By Kevin Chiu
U.S. Treasury Secretary Tim Geithner is frustrated with bankers and mortgage servicing companies, and he might even be bordering on being angry with his former colleagues in the banking industry. Geithner’s clear stated frustrations are leading to growing speculation in Washington, D.C. that the Obama administration may be moving closer to forcing banks to modify troubled homeowners mortgages.
“I want to be clear that we do not believe servicers are doing enough to help homeowners,” Geithner told a Senate panel on banking. “They are not responding to the needs of responsible and increasingly desperate homeowners.”
As the foreclosure crisis moves into its third year, the Treasury boss has his work cut out, negotiating with bankers, who have been reluctant to modify mortgages for millions of Americans caught in the web of the financial crisis. More than 7-million have been foreclosed since the crisis started, according to government officials.
More than 20-million subprime and adjustable rate mortgages, blamed for much of the foreclosure crisis were sold in the four years prior to the real estate crash. When Wall Street bankers failed to make a market for the securities that backed the mortgages the lending market nearly froze, triggering the financial crisis.
The same type of securities are still traded today on Wall Street, leading to fears over a second wave of troubled mortgage holders defaulting on their loans. A minimum down payment FHA program that only requires 3.5% down for eligible borrowers is already sending tens of thousands of mortgage borrowers into trouble.
Geithner is critical of bankers in their slow response to at risk homeowners, saying “they’re not doing enough to help them navigate the difficult and often frightening process of avoiding foreclosure.”
More than 1.4-million mortgage borrowers have received offers for trial modifications through the government program, but only 230,000 have gotten permanent modifications, according to the latest government figures. Some 1.1-million borrowers are receiving an average savings of $500 a month in trial modifications. But the figures are far less than what the administration had hoped for when the program was launched more than a year ago, estimated at the time to be 3 to 4-million borrowers.
At least another 1.3-million mortgage borrowers have received mortgage modifications from their banks outside of the government program, but banking analysts contend the figures are not enough to slow the momentum of foreclosures that trouble housing markets and the overall economy.
The Obama administration is expected to roll out another series of programs to aid homeowners at risk of foreclosure in the next few weeks.