Administration Finally Finds Mortgage Modification Incentive for Banks
Reports that only 25 percent of eligible homeowners have applied for inclusion in President Obama’s $75 billion mortgage modification program and only 5 percent have received permanent relief have left the Administration struggling for new ways to assist homeowners fighting foreclosure. Its latest idea is stunning in its administrative simplicity, and in its late inclusion to the plan: they want to force banks to engage in modifications before they initiate foreclosure proceedings.
Under the terms of the proposal, banks would be prohibited from foreclosing on houses until mortgagees were screened for eligibility in the mortgage modification program or at least four verifiable contact attempts had been made. Banks will have to stop foreclosure proceedings while customers are in temporary repayment plans. Government officials estimate that nearly 90 percent of outstanding mortgages are eligible for inclusion in that program.
Currently, banks can initiate foreclosure proceedings against any homeowner that hasn’t applied for a mortgage modification. And foreclosures can proceed even while applications for inclusion in the modification program are under review or even after a customer has received a temporary notification — probably part of the reason for the small proportion of temporary modifications converted into full modifications.
The Administration’s proposal, in effect, lowers the barriers for entry into the mortgage modification program by putting the onus on banks to include the homeowners having the most trouble with their mortgages before they engage in foreclosures. It’s such an obvious solution to an intractable problem — getting the information about and applications for the modification program to the people who need it but don’t necessarily know about it — that it’s almost surprising banks weren’t forced to do it from the get-go. Then the nearly 3 million homeowners who lost their houses last year might still have them.