U.S. Asks Banks to Speed Up Mortgage Modifications for Troubled Homeowners
Wednesday, July 29, 2009
Senior administration officials pressed executives from the nation's largest banks Tuesday to speed help to distressed borrowers after a frustrating start to the government's foreclosure-prevention effort and set a goal of more than doubling the number of homeowners receiving aid by November.
After a series of meetings with top banking executives, Treasury Department officials said they want lenders to modify 500,0000 mortgages by Nov. 1. Since the program, known as Making Home Affordable, began in March, it has recorded about 200,000 loan modifications.
But more than 1 million borrowers received default notices during the first half of the year, and falling home prices and rising unemployment are pushing ever more homeowners into delinquency.
Under the initiative, the government is offering subsidies to help lenders offset the cost of lowering mortgage payments for distressed borrowers.
Officials from the Treasury and the Department of Housing and Urban Development discussed with the banking executives ways to get aid to borrowers more quickly. Lenders asked the government to clarify which borrowers are eligible and to simplify the program, according to industry officials briefed on the meetings. Administration officials again urged lenders to hire more staff to keep up with demand from borrowers seeking loan modifications and reminded the executives that the program is a White House priority, according to participants in the meetings.
Banking officials, including representatives from Bank of America, J.P. Morgan Chase and Wells Fargo, flew to Washington for the meeting. CitiMortgage chief executive Sanjiv Das said the get-together was "an important step."
Seeking to defuse criticism that they have been slow to modify loans, lenders came with proposals for improving the program. For example, they told administration officials that the documentation required from borrowers to apply for a modification should be standardized, according to officials briefed on the meetings. They spoke on the condition of anonymity because they are not authorized to comment publicly. The bank executives also urged that either government or industry set up a single Web site to accept all applications, creating more uniformity.
They also asked U.S. officials to clear up confusion about the program, according to an industry official briefed on the meetings. While borrowers can apply even if they haven't missed a mortgage payment, lenders have struggled to determine when a borrower is in enough financial distress to qualify.
The meetings occurred as new data showed that the housing market may be starting to stabilize. The Standard & Poor's/Case-Shiller home price index rose from April to May, the first monthly increase since 2006. But on a year-over-year basis, prices fell by 17.1 percent.
After the meetings, administration officials touted the program's progress and said additional steps would be taken to hold lenders responsible. These include reports that would identify the performance of specific lenders.
"There is a lot of common ground, but we have to make sure everybody" follows through, said Herbert M. Allison, assistant Treasury secretary for financial stability. "They demonstrated that they are serious about the program. They are working very hard."
Treasury Secretary Timothy F. Geithner said in a statement that the effort is on track to meet its goals. That includes helping up to 4 million borrowers under the program through 2012. "Still, too many homeowners are at risk of foreclosure right now," Geithner said.
"The industry is committed to continuing to help homeowners and reach that goal" of helping 500,000 borrowers in the next few months, said Scott E. Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group.
The bank executives also met separately with consumer advocates and housing counselors, who have said that the program is not being carried out properly and that modifications take too long to be approved.
"They were receptive," said Bruce Dorpalen, director of housing counseling at Acorn Housing. "It doesn't mean we got clear resolutions and commitments on things."
These concerns were underscored Tuesday when a Minnesota nonprofit group filed a lawsuit against the federal government, alleging that the program is being carried out unevenly and that some borrowers are being shut out.
"The reality is that banks and servicers are withholding good that is in their power to do," said the Rev. Lucy Kolin, a pastor from Oakland, Calif., and a member of People Improving Communities Through Organizing. "They are telling honest people, looking for the loan modifications they were promised, 'Come back tomorrow.' A tomorrow that never comes."
Even as the administration works to accelerate the program, borrowers like Zachary Lareche remain in limbo. Lareche fell behind on the mortgage for his Brooklyn home in 2007 after the charter school where he taught was closed. Lareche found a new job but can keep his home only if his payments are reduced.
He has sought help from Acorn Housing, a nonprofit group, to negotiate a new loan with his servicer, Litton Loan Servicing. But he hasn't been able to get a new deal. "I keep trying and trying," he said.
"We are going to work with every customer to review their particular financial situations. That way we can determine whether they will qualify for a modification," she said. "But customers have to have sufficient income to support a loan workout."
Staff writer Brady Dennis contributed to this report.