In an effort to help struggling homeowners, the Treasury Department is considering a proposal to ban lenders from starting foreclosures unless borrowers have first been deemed ineligible for the government's loan modification program, according to an internal document detailing the plan.
The administration's $75 billion Home Affordable Modification Program (HAMP) has helped 116,000 homeowners get permanent loan modifications, but the plan has been blasted by critics for failing to help more and help stem the housing crisis.
Earlier today two Republican lawmakers, Rep. Darrell Issa, R-Calif., and Rep. Jim Jordan, R-Ohio, released a report that concluded, "By every empirical measure, HAMP has failed." But now, it appears, changes are in the works.
The new proposal would prohibit "referral to foreclosure until borrowers is evaluated and found ineligible for HAMP or reasonable contact efforts have failed," according to the Treasury document. It would also require "servicers to stop all foreclosure action once borrower is in a trial period plan."
Loan Modification Program 'Has Failed'
Over one million borrowers have entered into trial modifications under the administration's program, but the key indication of the plan's success will be the number of permanent modifications. The administration has said the program is on pace to meet its goal of helping three to four million homeowners by the end of 2012.
The proposal would also make other changes to the embattled program, such as insisting that any borrowers who are more than 60 days delinquent on payments and meet HAMP eligibility requirements must be solicited to take part in the program, except borrowers who are already in bankruptcy proceedings.
Asked about the proposal detailed in the Treasury document, department spokeswoman Meg Reilly replied, "It is one of the many ideas under consideration in the administration's ongoing housing stabilization efforts. This proposal has not been approved and there are no immediate planned announcements on the issue."
Earlier today Phyllis Caldwell, head of Treasury's Homeownership Preservation Office, told Congress that Treasury will soon release guidance "which will include a set of improved protections for borrowers in the HAMP mortgage modification program."
Government Considers More Restrictions on Bank Foreclosures
While Caldwell emphasized the program's successes to date, she acknowledged that "challenges remain and we need to do more to help American homeowners. HAMP was designed to be dynamic, and we continue to work to improve the program's efficiency and scope."