The federal program to help borrowers avoid foreclosure homes could fail about 450,000 mortgage borrowers currently in trial loan modifications because of documentation difficulties.
According to Treasury Department officials, mortgage firms servicing the 450,000 modified mortgages have until the end of the month to review all their trial modifications and check if homeowners have paid all their monthly amortizations and have completed submitting needed documents. Homeowners who have not completed the requirements are given one month to comply.
The Treasury Department said the review is needed to hasten the transfer of borrowers in trial modification to permanent status. Many homeowners have been paying their modified monthly payments for about eight months, but they are still waiting for their mortgages to be moved into permanent status.
However, according to Richard Neiman, head of the New York State Banking Department, many borrowers whose mortgages have been modified are at risk of losing their modified status because of documentation problems. They have been complaining that lenders and services are continuously losing papers submitted.
In response to the complaints, the Treasury Department has decided to issue new guidelines to preserve the initial gains achieved by the federal program to help homeowners avoid foreclosure homes. The guidelines will hasten the conversion of modified mortgages into permanent status and to relieve borrowers from excessive documentation requirements.
The Treasury Department has been continuously criticized for the slow implementation of its Home Affordable Modification Program. Only about 66,500 homeowners have moved their modified mortgages into permanent status and only about 787,000 borrowers are in trial modifications.
Qualified borrowers are put in trial modifications to ensure that they are able to handle the modified monthly payments and to provide them more time to complete the required documentation. Only after the modified loans become permanent that servicers, lenders and homeowners are given their incentive payments promised under HAMP.
Based on Treasury Department data, about 75 percent of borrowers with modified loans have been making their monthly payments on time.
New York banking superintendent Neiman said that the Treasury Department needs to hasten the standardization of documentation and the set-up of a website that will enable borrowers to track their paperwork. He added that servicers should also be instructed to accept alternative documents in cases where required documents take a long time to procure because of factors beyond the control of borrowers who are doing their best to avoid foreclosure homes.