Obama Gets Serious About Foreclosure Help

Amid rising foreclosures and public outrage over taxpayer-funded handouts to banks, the Obama administration is trying to put some teeth into its program to help ailing homeowners.

The Home Affordable Modification Program (HAMP), announced in February, dangled financial incentives to banks and mortgage servicers willing to lower mortgage payments for borrowers facing foreclosure. At the time, the administration said it hoped HAMP would modify mortgages for 3-4 million homeowners over a period of three years. To date, almost 651,000 homeowners have had their mortgages lowered on a trial basis, through the program, according to government data.

But relief has been fleeting for most participants. Just over 1 percent of trial mortgage adjustments have been made permanent, according to the Congressional Oversight Panel. And everyday, it seems, come reports of banks misplacing paperwork and dragging their feet on providing permanent relief. One reason is that mortgage servicers often stand to make more money collecting fees on delinquent loans than on helping make them affordable.

With a new effort announced on Monday by the Treasury Department and the Department of Housing and Urban Development (HUD), the administration is tightening the screws on unresponsive lenders. Specifically, the new Mortgage Modification Conversion Drive requires banks and servicers to report on their plans and progress in aiding homeowners who have applied for permanent modifications. Banks that fail to abide by the rules could face fines or sanctions. Treasury will also send "S.W.A.T. teams" into banks to help identify obstacles holding up the process.

For homeowners, the process of applying for a loan modification has been simplified and streamlined. Details can be found here.

In the meantime, delinquencies and foreclosures have been rising at an alarming rate. And it is no longer just sub-prime loans. Prime, fixed rate loans have been increasing, and made up 33 percent of foreclosures started in the third quarter.

The administration says that 375,000 borrowers who have their mortgage payments lowered on a trial basis are scheduled to convert to permanent status by year end. That's good news for some. But ultimately, the most effective remedy will be robust job creation and a resumption of hiring. The Obama administration will turn its attention to jobs later this week. With unemployment at a 26-year high, it's not a moment too soon.
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