With 14% of homeowners either in foreclosure or behind on their payments, the Obama administration is facing increasing pressure to provide aid to distressed homeowners. The chief method that the administration is pushing to help struggling homeowners is loan modification and they’re patience with lenders and loan servicing companies is wearing thin. In all, 71 companies are participating in the government incentive program that is worth over $75 billion in aid to homeowners.
One of the biggest problems slowing down the flow of loan modifications is that modifying a loan involves mountains of paperwork and is administratively difficult. Another issue is that borrowers simply don’t know what their options are and how to get started. Still, the Obama administration feels strongly that companies could be doing more to help homeowners in need of assistance and last week the government announced a few ways that they will turn up the heat on loan servicing companies.
Public Shame: Beginning next week, the Treasury will publish a list of the companies that are not pulling their weight in the push for loan modifications. Many of the names that will be on the list are already known and there are a variety of excuses being made in advance of the list being released. Most companies are blaming homeowners that have applied for a modification, saying that 60% of the paperwork that has been filed was completely incompletely or incorrectly. Participation in the program was voluntary for lenders and loan servicers, but many signed up in order to receive government incentives for loan modifications and the government is now asking lenders to hold up their end of the bargain.
SWAT Teams: This week, the government will send three person teams that they’re calling SWAT teams into the eight largest financial institutions in the program to monitor their modification activity. The teams will report twice a day on the activities of the companies in an effort to push for continuous progress in assisting homeowners.
Borrower Education: The government is encouraging lenders and loan servicers to be proactive in contacting borrowers who might qualify for loan modification and encourage them to get their documents in before the end of the year. Some companies have already taken measures to educate their customers. For example, Fannie Mae has hired realtors to contact borrowers in person to discuss their modification options and help borrowers complete their paperwork. The government has also set up ways for homeowners who don’t know where to begin to get help through the website www.makinghomeaffordable.gov or calling 888-995-HOPE. Many borrowers don’t realize how modification works or what the benefits of modification are.
Withholding Incentive Payments: The final way that the government is punishing lenders for a lack of progress in helping homeowners is by withholding incentive payments. The downside for the lender is that they miss out on money that is earmarked for them. However, because the program is voluntary, the government really can’t come down with any other financial penalties for lenders that choose not to focus on the program.