Treasury: Lenders Failing to Help Stem Foreclosures

Mortgage lenders have failed to deliver under the Obama Administration’s Making Home Affordable program that is suppose to stem foreclosures by reducing loan payments, a U.S. Treasury official said.

Obama administration officials on Monday will announce a campaign to pressure lenders to reduce payments for a larger number of homeowners, and make more loan modifications permanent, the Treasury official told the New York Times.

Currently, a very small fraction of the $75 billion, taxpayer-financed program has resulted in permanent lower payments.

Some lenders this year have accelerated the pace at which they are reducing mortgage payments, but too many of the cases are on a short-term, trial basis, according to Michael S. Barr, the Treasury’s assistant secretary for financial institutions, who made the disclosures about the failing program in an interview with the Times.

“The banks are not doing a good enough job,” Barr said. “Some of the firms ought to be embarrassed, and they will be.”

Barr told the newspaper that regulators will attempt to use shame as a fix to the program, publicly naming institutions that move too slowly to lower mortgage payments on a permanent basis. He said the U.S. Treasury will wait until reductions are permanent before giving out cash incentives that it promised to mortgage companies that take part in the program.

“They’re not getting a penny from the federal government until they move forward,” Barr told the Times.

Last month, a Congressional panelt reported that less than 2,000 of the 500,000 loan modifications in progress had become permanent under Making Home Affordable. 

Next month, the Treasury is expected to report a small number of permanent loan modifications, with “estimates in the tens of thousands out of the more than 650,000 borrowers now in the program,” the Times said.

Citigroup, one of the few major banks that releases such numbers, said last week that it helped about 130,000 homeowners avoid foreclosure on mortgages valued at more than $20 billion in the third quarter. Citi’s loss mitigation results outnumbered completed foreclosures by more than 15 to one, nearly four times the rate it reported in the third quarter of 2008.

However, Citi’s efforts does little to stem the overall, unrelenting wave of foreclosures across the United States.

The mortgage delinquency rate reached a record 9.64 percent of all loans outstanding for the third quarter of this year, according to the Mortgage Bankers Association.

That compares to 9.24 percent in the second quarter of 2009, and 6.99 percent in the third quarter of last year. The delinquency rate breaks the record set last quarter, according to MBA records dating back to 1972.

Follow us on Facebook. http://facebook.com/ecreditdaily