In the first indication that growing public complaints are affecting White House policy in relationship to its housing rescue plan, the Obama administration is moving against bankers.
The Treasury Department’s TARP chief Herb Allison announced new protections for homeowners who are in the mortgage modification process. The Troubled Assets and Relief Program chief made the comments during a hearing before lawmakers of the House Oversight Committee in Washington, D.C.
The changes would ban bankers and mortgage companies from starting foreclosures before homeowners have been deemed ineligible for a mortgage modification. The new provisions, expected to be ordered by the White House against bankers and bank servicing companies in charge of handling modifications, would also require lending institutions to respond to customer requests for a modification within 30 days.
“We believe that the most significant measures of success are not just how many borrowers start trial modifications,” Allison told the Congressional panel. “But whether families are able to avoid foreclosure and how effective the program is in stabilizing the housing market.”
More than 7-million homes have been foreclosed since the foreclosure crisis started more than two years ago, and another 13 million homeowners are at risk of foreclosure in the next five years. High unemployment and more than one of four homeowners without equity in their homes is leading to a record volume of foreclosures.
Bankers have shown little interest in modifying mortgages for the majority of those who apply for their loans to be reduced or to have payments lowered. Only 168,000 permanent modifications have been completed through the White House program since it was started more than a year ago. Another 1.1-million homeowners are awaiting permanent modifications.
The move comes just a day after the nation’s largest lending institution, Bank of America announced it would forgive up to 30% on some mortgage balances as a result of an agreement it reached a year and a half ago with state attorney generals representing at least seven states to settle charges that Countrywide Home Mortgage made risky high leverage loans to millions of mortgage borrowers.
Under the agreement, borrowers must have defaulted on their mortgages, missing at least two payments and be underwater on their home by at least 20%. BofA purchased defunct Countrywide at the height of the financial crisis and is believed to have more home mortgages in default than any other bank or mortgage company in the nation.
As the nation’s largest bank, BofA’s announcement was a ploy at improving its troubled public perception and to resolve legal problems. A series of opinion polls have shown a growing loss in confidence in bankers.
The Obama administration is expected to make additional moves to improve the troubled housing market in coming weeks. The Treasury Department will be asking economists and experts from a variety of fields about reforming the nation’s two mortgage giants, Fannie Mae and Freddie Mac.