Treasury to Announce Mortgage Modification Plan Changes
Changes Come as Lawmakers Craft Tougher Regulations for Banks
By MATTHEW JAFFE
March 25, 2010—
The Treasury Department today will announce changes to the Obama administration's embattled $75 billion Home Affordable Modification Program (HAMP) to help owners facing foreclosures.
At a hearing Thursday morning before the House Oversight Committee, the Treasury's TARP chief Herb Allison will announce new protections for homeowners in the modification process who also face a pending foreclosure. The protections are designed to eliminate much of the confusion and anxiety that many homeowners deal with in these situations.
The key changes, detailed below, ban lenders from starting foreclosures unless homeowners have first been deemed ineligible for the program.
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Treasury has been considering these changes since last month. On February 25, ABC News reported on an internal agency document outlining some of the possible measures.
The measure comes as lawmakers on Capitol Hill are calling for tougher financial regulations for banks that run out of capital.
Congress will impose "the toughest new forms of financial regulations since the New Deal," Rep. Barney Frank, D-Mass., said on "Good Morning America" today.
That means no more federal funding for banks that are going under water. At a hearing this week, Frank said that Congress will impose "death panels," but "they're death panels for large financial institutions that can't make it."
"You can't continue to indebt yourself without capital," said Frank, who chairs the House Financial Services Committee. "If an institution becomes so indebted... unlike AIG, which was kept alive in 2008... that will go out of business. ... You're not going to have any institution kept alive with federal funding."
According to the new Treasury guidance on the program obtained by ABC News, at Thursday's hearing Allison will announce:
Early Intervention
Servicers must pre-screen every borrower that has missed two or more payments to determine if they are potentially eligible for HAMP and, if so, must proactively solicit those borrowers for the program. This change encourages servicers to reach out to a borrower as early as 31 days of delinquency when there is the best chance to retain homeownership.
Foreclosure Referral Prohibition
Servicers may not refer any borrower who is potentially eligible for HAMP to foreclosure until the borrower has been evaluated and determined to be ineligible, or the borrower did not respond to the servicer's solicitation efforts. By defining "reasonable solicitation efforts" the guidance allows servicers to proceed with normal debt collection actions when borrowers are unresponsive.
HAMP Evaluation Timeframes
The guidance holds all parties accountable for timely performance by clearly defining how a borrower requests HAMP consideration and establishing specific timeframes for both borrower and servicer document delivery and evaluation. Borrowers can expect a modification decision within 30 days. In most cases, if a borrower is not eligible for HAMP, they will benefit from a 30-day response period before a foreclosure sale may be held.
"The president and his economic team are committed to addressing the challenges in the housing market and have undertaken a thorough review of our program to help keep responsible homeowners in their homes," a White House spokesperson told ABC News. "Recently, the president announced the development of a pilot initiative for the hardest-hit states. Going forward, we will continue to use the administration's housing programs to increase both modification and refinancing opportunities to promote stability for the housing market and for homeowners."
New Program to Help Owners Facing Foreclosures
The Treasury's announcement comes as the Obama administration's program is coming under fire.
The program to help struggling homeowners avoid foreclosure has posted "disappointing results" in part because its definition of success is "essentially meaningless," a watchdog said Tuesday in a new report obtained by ABC News.
In his audit on the administration's $75 billion Home Affordable Modification Program, bailout watchdog Neil Barofsky blasted the Treasury Department for what he said were the shortcomings of the program.
Barofsky criticized the administration for focusing on the number of homeowners who receive temporary help.
When the program was unveiled last year, the administration said by the end of 2012 it would help 3 million to 4 million homeowners "avoid foreclosure" by "reducing monthly payments to sustainable levels." Treasury has stated that homeowners who have received offers for temporary mortgage modifications count towards this goal, a decision ripped by Barofsky.
"Defining success by how many offers are given can reasonably be received as essentially meaningless," Barofsky said in his report. "It is simply not a useful measure."
Under the program, Treasury provides incentives for banks to modify the mortgages of struggling homeowners. After an offer for a trial loan modification is extended to a borrower, the borrower can then move towards a permanent mortgage modification by continuing to make payments for three months.
To date, more than 1.3 million homeowners have received trial modification offers, but only 170,000 homeowners have received permanent modifications.
More than six million Americans are now late on their mortgages, a new record, and sales of existing homes dropped for the third month in a row.
Some banks are offering their own mortgage relief programs. Bank of America will launch a new trial program to modify mortgages for customers underwater, those whose mortgages are considerably higher than what their house is worth. But of the millions of Bank of America customers behind on their payments, the bank said only 42,000 will even be eligible.
ABC News' Huma Khan and David Muir contributed to this report.