Mod Program Revamped Again

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Bureaucrats have struggled to get the Home Affordable Modification Program to work -- and they may finally be getting somewhere.

The latest changes to the program, released on Thursday, clarify document requirements that have tied up hundreds of thousands of people already on the brink of losing their homes.

The Home Affordable program is designed to help 3 to 4 million homeowners avoid foreclosure by 2012. By the end of 2009, more than 903,000 homeowners had begun process by getting trial loan modifications through the program. Of those, just 110,000 have been approved for permanent modifications -- and much of that activity was squeezed into the last days of 2009. And a large chunk of those approved permanent mods were still waiting on signed final documents to be returned.

Why are there still so many many trial modifications compared to permanent ones?

Up until now, many borrowers have gotten trial modifications with little more than a phone call to their mortgage company. The problems start when they want to have those mods made permanent. That's when, they claim, mortgage companies demand a list of documents that keeps changing and repeatedly lose the documents they send.

The new rules aim to get the hard stuff out of the way at the start. Beginning June 1, homeowners seeking a trial modification must fill out a written application and submit basic evidence of their income, such as pay stubs. They must also give the mortgage company permission to electronically access their tax forms.

The new requirements will make it a little more rigorous to get a trial modification, but that trial mod will automatically become permanent after three loan payments are made on time. The more formal process should cut down on confusion and delay.

To handle the backlog of more than 800,000 trial loan modifications waiting for lender approval as of December, the Treasury created a review period that lasts through January 31 for lenders and borrowers to clear up any confusion about documents. During this period, Treasury sharply limits the reasons that mortgage companies can use to cancel trial modifications.

Program officials say they've sent administration representatives to servicer offices to ensure that the outstanding cases were being resolved.

To get an idea of what's at stake, there could be an additional 4.8 million foreclosure sales between 2009 and 2011, almost twice the 2.7 million foreclosure sales that happened between 2006 and 2008, according to economists like Mark Zandi, chief economist at Moody's Economy.com. A new wave of foreclosures could derail our recovery and send the economy back into recession.

If Home Affordable reaches its goal of rescuing up to 4 million homeowners from foreclosure, the program could soak up much of Zandi's foreclosure wave. With the surge of activity in December, administration officials now say the program is on track.
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