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Obama Administration Seeks to Strengthen Mortgage Relief for Homeowners

December 1, 2009 - Posted by Nicole Sweeney

The Treasury Department unveiled a new plan yesterday seeking to make a $75 billion federal program to help struggling homeowners more effective.

To date, more than 650,000 mortgage holders have been granted temporary modifications on their mortgage loans under the Home Affordable Modification Program (HAMP). But as of September 1, only 1,711 mortgage modifications had been made permanent.

The latest plan will encourage lenders to make more of those modifications permanent.

"We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications," said Treasury spokeswoman Meg Reilly.

The Treasury Department and The Department of Housing and Urban Development have scheduled 375,000 loans currently in the "trial" phase to be transferred to "permanent" modifications. Banks that have not met their established obligations will incur monetary penalties and sanctions including embarrassing lenders, requiring daily progress reports, and withholding payments from lenders that are not doing enough to help homeowners.

Although the adjustments to the program should ameliorate problems for some, far more could still be done to stem the massive tide of foreclosures.

"The Obama administration's latest adjustments to its nine-month-old foreclosure prevention program do little but highlight the continued failure of lenders' voluntary efforts to stop the foreclosure crisis," said Michael Calhoun, president of the Center for Responsible Lending, in a statement.

To more effectively respond to the growing mortgage crisis, civil rights and consumer advocates are recommending that Congress:

  • Allow stressed homeowners to lower their principal mortgage balance, instead of simply reducing the interest rate. LCCR strongly backed a bill that would let borrowers to do this in bankruptcy court, but it was blocked due to intense lobbying from the banking industry.
  • Require loan companies stop foreclosure proceedings while loan modifications are under consideration.
  • Require loan companies to work with homeowners in distress. Recognizing that the current voluntary system has failed, the House and Senate currently are considering bills to make loss mitigation efforts mandatory.
  • Create a low-cost, short-term loan program for unemployed homeowners who have no other option for keeping current on their mortgage.
  • Require Treasury to go beyond selectively publishing loan servicing data and make all data available so the public—including taxpayers—can better evaluate the program and the efforts of individual companies.

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