The Obama administration's plan to stem the foreclosure crisis has yet to have a significant impact. Less than 10% of delinquent homeowners have entered a trial modification program thus far, according to a Treasury report released Tuesday.
Answering to criticism of the plans slow start, the administration has said that it is on track to help up to four million struggling homeowners in the next three years. The program was unveiled in February and participating lenders began taking applications in April.
Last week, lenders were asked by the administration to increase their efforts after borrowers have complained about their willingness to implement the administrations program. Officials would like to see half a million loan modifications by November 1st.
The administration is releasing lenders progress reports in hopes of holding them responsible if they are unwilling to adhere to the programs. The reports will be published monthly and will allow the public to see which lenders are lagging behind.
Lenders have thus far offered modifications to just over 400,000 delinquent homeowners, about 14% of the total number. Most trial modifications have been done by a small amount of lenders.
Performance varied among the 38 participating lenders in the program. Saxon Mortgage Services led the way, getting 24% of its delinquent borrowers in the program, followed by Aurora Loan Services at 20%. Among big banks, JP Morgan Chase led with 19%, and Citigroup put 14% of its troubled borrowers in modification. Wells Fargo (5%) and Bank of America (4%) fared the worst.
Participating lenders have agreed that they need to improve their efforts and claim they are committed to the administrations plan. Many claim to have provided many modifications independent of the plan.
Wells Fargo claims that their poor performance is because of the delay in the guidelines coming out after the plan was announced, and vows to increase its performance in the coming weeks. The bank did not begin modifying loans held by small investors until April, though it began modifying its Fannie Mae and Freddie Mac held loans in April.
A recent change in the guidelines allows lenders to put eligible borrowers into a trial modification program as soon as 48 hours after receiving their application. The three month trial period will allow lenders to gather sufficient information to decide whether the borrower qualifies for a permanent modification. This change in practice should ease concerns over banks willingness to participate.
While participation in the plan is voluntary, once a lender agrees to participate they are required to offer the trial modification to all qualified applicants. Between the 38 lenders participating, they own 84% of all mortgages nationwide.
The plan calls for a troubled, qualifying borrower to have their payments lowered to 31 percent of gross income or less. Also, the lender must be able to make more money through the modification than by foreclosing. The modification becomes permanent after the borrower makes three consecutive payments on time. Lenders receive substantial cash incentives for their participation. The government has promised $75 billion for the program, of which it has already committed $20 billion.
-- Edited by TW on Friday 21st of August 2009 01:03:26 AM
