The Obama Administration is considering new steps to delay and prevent foreclosures as it seeks to qualify more struggling homeowners for its major mortgage modification program, financial industry sources said.
The possible next moves would create numerous new policies and procedures for banks, investors and mortgage servicing companies that participate in the Administration’s $75 billion Home Affordable ModificationProgram [HAMP], which provides financial incentives to them – and homeowners -- to modify loans.
Among other things, some of the changes could for the first time mandate foreclosure moratoriums for periods of several months, one source briefed on them said.
Currently, companies will often voluntarily suspend foreclosure proceedings against a delinquent borrower while they are evaluating the homeowner’s HAMP application or it they have approved the homeowner for a 90-day trail mortgage modification in HAMP. But they are under no legal requirement to suspend proceedings.
If approved, the changes could provide new relief to some homeowners seeking help under HAMP. But mortgage holders and investors – including banks, pension funds and investment funds --are concerned the changes could delay legitimate foreclosures, the source said.
“It’s all draft, but it’s pretty far along,” the source said.
Herbert Allison, the assistant Treasury Secretary who oversees HAMP, declined to comment on any possible revisions to the program. But he said, “We are continually assessing HAMP and looking at ways of improving it. As we refine those, we make announcements from time to time. I’m not making any announcements today, but I can assure you we are actively looking at all aspects of our program continuously.”
The Administration proposals would also:
--impose new definitions of “reasonable solicitation efforts” by servicers, including forcing them to make at least four phone calls to a delinquent homeowner over at least 31 days about HAMP and to also mail them two written notices about the program, with at least one notice sent by certified mail with a return receipt.
--create a new 30-day “borrower response period” for many homeowners who are turned down for HAMP during which a servicing company could not complete a sale of a foreclosed property.
--require servicers to certify in writing that a borrower is not eligible for HAMP before a foreclosed property can be sold.
When the Administration announced HAMP in February, it said it would help three million to four million struggling homeowners. But through January, banks and servicers have granted 90-day “trial” modifications to about a million homeowners -- but granted “permanent” modifications for up to five years to just 116,000 applicants. So far, most modifications – temporary or permanent – involve a reduction of the interest rate on a loan to as low as 2%.
Meantime, a record 2.8 million properties entered the foreclosure process in 2009, up 21% from 2008 and more than double the number in 2007, according to RealtyTrac. Analysts and consumer advocates predict millions more homes will go into foreclosure this year because of continued high unemployment. Consumer and housing advocacy groups have urged the Administration and Congress to take more aggressive action.
HAMP is one of several Administration housing efforts. Treasury has continuously refined it; last month, the department announced new steps to assure applicants provide servicers with all necessary paperwork. The Administration says HAMP is on track to meet its objectives by 2012.
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