Lenders Pressed to Hurry Help

Treasury Officials Discuss Difficulties With Mortgage Firms

Treasury officials met with about 10 leading mortgage firms yesterday to figure out why they have not helped more distressed homeowners, pressing the lenders to do better.

At the closed-door session, Treasury staff members reviewed legal and financial issues identified by the industry as difficulties in addressing the foreclosure crisis, including how to modify mortgages when homeowners have two loans. The meeting lasted longer than the six hours scheduled for it.

Attending were members of Hope Now, an alliance of mortgage lenders that includes Bank of America, Countrywide, J.P. Morgan Chase and Citigroup. Fannie Mae and Freddie Mac, government-backed mortgage-financing agencies, were also represented at the meeting. Treasury Secretary Henry M. Paulson Jr., who has been stepping up pressure on the industry, did not attend.

Two weeks ago, Paulson summoned mortgage firms to a meeting to discuss their progress. Democratic leaders, including Rep. Barney Frank (Mass.), have in the meantime warned mortgage lenders that they could face tighter regulations unless they do more to help distressed homeowners.

In January and February, about 10,000 homeowners were granted a five-year freeze on their interest rate, according to the National Community Reinvestment Coalition. "I think that is pretty obvious, when you pull the onion layers, that not enough is being done," said Jim Carr, the group's chief operating officer.

Still, Hope Now has trumpeted its progress. Lenders renegotiated 1.3 million loans from July 2007 through the first quarter of this year, according to Hope Now data. In the first quarter, loan modifications, including interest rate reductions, represented 44 percent of subprime loan overhauls, double the rate during the first quarter last year.

Most of the help is through repayment plans, which often entail additional fees and penalties for homeowners. Those plans also do not represent permanent modifications of the loans, which Treasury officials and lawmakers say are needed.

Federal Reserve Chairman Ben S. Bernanke has joined lawmakers and Treasury officials in noting the difficulty created by declining home prices. In some instances, the slump means that homeowners owe more than the house is worth. In those cases, "the best solution may be a write-down of principal or other permanent modification of the loan by the servicer," Bernanke said Monday. "Realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment."

During the meeting yesterday, lenders and Treasury officials discussed the problem posed by home buyers who have two loans held by different companies. The lender that holds the second mortgage often can hinder or even stop a refinancing or modification of a mortgage if it thinks it will not get enough out of the deal. Treasury officials are trying to fashion an agreement between such lenders that would allow modifications to go forward.

Another difficult issue involves how mortgage firms track the help homeowners receive. Hope Now is expected to release the first detailed nationwide accounting of loan modifications within months.

The industry's efforts have been met with skepticism from nonprofit groups and some Democrats in Congress, who note that foreclosure rates continue to set records. Lenders initiated foreclosure proceedings on 1.5 million U.S. homes last year, up 53 percent from 2006.

Nonprofit groups also complain that it often takes more than three months to win approval for a loan modification. Meantime, homeowners fall further behind in their payments. "We are still struggling to get lenders to work with us in an effective and efficient manner," said Janis Bowdler, an associate director at the National Council of La Raza, a Latino civil rights group.

Staff writer David Cho contributed to this report.