Posted in the Wall Street Journal by Ruth Simon:
The Obama administration said Tuesday that its mortgage-modification program has enrolled one in five eligible homeowners, a sign the effort is gathering momentum after a slow start. But so far few of those trial modifications are turning into permanent fixes.
The Making Home Affordable program has begun trial modifications for more than 650,000 borrowers since it was launched in February, according to data released Tuesday by the Treasury Department. That amounts to 20% of those eligible for the program. More than 217,000 trial modifications, or roughly one-third, were under way in just two states: California and Florida.
The program provides financial incentives to mortgage companies and investors to reduce loan payments to affordable levels. The Treasury Department said the program was on track to meet its goal of offering help to between 3 million and 4 million borrowers over the next several years. Those who are 60 days or more delinquent on their mortgages or at risk of imminent default are eligible.
Whether the program will ultimately be judged a success will depend upon how many trial modifications become permanent. To receive a permanent fix, borrowers must be current on their payments in the trial program after three months and submit a hardship affidavit and other documents.
The administration won't release figures on completed modifications until December, but so far it appears that very few trial modifications are becoming permanent, often because of a lack of documentation.
J.P. Morgan Chase & Co. said last week that more than 92,000 of its customers have made at least three trial payments under the program, but just 26% of them had submitted all the required documents for a permanent fix. Many other borrowers are still in the early stages of the program.
"It's a fiasco in the making," said Alan White, an assistant professor at Valparaiso University in Indiana, citing preliminary information about low numbers of permanent modifications and complaints from attorneys and housing counselors.
"The good news is you've gotten all these homeowners in from the cold and on these temporary modifications," Mr. White said. "The bad news is we are stumbling in getting all these people...all the way" to keeping their homes.
At Morgan Stanley's Saxon Mortgage Services, about 26,000 of the 39,000 borrowers in the program have made more than three trial payments. Roughly 500 have received completed modifications.
"It's hard to get the documents in," said Saxon Chief Executive Anthony Meola, adding that 82% of borrowers are current on their trial payments. Mortgage servicers collect loan payments and work with troubled borrowers.
The Treasury Department last month gave borrowers who have made three trial payments sixty additional days to hand in their paperwork and relaxed some documentation requirements.
It's not clear yet what will happen to borrowers who make payments, but don't submit required paperwork.
"We have gone the extra mile," said Assistant Treasury Secretary Michael Barr in an interview. "Now it's up to the servicers to close the deal."
The administration continues to look for ways to address challenges in turning trial modifications into permanent fixes, a Treasury spokeswoman said.
Loosening documentation requirements should make it easier to complete some modifications, said Sanjiv Das, president of Citigroup's mortgage unit, which has finalized more than 1,600 of the modifications. Roughly 70% of the 68,000 borrowers in the program are current on their payments, Citigroup said.
Still, some borrowers say their mortgage companies have kept them in limbo for months. Gerald Bullock of Cincinnati said he has made seven trial payments and provided J.P. Morgan more than 60 pages of documents, but this week got another request for documents.
"We don't know if we have a house to live in or not," said Mr. Bullock, who fell behind on payments after becoming disabled in a workplace injury. "It just adds to [my] anger and depression."
A J.P. Morgan spokesman said Tuesday that Mr. Bullock's final modification was approved Friday and paperwork finalizing it will be sent this week. "Unfortunately, we mistakenly called him for additional documents," the spokesman said.
In an effort to get required documents, Saxon recently offered more than 5,000 Florida and California borrowers in the trial program $25 gift cards if they brought their paperwork to a nearby company event. About 15% responded, the company said.
Freddie Mac, the government-controlled mortgage company, recently hired Titanium Solutions Inc. to go door-to-door gathering needed documents. "Most of our borrowers got into the loan with assistance" and need similar help with the modification process, said Freddie Mac Senior Vice President Ingrid Beckles.
Susan Cook, a real-estate broker who works as a home-retention consultant for Titanium, said borrowers often report that they have sent in their paperwork "two or three times." But "there is always some little piece that is probably missing," she said.