Treasury Threatens Banks, Not Borrowers


Today the Treasury Department announced a "Mortgage Modification Conversion Drive," designed to push servicers to move borrowers in the government's Home Affordable Modification Program from the initial trial phase to the permanent phase.

I blogged a bit about this last week, especially about how Treasury wouldn't tell us how many borrowers had missed payments already in the trial phase of HAMP.

I'm not going to go there again because I interviewed the housing bailout Czar today, Asst. Treasury Secretary Michael Barr and specifically asked him how many, and he replied: "Very few borrowers are missing their payments. The overwhelming majority of borrowers are making their payments on time and that's a very strong sign of success for the program."

Apparently all the trouble is in the paperwork. Depending on whom you ask, either servicers aren't processing the paperwork fast enough or borrowers aren't submitting the paperwork fast enough. The truth lies somewhere in the middle.

Banks are overwhelmed and also don't have a whole lot of incentive to move ahead. Yes, there is a small payment from the government to convert borrowers to permanent modifications, but if the borrower won't qualify, then there's no incentive to move and foreclose. Servicers (a.k.a. banks) are being paid large fees by investors, whether borrowers make their payments or not, and if they foreclose, those fees go away, not to mention they're stuck with yet another property on their books.

As for borrowers, guess what?

Many of them lied on their original loan applications, so finding some truth to put on their modification applications can be tricky.

Many don't want to submit their tax returns, since there may be some fudging around there too as well. Many lied about income, so how are they going to come clean on a government document??

Barr says now is not the time to point fingers or lay blame, and yet he did just that: "I don't think the banks have done enough. I don't think they've held up their end of the bargain to reach out to borrowers in all the effective ways they do when they get a borrower in for a mortgage in the first place." And now Treasury is threatening servicers with fines if they don't document each step of the decision process in getting a borrower to a permanent modification.

I'm sorry, but I'm just getting a little sick of all the onus being laid on the banks. Sure, they deserve half of it, but what about the borrowers?? We seem to excuse all their responsibility because the possibility exists that they could lose their homes. But realistically, many borrowers are sitting in said homes, rent free, actively refusing to take the help being offered because they'd have to admit they lied. Others are pushing off the inevitable, stalling on the documentation, because they can save some money for a while and perhaps find an even better bailout deal.

I've done a refi, and it took me about an hour to gather all the necessary documents. Most of them were on line, and all I had to do was press "print." So what if it takes someone else ten or twenty times as long to get their paperwork. It doesn't take more than three months??

Oh what a tangled web we weave...and I'm talking to banks and borrowers alike.

Questions? Comments?