The U.S. Treasury department announced this week that it would be taking action against lenders, which aren’t doing enough to do loan modifications for financially troubled homeowners.
Banks that took federal aid are required to help homeowners, who are in danger of losing their homes, modify their home loans in order to help stop the epidemic of foreclosures. The U.S. Treasury department says that lenders who fail do enough loan modifications will face consequences. The US Treasury department’s announcement was not specific but consequences are likely to include sanctions and monetary penalties for these lenders.
This is the administration’s latest attempt to push its $75 Billion loan modification plan, which had originally hoped to help save 4 million delinquent homeowners from foreclosure. Latest figures, however, show that only 650,000 homeowners have had their mortgage payments temporarily adjusted under a trial modification; and, eventually only a very small fraction of just about 1% of these trial modifications eventually received long-term modifications as reported to the Congressional Oversight Panel.
Under the Home Affordable Plan, delinquent homeowners who qualify under the program are put into a trial modification for a few months to make sure than can handle the new modified monthly mortgage payments. To qualify for this program, homeowners need to meet some basic criteria, including owing less than $729,750 on their mortgage, having an owner-occupied property as well as having monthly mortgage payments which exceed 31% of a homeowner’s gross income.
Homeowners who apply for and qualify under this program are put into a “trial” period (usually 3 months) where homeowners must make timely payments of their mortgage. Homeowners who comply with their mortgage obligations during the “trial” period are then given the opportunity to make these mortgage payments permanent, usually for a 5-year period.
The Treasury Department releases monthly reports on how many trial loan modifications lenders have approved. The result has been very dismal for the program. The report shows, for example, that some major lenders such as Bank of America, has been lagging behind competitors in signing up homeowners for this program. JP Morgan Chase, for example, only has a little over half or 92,500 borrowers who have been able to make the 3 monthly payments during the “trial” period but only 26% of those have also submitted all the required documents to qualify for permanent modification. CITIGROUP, on the other hand, has been able to convert only 1,800 borrowers into permanent modifications out of the 89,000 “trial” modifications it has.
These are indeed very low figures and it is certainly a very far cry from the objective of helping 4 million homeowners under the program. Let us hope that with the US Treasury department’s announcement this week to push banks on helping homeowners receive permanent loan modifications will yield more success than the results of the past few months.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
