Treasury Announces Plan to Increase Pressure on Banks to Modify Mortgages

The U.S. Treasury Department announced Monday that it would increase the pressure on mortgage servicers and banks to modify delinquent mortgages. Mortgage servicers will now be required to submit plans to the Treasury department indicating how they intend to determine which loans will be permanently modified. Banks that fall short of the guidelines they submit could face fines or sanctions. The changes are intended to help the troubled Making Home Affordable Program. While promising to help keep three to four million homeowners in their homes, the program has so far only submitted test modifications to 650,000 borrowers, of which about 375,000 were scheduled to convert to permanently reduced payments by the end of the year. These numbers are seen as a colossal disappointment.

In addition, the Treasury Department will begin releasing data showing the permanent number of modifications issued by bank. This move is meant to shame banks into modifying more loans. The current report only shows temporary modifications.

The Making Home Affordable program has been plagued by reports of a “phone tree hell” and bureaucratic disorganization. However, the program has also suffered, as unemployment numbers remain high, causing many borrowers with good credit scores to have difficulty making their mortgage payments. While the program was initially designed to help combat option ARMs and sub-prime mortgages, the foreclosure epidemic has extended beyond these types of borrowers and mortgages.