Banks pressured to be more helpful

By Lisa Mascaro

Saturday, Dec. 5, 2009 | 2 a.m.

Throughout the foreclosure crisis, lawmakers and the administration have raised concerns that lenders are not doing enough to help families keep their homes and that the federal government is limited in its ability to press them to do more.

That theory may be put to the test as the Obama administration tries anew to push lenders to step up efforts to rework home mortgages so families can avoid foreclosure.

President Barack Obama’s housing rescue plan announced this year started with enticements for lenders: For every home mortgage they reworked, they received cash payments.

But the slow pace of mortgage modifications has brought out the sticks to accompany the carrots. Beginning this month the Treasury Department will publish a list of which lenders are meeting their targets and which are falling short. As one assistant Treasury secretary told The New York Times last week, some institutions “ought to be embarrassed, and they will be.”

As the foreclosure crisis ran headlong into the jobs crisis this year, the administration launched two programs in the spring to help protect homeowners.

One program allows homeowners to refinance at today’s lower interest rates even if their Fannie Mae or Freddie Mac-backed homes are underwater, meaning they are worth less than is owed.

This program has been especially important in Nevada, where studies now show nearly 70 percent of homeowners in Las Vegas are upside down on their mortgages. Under the program, homes valued at up to 25 percent less than the amount owed can still qualify for refinancing.

The second program is aimed at those facing imminent risk of foreclosure by having lenders rewrite their mortgages to a more affordable payment. Under the program, the federal government provides partial funding to lenders to lower the principle or interest rates so monthly mortgage payments consume no more than one-third of a homeowner’s income. The lenders also pay part of the costs.

The program has faltered, as lenders have not kept pace with converting trial modifications to permanent conversions after the initial three-month test period.

“With tens of thousands of trial modifications being made each week, the administration is now working to ensure that eligible borrowers have the information and the assistance needed to move from the trial to the permanent modification phase,” the Treasury and Housing and Urban Development departments said in a joint statement.

Part of the problem is technical — homeowners face mountains of paperwork to qualify for the mortgage modifications. The administration is streamlining the requirements and enlisting community housing groups to help homeowners execute the applications on time.

But part of the problem also appears to be a reluctance on the part of lenders to convert the loans, and the administration is imposing new monetary penalties and sanctions to ensure target agreements with lenders are met.

The administration also plans to publicize which lenders are following through and which are not in monthly reports.

Senate Majority Leader Harry Reid singled out Bank of America this week, warning that the company must bring more resources to Nevada to help struggling homeowners or face public scrutiny.

Reid called on the bank to establish a loan assistance center in the state, noting that of the hundreds of cases the senator’s office is working on for distressed homeowners, 40 percent involve Bank of America.

“(This) is in part a reflection of your company’s presence in Nevada but perhaps also an unfortunate indication of the difficulties your Nevada customers have encountered when approaching B of A for relief,” Reid wrote.

“In too many instances where my staff connects a constituent with a B of A employee to discuss a modification, the constituent later reports that B of A failed to be of any assistance.”

Reid also requested that Bank of America devote staff to handle cases before the state’s new foreclosure mediation program. Reid said most of the company’s cases before the mediation program resulted in findings of “bad faith” on the part of Bank of America.

“I appreciate the significant burden that the foreclosure crisis has placed on your servicing division, but I suggest your Nevada mortgage customers, Nevada’s housing market and, indeed, your company’s reputation will all suffer more unless more of B of A’s resources are directed to our state,” Reid wrote in a letter to the bank.

“Simply put — B of A must do more.”

Bank of America issued a statement saying the company “shares Sen. Reid’s concerns for homeowners during these difficult economic times.” The company outlined steps it is taking to help Nevadans as part of its efforts nationwide to modify loans.

“Bank of America is committed to helping as many customers as possible stay in their homes during these difficult times,” the statement said.

For more information on the housing programs, go to makinghomeaffordable.gov or call (888) 995-HOPE.