US will push lenders to modify more home loans for troubled borrowers

Written by Bloomberg | Updated: Dec 1 2009, 05:09am hrs
The US Treasury Department will step up public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures.

More than 6,50,994 loan revisions had been started through the Obama administrations home affordable modification programme as of last month, from about 4,87,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed.

That failure is getting the administrations attention. We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximising conversion rates to permanent modifications, Treasury spokeswoman Meg Reilly said in an e-mail. The Obama administration plans to announce additional steps,including new private-public partnerships and resources for borrowers.

The modification programme was announced in February as a way to combat a surge in foreclosures that has pushed property values lower and curtailed economic growth. It hasn't stopped foreclosures, which are now being driven by unemployment that was at a 26-year high of 10.2% in October. The Mortgage Bankers Association, the industrys largest trade group, predicts foreclosures won't peak until after unemployment rates crest, some time in the second half of next year. The administrations initiative provides a cash incentive of $1,000 to the mortgage servicer once a loan is converted from a trial to a permanent modification plus annual payments of $1,000 for as long as three years provided the loan remains in good standing.

Bank of America Corp was among the worst performers in the programme, with 14% of loans in modification in October, according to the Treasury. The bank, the largest in the US and the biggest mortgage servicer, has 9,90,628 eligible loans, a greater total than any other company on the Treasurys list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, has said the eligibility data may be overstated.

As many as one-in-three of those borrowers listed as eligible for the programme will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31% or is unemployed, Frahm said in an interview. Eligible loans under the programme are at least 60 days past due, in foreclosure or bankruptcy, and originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $7,29,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans. A borrower's mortgage payment must be 31% or more of their gross monthly income to qualify.

Morgan Stanley, Citigroup Inc and JPMorgan Chase & Co led the pack of the US banks modifying home loans to troubled borrowers through October under the foreclosure prevention plan, the Treasury Department said.

Citigroup, the third-largest US bank by assets, began 88,968 trial modifications, or 40%, of its eligible mortgages. JPMorgan, the second-largest US bank, has started 1,33,988 modifications, or 32%, of those eligible, the Treasury said.