The U.S. Treasury Department reported today (August, 4th) that the Obama Administration’s “Home Affordable Modification Program” has helped modify a whopping 235,247 loans that were at least two months delinquent. That accounts for just 9% of delinquent borrowers who are potentially eligible for loan modification. As a result of these meager numbers, the administration, as well as banks responsible for loan modifications are under quite a bit of fire. So there was a meeting held at the White House last week with members of the Obama Administration and 25 of the largest mortgage servicers who emerged from the meeting with a promise to accelerate the pace of their loan restructurings. Well, I’m glad that’s settled. Did they pinky swear?
There are 38 servicers who are participating in this voluntary program. Together, they comprise approximately 85% of all the mortgages in the country. And NOT ONE of those banks is prepared to deal with the huge number of loan modification applicants. But at the meeting, they all agreed upon a goal of getting 500,000 loan modifications under way by November 1st. To do this, the banks are going to have to amp up their staff and training, and according to Michal Barr, assistant Treasury Secretary for Financial Institutions, “servicers must treat borrowers with more respect and respond in a more timely manner.” That’s reassuring. Let’s hear from Jean in Michigan who wrote CNNMoney.com and might just need a little more reassurance than Mr. Barr’s passive demand: “Obama’s plan is a joke. The banks are a joke. Fax, fax, fax, call, call, call and no response for months. Even Washington rep can’t get an answer or help, what a sham!!!”
According to Tami Luhby of CNNMoney.com, one way of holding institutions responsible for increasing their performance is through releasing “servicer’s progress reports” every month, allowing the public to see which institutions are lagging in implementing the plan.
But according to Kenneth Harney of Realty Times, skeptics in Washington might have already seen enough of this plan. “Illinois Democratic Senator Dick Durbin said it’s ‘time to revisit’ legislation empowering bankruptcy court judges to impose involuntary modifications on lenders, including slashing principal balances of delinquent borrowers.” Harney adds that “Durbin’s bankruptcy bill was defeated earlier this year, but he says the key argument against it at the time was – let’s give the industry a chance to modify loans on their own. But now, say’s Durbin, ‘it’s time to admit that isn’t working.'”
And so, as with everything in this housing market, we will just have to wait and see. In coming weeks, we might even see these banks and servicers increase the approval of loan modifications and better their service. But I have this uneasy feeling that despite the “servicer’s progress reports”, despite the growing frustration from borrowers going into default for reasons out of their control, despite monetary incentives, and despite the Obama Administration’s urging for improvements, the banks are going to lag. And if they lag, then perhaps Dick Durbin’s bill will help give them a kick in the ass.