March 12, 2010 -- Banks were slightly more forgiving to desperate homeowners in February, permanently lowering rates on 168,000 mortgages, the Treasury Department announced today.
That was a 45 percent improvement over January and came after the Obama administration publicly scolded banks for not being more cooperative with its foreclosure prevention plan.
The February increase in mortgage reductions will do little, however, to ease criticism of the administration's efforts to get banks to ease up on homeowners in danger of foreclosure. Even with the February numbers, only about 16 percent of the 1.1 million people who have signed up for the program have received permanent assistance.
Despite the low number of permanent modifications, the administration touted that 835,000 borrowers are currently in trial modifications, so in all over one million homeowners are currently saving an average of $500 per month. The $75 billion mortgage modification program, introduced just over a year ago, was designed to help three to four million homeowners by the end of 2012.
The program has come under fire from critics who argue that it has been too slow to get off the ground and banks have not done enough to help homeowners.
The Home Affordable Modification Program provides incentives to banks to modify the mortgages of struggling borrowers, but so far some banks have not modified as many loans as the administration would like.
Late last year the Treasury Department initiated a campaign to get mortgage servicers to increase the rate of conversions from trial modifications to permanent ones, but to date Bank of America, for instance, has only finalized 20,666 permanent modifications out of a total of more than one million eligible borrowers.
With one out of every four homeowners with a mortgage now "underwater" – meaning a homeowner owes more money than the home is worth – the foreclosure crisis has been worsening recently.
Last month two Republican congressmen, Reps. Darrell Issa of California and Jim Jordan of Ohio, argued that the program had "failed."
Earlier this week lawmakers on both sides of the political aisle criticized the embattled program. Rep. Debbie Wasserman-Schultz, a Democrat from Florida, criticized the banks for failing to help struggling borrowers.
Banks Blasted Over Home Modification Program
"The banks just refuse to work with homeowners. They won't modify loans. They give them the runaround," she said at a House Appropriations hearing on Wednesday. "I stand in front of town hall meeting after town hall meeting where I have constituents legitimately stand up and say…'We bailed them out! My bank wouldn't even be in business anymore if not for the United States government.'"
"It is very important for the servicers across the country to do a better job at helping these people get help," replied Treasury Secretary Timothy Geithner said. "My view is that none of them are doing enough. They need to put substantial more resources in this program, and they need to do a better job of making sure they're reaching the people who we can legitimately reach with these programs…It is very terrible out there still in the housing market and it's very important that we keep working at trying to make sure we're reaching more people."
While Geithner acknowledged that the number of permanent modifications is "less than we would like," he emphasized that "the number that matters now is a million" temporary modifications.
Next month the administration hopes to provide additional help for struggling homeowners by kicking off a new program to encourage short sales, a process in which a lender lets a homeowner sell their home for less than the mortgage without making the seller pay off the entire mortgage. Short sales can help both homeowners, who rid themselves of a financial mess, and banks who accept a lower payment but do not get stuck with a foreclosed home.
An internal Treasury document obtained by ABC News last month revealed that the agency is also considering a proposal to ban lenders from starting foreclosures unless borrowers have first been deemed ineligible for the program.