Lenders Urged to Step Up Loan Modification Efforts

Expressing dissatisfaction with the progress to date under the government's Making Home Affordable Program the Obama Administration is urging the nation's lenders to do more to help financially troubled homeowners obtain mortgage loan modifications.

In a joint letter sent Thursday to the heads of the 25 banks and mortgage companies that have signed up to participate in the program so far, Treasury Secretary Timothy Geitner and Housing and Urban Development (HUD) Secretary Shaun Donovan asked the lenders to increase the resources and staff training devoted to the program. Details of the letter were reported in today's Washington Post and Wall Street Journal.

"We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share," the letter said in part.

Sigificant differences seen among lenders

The letter acknowledges that the pace of loan modifications is beginning to pick up, but notes that "there appears to be substantial variation among servicers in performance and borrower experience." It also invites lenders to suggest ways that the program can be improved.

Approximately 170,000 homeowners have been offered loan modifications under the program so far, compared to 3-4 million the administration said could be helped when the program was launched in March. Another 4-5 million were expected to be able to refinance their mortgages under the Home Affordable Refinance portion of the program; a reported 80,000 refinances had been completed as of last month.

The program offers lenders financial incentives to modify or refinance the mortgages of homeowners facing financial difficulty.

Housing counselors have complained about delays in getting the program up and running, and homeowners receiving inaccurate and conflicting information about the program, or of dismissive responses from lenders. However, many say the situation has been improving in recent weeks.

Lenders defend handling of program

Lenders have defending their handling of the program, pointing to the complexity of the guidelines and the time required to hire and train staff, as well as to develop the software needed to process applications and apply those guidelines. A spokesman for J.P. Morgan Chase, one of the 25 participating lenders, says it has approved nearly 90,000 modifications to date and is in the process of processing 150,000 others. The bank says it has also hired nearly 1,000 additional loan counselors this year and opened 27 homeowner assistance centers.

Beginning next month, the administration will begin issuing monthly reports evaluating how well lenders are doing in carrying out the program. The reports will include such details as the number of modifications performed, phone delays experienced by borrowers seeking assistance and the accuracy of information provided.

Government-supported secondary mortgage lender Freddie Mac will also institute a "second look" program to review the cases of borrowers whose applications for help under the program were rejected.