Frank Bemoans Pace of Foreclosure Prevention Program
Thursday, September 10, 2009
Lenders are making modest progress on a federal foreclosure prevention effort, according to new government data, but frustrated lawmakers warned Wednesday that the industry could face drastic consequences if it does not do more to help homeowners.
Unless there is significant progress under the government's Making Home Affordable program during the next few months, legislation to allow bankruptcy judges to modify mortgages should be revived, Rep. Barney Frank (D-Mass.) said during a House subcommittee hearing. Legislation allowing "cramdowns" narrowly passed the House earlier this year, but was rejected by the Senate.
"I am disappointed at the pace of this [government] program," said Frank, chairman of the House Financial Services Committee. "The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified."
That proposal drew protests from Republicans, who said such a provision would raise costs and harm lenders. "Bankruptcy cramdown would seriously prolong our housing recovery by decreasing mortgage credit," said Rep. Spencer Bachus (R-Ala.).
Since the federal program was launched in March, 360,165 borrowers' payments have been lowered under the program, according to figures released Wednesday by the Treasury Department. That is up from 235,247 last month and brings the industry closer to meeting the Obama administration's goal of modifying the loans of at least 500,000 borrowers by Nov. 1.
But, with millions more borrowers facing foreclosure over the next few years, the data also illustrate how some large lenders are struggling to address a backlog of people who need help. The industry's implementation of the program has been spotty, consumer advocates say, with some lenders failing to understand the program's rules or who qualifies for a loan modification.
Under the federal foreclosure prevention program, lenders are paid incentive fees by the government to reduce the payments of troubled borrowers, including by lowering their interest rates. About 12 percent of the nearly 3 million delinquent borrowers eligible for the program have received help so far, according to the Treasury data. That is up from about 9 percent last month.
Banks Scramble to Catch Up
Banking industry executives say they have been overwhelmed by demands for help and have not been given credit for efforts to assist borrowers outside the federal program. Some homeowners are slow to respond to offers of help or submit incomplete applications, they say.
Major banks, such as Bank of America and Wells Fargo, lagged behind the rest of the industry, though executives from both companies said they are helping large numbers of borrowers. Bank of America has assisted 7 percent of its delinquent borrowers eligible for the program and Wells Fargo has provided modifications for 11 percent, according to the Treasury data.
Bank of America doubled the number of modifications started in August and is on track to complete 125,000 workouts under the federal program by Nov. 1, said Jack Schakett, Bank of America's executive for credit loss mitigation strategies. "The entire mortgage servicing industry is racing against the clock to stem the tide of foreclosures and home loss," he said during the hearing of the House subcommittee on housing and community opportunity. "We fully understand the urgency and will never be satisfied that we have done enough until the country is through this difficult cycle."
Wells Fargo said it increased the numbers of modifications started by more than 60 percent last month and continues to hire more employees to handle the influx of requests for help. There has been a 200 percent increase in borrowers requesting assistance, according to the company. The bank plans to double the number of loans it modifies under the program to about 60,000 by November, said Cara Heiden, co-president of Wells Fargo Home Mortgage.
Overall, the government program is on track to meet its goal of helping 3 million to 4 million borrowers before expiring in 2011, Michael S. Barr, Treasury's assistant secretary for financial institutions, told the subcommittee. "That doesn't mean there isn't uneven performance between and among servicers involved. We think all of the servicers could do better," he said. But "we know that some people [homeowners] aren't going to make it. We need to be realistic about our expectations."
Some Republicans said the program is ill suited for the current crisis, noting that a growing number of borrowers are falling behind on their payments because of a job loss. The program appears "likely to fall well short of expectations," said Bachus. It was "flawed from the inception. The only way to stop this epidemic of foreclosures is get the economy rolling again."