Foreclosure Rescue Still Bogged Down The Wall Street Journal By Ruth Simon 12-11-2009

Foreclosure Rescue Still Bogged Down
The Wall Street Journal
By Ruth Simon
December 11, 2009

Fewer than 5% of borrowers participating in the Obama administration's foreclosure-prevention program, about 31,000 in all, have received permanent loan modifications, the Treasury Department said Thursday.

The new numbers were the latest sign of trouble in the $75 billion foreclosure-rescue plan launched in February. The program provides financial incentives for mortgage companies and investors to reduce loan payments to affordable levels for struggling borrowers. But it has proved difficult to move borrowers from a trial phase to permanent mortgage fixes.

"We agree that servicer performance in converting trial modifications to permanent ones has been unsatisfactory," a Treasury Department spokeswoman said. The department last week said it was stepping up pressure on mortgage companies to complete more loan modifications.

Through November, more than 728,000 borrowers had begun making trial payments under the plan, up from 651,000 in October, with modifications saving borrowers an average of more than $550 a month, the Treasury Department said.

Bank of America Corp. had 156,864 borrowers in the trial program and 98 other borrowers had received permanent fixes. Citigroup Inc. had completed 271 permanent modifications and had 100,124 active trial modifications.

A Bank of America spokesman said the company had "the highest number of...active trial modifications" and expected to gain momentum in converting borrowers to permanent fixes in December.

A spokesman for Citigroup's mortgage unit said the bank was beginning to see "greater success" thanks to "recent improvements in documentation requirements and increased borrower awareness."

The program calls for borrowers to make three trial payments to qualify for a permanent modification. They must also provide a hardship affidavit and other documents.

The administration has been successful in getting borrowers into trial modifications, said Thomas Lawler, an independent housing economist. But its results on permanent modifications has been "discouraging," he said. Officials "clearly didn't think enough about what would happen on the back end," he said.

The administration had set a goal of 500,000 trial modifications by November 1. Many mortgage-servicing companies began the trial process based on verbal information provided by borrowers. But getting borrowers to turn in required documents has been challenging. Many borrowers, meanwhile, complain they are asked repeatedly for forms they have already filed.

Some companies have required borrowers to provide most or all of the needed paperwork before they begin the trial process. Two such firms, Ocwen Financial Corp. and GMAC Mortgage Inc., account for more than 11,000 permanent modifications -- more than 36% of the total.

"Deciding to get the documentation up front has been key," a GMAC spokeswoman said. Despite financial pressures, GMAC has boosted staffing in loss mitigation by 35%, she said.

J.P. Morgan Chase & Co. has 136,686 active trial modifications and 4,302 permanent modifications. In testimony before Congress this week, Chase said that 29% of borrowers who entered the program between April and September didn't make the required payments; 20% hadn't provided all of the required documents. "Our focus has been on getting the documents we need from customers," a Chase spokesman said.

At Wells Fargo & Co., 96,137 borrowers were in the trial plan and 3,537 had received permanent fixes. About 14,000 additional borrowers had provided all required documents and most should receive permanent modifications in the next month or so, said Cara Heiden, co-president of Wells Fargo Home Mortgage.

More than half of Wells Fargo customers in the program hadn't yet made all their trial payments because they hadn't been participating long enough, she said.