The Obama administration is increasing pressure on mortgage lenders to convert temporary loan modifications for high-risk borrowers to permanent ones by the end of the year.
The U.S. Department of the Treasury and Department of Housing and Urban Development will require lenders to submit a schedule for how they will decide whether or not a loan would be permanently modified and to report any obstacles borrowers face in moving to the permanent phase.
These rules are intended to discourage lenders from cherry-picking those borrowers who are at lowest risk and therefore need assistance the least. Since Oct. 1, servicers have been required to disclose the reason for any denied modifications.
Any servicer that fails to meet its obligations under its agreement would bear fines or other sanctions. To encourage banks to speed up conversions, the administration will keep track of individual bank performance through metrics that will be reported publicly.
Lagging institutions include Bank of America and Wells Fargo.
Since the federal Home Affordable Modification Program (HAMP) was launched in May, lenders have temporarily modified more than 650,000 home loans to lower mortgage payments for struggling homeowners. More than 375,000 of these modifications are scheduled to become permanent by the end of 2009.
Such a large number of conversions would represent a sharp change from past performance: in November, an oversight panel created by Congress reported that fewer than 2,000 of the then-500,000 temporary loan modifications nationwide had been made permanent. …CONTINUED