December 10, 2009 / 11:02 PM / 9 years ago

UPDATE 2-Few US mortgage modifications made permanent

* Only 4.3 pct of HAMP mortgage modifications permanent

* Obama home rescue program hurt by slow documentation

* Treasury: 728,408 trial, permanent loan workouts active

* Borrowers get average monthly savings of more than $550 (Adds comments from mortgage analysts, details)

By David Lawder

WASHINGTON, Dec 10 (Reuters) - Just 4.3 percent of homeowners whose mortgage payments were cut under an Obama administration aid plan have received a permanent reduction, raising questions about the program’s effectiveness.

In a report released on Thursday, the Treasury Department said just 31,382 of 728,408 active loan modifications had achieved permanent status under the Home Affordable Modification Program, known as HAMP.

The low conversion rate to permanent status for the loan workouts has drawn sharp criticism from lawmakers and oversight bodies, who have said the Treasury-led efforts have done little to ease pressure on homeowners struggling to avoid foreclosure.

The low rate reflects difficulties that mortgage servicers are having in collecting and processing documents to verify borrowers’ incomes, debt-to-income ratios and other key requirements.

“We’re seeing a huge increase in the number of completed packages, but underwriting isn’t caught up,” said Greg Hebner, president of MOS Group, which has been hired by some of the largest U.S. banks to assist in modification efforts.

“You’re basically moving this huge ball that keeps getting stuck. You move it to the next stage and it gets stuck again,” said Hebner, who estimated that completed documents for 50,000 to 100,000 borrowers are now caught in lender underwriting departments.

Under HAMP — the centerpiece of the Obama administration’s $50 billion housing rescue effort — servicers can receive thousands of dollars in cash incentives if a borrower keeps up payments on a modified mortgage that has made it through a five-month trial period. Few incentives have been paid out.


The Treasury said in a statement that most borrowers whose loans had been modified were making their reduced payments.

Borrowers in the modification program were saving an average of over $550 per month on their monthly mortgage payments.

The 728,408 active modifications in November was up 11 percent from October. But new data in the November report also showed that 30,650 modifications that had been started had been canceled.

A Treasury official said these borrowers were kicked out because they were determined ineligible, they never submitted required documents, or didn’t stay current on monthly payments.

Much of the effort so far has been getting borrowers started on trial modifications. Through November, loan servicers in the program had offered 1.03 million modifications, up from 919,965 through October.

Wall Street analysts were not surprised by the slow conversions pace, given the size of the undertaking.

“Given the number of trial modifications that were started in September and October, I would be more concerned if we don’t see a big pick-up in the numbers by January or February of 2010,” said Scott Buchta, a strategist at Guggenheim Capital Markets in New York.

U.S. Treasury Secretary Timothy Geithner told a bailout watchdog panel on Thursday that the Treasury was pressuring lenders and mortgage servicers to do more to ease the harm from rising home foreclosures, especially by pushing them to make more permanent modifications in mortgage loans.

“We are using a tremendous amount of force and persuasion to try to make sure we get those conversion rates up to a reasonable level,” he told the Congressional Oversight Panel. “They need to do a better job and they have the ability to do that.”

The Treasury estimated that trial modifications now under way had reached a total of 24 percent of eligible borrowers who were 60 days or more behind on their payments to servicers participating in the program.

Among servicers, those modifying loans for the largest percentage of their eligible delinquent borrowers were Saxon Mortgage Services Inc at 44 percent, CitiMortgage (C.N) at 43 percent and GMAC Financial Services at 39 percent. Both Citi and GMAC have received massive government bailouts.

Some banks are also claiming far larger loan modification numbers outside of the HAMP program.

Wells Fargo & Co (WFC.N) said it has 422,001 active or completed modifications so far this year, including 99,674 HAMP modifications. JPMorgan Chase said it has offered 568,458 modifications, including 199,033 through HAMP. (Additional reporting by Al Yoon in New York; Editing by Kenneth Barry and Leslie Adler)

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