officials.
“I think they’ve gotten as frustrated as homeowners who need assistance,” said Jakabovics, the associate director for housing and economics at the Washington-based think tank, Center for American Progress. “People are getting into the trial stage of the program but very few are coming out at the other end. At some point the trial expires and people are back where they started.”
According to the program’s last Servicer Performance Report released in November, servicers modified only one-fifth of eligible delinquencies in the past nine months. Large lenders such as Wachovia and Bank of America were among the worse offenders, activating trial modifications that were only 3 percent and 14 percent, respectively, of eligible accounts. Wells Fargo and JP Morgan Chase were mid-range performers, at 29 and 32 percent, respectively. GMAC, CitiMortgage and Saxon topped the list at 35, 40 and 44 percent.
“If Bank of America were doing as well as Citibank, there’d be another 250,000 homeowners in the program,” said Jakabovics, as an example of the missed opportunity.
But, Barr, even as he said banks were not doing enough, said homeowners need to be more responsible about sending paperwork.
Phyllis Caldwell, chief of Home Preservation Office, which is overseeing the program, said based on reports from lenders, of the 650,000 households in trial modifications, 37 percent have submitted some documents and 20 percent have submitted none. That leaves only 375,000 homeowners eligible for permanent modifications this year.
“That story lacks credibility,” Jakabovics refuted.
Marcia Griffin, president and founder, HomeFree-USA—a nonprofit that offers housing counseling and other services—agreed with the economist, citing examples of clients who have been through bureaucratic hell—waiting for hours on the phone, getting the run-around or multiple answers to the same question and other horrors.
“I had one client who sent in their documents 11 times,” Griffin told the AFRO.
The consumer advocate and economist said the problem lies less with consumers and more with “bottleneck” within the servicer shops.
“The servicers or lenders are overwhelmed. They have people on the phone who are being trained by a script on a computer. And they aren’t necessarily people who know anything about the industry,” Griffin said. For that reason, desperate homeowners not only encounter incompetence but the absence of a human touch.
“People are desperate, they’re in distress, they’re stuck and don’t know how to get unstuck. And my God, when you’re unemployed and losing your house?… [These] people are stressed and emotionally impaired,” Griffin said. “But the lenders don’t see that impairment, they see [those homeowners] as numbers.”
Caldwell said as part of the new focus, three-person “swat teams” were sent to major servicers, where for three days they observed and reported problems that hampered documents from being received or decisions made. Those observations would inform the administration’s plan of action to smoothen the process of loan modifications.
Jakabovics and Griffin agreed that approved nonprofit housing counselors should be a bigger part of the process.
“What they really need to do is expand the intake process and let the housing counselors run the numbers then and there and put the burden on servicers to double check the numbers,” the economist said. “And, if three months later, the servicers haven’t challenged the numbers, let it automatically convert to a permanent modification.”
In addition to shifting the burden of proof, the administration also needs to change its tone with noncompliant lenders in the program, consumer advocates and counselors say. In trying to woo lenders into the program, they said, the administration offered too many carrots and not enough sticks. And many lenders seem to think that their cooperation is voluntary though they’ve signed contracts.
Barr promised that the administration would take a tougher stance.
“Servicers that don’t meet their obligations under the program are going to suffer consequences,” he said, adding officials have “contractual remedies that we will exercise if we need to ensure their compliance.”
He added, “Not a penny is going out from the federal government to servicers unless they do what it takes to get the required procedures in place and make the loan permanent.”
Some advocates remain skeptical, pointing to plan’s lack of specificity with regard to penalties and also to the lenders’ demonstrated lack of will—especially given the relative benefits of pursuing foreclosures as a well-known means of regaining their disbursements.
“The Obama administration’s latest adjustments to its nine-month-old foreclosure prevention program do little but highlight the continued failure of lenders’ voluntary efforts to stop the foreclosure crisis,” said Michael Calhoun, president of the Center for Responsible Lending, in a written statement.
“Without mandatory requirements and fully disclosed results, foreclosure prevention efforts—no matter how well-intentioned—will not succeed,” he added. “And the cost of failure will be borne by not just struggling homeowners, but by their neighbors, communities, and the larger economy.”
Failure of this program could also bear a political cost for the administration, Jakabovics said.
“The politics of a failure is particularly problematic especially in light of the record bonuses being paid on Wall Street and there’s still a sense that the bailout basically helped the banks and the average person has not seen any of that assistance as promised,” he said.
Barr seemed well aware of that cost and predicted overall success in the end.
“We’ve beat all the odds and defied the skeptics,” he said. “The reporters who covered this in February and the Congress said we’d never get anything done, we’d never get the program off the ground and it wouldn’t help anybody and we’re showing that’s not the case.
“The numbers will prove the skeptics wrong.”
For more information about the Making Home Affordable program call the Homeowners Hope Hotline at 1888-95 HOPE or log onto MakingHomeAffordable.gov.