Homeowner Modification, Mortgage Servicers and the Treasury Run One

The Treasury has stepped up and shot out reports to show that mortgage servicers are moving to slow in assisting the average Joe with mortgage modification. The report shows that only about nine percent of homeowners who are eligible have had their mortgage modified. The Administration has pledged $75 million dollars for incentives under this plan.

The Making Home Affordable Plan was modeled after the program that the FDIC developed when IndyMac Federal Bank in Pasadena failed. The program uses a $1000 incentive for lenders to do the modification and another $1000 for three years after that on the loan being modified. It reduces the mortgage interest rate and extends the mortgage out to forty years. The idea is to reduce the first mortgage payments, taxes and insurance to 31% of the borrowers’ gross income.

Homeowners must document their income and assets under the program. The homeowner that does modify must stay current on the first three months of the loan modification or the modification does not become permanent.

Mortgage Servicers such as Wells Fargo & Co. and Bank of America Corp. have only modified six to four percent consecutively of their eligible homeowners that qualify under the plan. GMAC and JPMorgan Chase & Co had already processed approximately twenty percent of their eligible homeowners.

Mortgage Servicers who have not performed well using the plan contend that guidelines for the plan were not clarified until last month and thus causing them to wait to implement the five month old program. Mike Heid, Co-President of Wells Fargo & Co. confirms that his company did 240,000 loan modifications in first seven months of this year and that 20,000 of those were under the plan.

Bank of America has done 150,000 modifications without using the Making Home Affordable Plan, according to Barbara Desoer, President of Bank of America.

Kevin Stein, Associated Director of The California Reinvestment Coalition says that Congress needs to step up is “pretty please” approach to asking Mortgage Servicers pick up the pace. Two million foreclosure filings were made in the first six months of this year. 3.2 million In 2008 and 2.2 million in 2007.

Critics of the plan believe that it should be toughened and are seeking a change in Federal Bankruptcy Law to allow judges to order mortgage servicers to reduce the principal owed on home mortgages.  Obama supports this approach however; the idea has been continually shot down in Congress, mostly due to the Banking Industries opposition to it.

Representative Barney Frank (D-Mass) chairman of the House Financial Services Committee has stated he will push for change in law if lenders didn’t show more modifications in the coming months.