Mortgage Co. Face New Pressure on Homeowner Help

Officials set goal for 500k loan modifications, to audit rejected applications.

July 24, 2009, 1:25 PM

July 29, 2009— -- Will the second time be the charm for the Obama administration's foreclosure rescue efforts?

Critics have complained that the administration's Making Home Affordable program, which began in March, hasn't done enough to stem the tide of foreclosures sweeping the country. But yesterday the administration said that the program could bring 500,000 home loan modifications by Nov. 1.

It was a goal discussed during closed-door meetings Tuesday between Treasury Department officials and mortgage company executives. Treasury Secretary Timothy Geithner said in a statement following the meetings that 200,000 loan modifications are already underway.

"Still, too many homeowners are at risk of foreclosure right now," Geithner said.

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Also on Tuesday, mortgage lenders, accused of failing to follow the administration's guidelines for MHA, provided the administration with proposals on how to improve the program. Among the suggestions: the creation of a Web site that would accept all loan modification applications and better clarification from the government on who qualifies for modifications, a source told ABC News.

The administration also announced its own efforts to improve the program: Beginning Aug. 4, it will begin reporting how many loans each servicer has modified.

Another new administration initiative could discourage servicers from rejecting loan modification applications. Government-sponsored mortgage finance company Freddie Mac will audit some denied applications to "minimize the likelihood that borrower applications are overlooked or that applicants are inadvertently denied a modification," according to a government statement.

The new push by the Obama administration comes after weeks of intensifying criticism from both consumer advocates and lawmakers.

The National Consumer Law Center, which presented testimony to the Senate earlier this month, has identified dozens of ways in which some mortgage servicers have failed to follow guidelines set by the part of the Making Home Affordable Program that focuses specifically on loan modifications, the Home Affordable Modification Program (HAMP), which pays servicers at least $1,000 for each loan modification. The Government Accountability Office, meanwhile, issued a report last week concluding that there are "gaps" in the Treasury Department's oversight of the program.

Sen. Chris Dodd, D-Conn., has asked the administration to investigate alleged abuses of the program. The alleged violations by mortgage servicers include:

"If true and widespread, abuses of this kind threaten to undermine the effectiveness of the HAMP program and deny the relief on which so many Americans are depending for their financial stability," Dodd, the chairman of the Senate Banking Committee, wrote in a July 23 letter to Geithner and Housing Secretary Shaun Donovan.

'Inconsistent Results' From Mortgage Companies

Critics say the number of foreclosures still dwarf the number of loan modificiations: More than 2 million homeowners were facing foreclosure in the first three months of the year, according to NCLC.

"HAMP, despite its lofty goals, has not yet been able to contain the foreclosure tsunami," the center's Diane E. Thompson said in written testimony presented to the Senate Banking Committee.

The Obama administration has acknowledged some of the criticism.

"There appears to be substantial variation among servicers in performance and borrower experience, as well as inconsistent results in converting trial modification offers into actual trial modifications," Geithner and Donovan wrote in a letter earlier this month inviting mortgage servicers to meet with the administration. "We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share."

The servicers, meanwhile, contend that they are doing their part.

"The servicers that have signed up to participate in the program are taking their obligations very seriously," said Jeannine Bruin, a spokeswoman for GMAC, one of more than two dozen mortgage servicers, including Bank of America, CitiMortgage and Wells Fargo, that take part in the administration's program.

Bruin told that GMAC had beefed up staff and staff training to address homeowner requests for help. GMAC officials, she said, were working "nights and weekends" on loan modifications.

"Can the program be improved and enhanced? I'm sure it can be," she said, "but it's not for any lack of effort for our part."

For now, homeowners like the Pedro and Lucy Gomez are turning to third parties for help.

Lucy Gomez was laid off last year and now the couple are facing foreclosure on their Elgin, Ill. home. They attended a workshop Friday held by the Neighborhood Assistance Corporation of America, a group that helps homeowners obtain loan modifications from mortgage servicers. The group recently kicked off a 10-city tour to meet with and counsel local homeowners. (Watch coverage of its first stop, a workshop in Cleveland, here.)

The Gomezes hope that NACA will help them work out an affordable loan modification with their mortgage servicer, GMAC. Pedro Gomez said he had no luck appealing to the company on his own.

GMAC said that while the company could not comment on specific customer cases, there could be "a logical explanation for why" Gomez didn't qualify for the modification he wanted.

Criticism of the Government

Bruce Marks, the head of the Neighborhood Assistance Corporation of America, said the association has successfully achieved loan modifications for homeowners by putting together modification agreements and sending them electronically to mortgage servicers for their approval.

But the government, he said, should be requiring servicers to do that work for themselves. "It is really outrageous that a nonprofit has to step into to fill the void," he said.

The GAO, in its report last week, said it's unclear when the government will have a system in place to address "noncompliance" by mortgage servicers.

The report prompted more government criticism, this time by Sen. Chuck Grassley, R-Iowa.

"This report heightens my fear that Treasury will give out billions of dollars without ensuring the spending will work as intended," Grassley said in a written statement. "There's real doubt that this money will prevent foreclosures in the long term and help legitimately struggling homeowners. Once this money is spent, it will be gone. Unfortunately, Treasury isn't ready."

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