economics

January 29, 2010

Yet another try at foreclosure rescue

Filed under: Uncategorized — ktetaichinh @ 2:19 am
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By Tami Luhby, senior writerJanuary 28, 2010: 2:43 PM ET

NEW YORK (CNNMoney.com) — Under fire for the low number of people receiving long-term mortgage help, the Treasury Department on Thursday announced new guidelines that will require applicants to provide all paperwork before getting a trial modification.

The new policy will make it harder for troubled homeowners to start the process, but it should make it easier for them to qualify for permanent assistance under President’s Obama foreclosure prevention plan.

The administration’s $75 billion housing effort has been plagued by paperwork problems since it launched last April.

Borrowers complain that their loan servicers constantly ask for additional documents and lose their forms. Servicers, meanwhile, say that borrowers are not handing in all that’s needed.

The new rules, which start June 1, will effectively shift the paperwork burden to the start of the process.

“They aim to make it easier and quicker to provide permanent modifications,” said Treasury Assistant Secretary Herb Allison. “These changes also will enable servicers to process more efficiently and handle more volume effectively so we can help more people more rapidly.”

Distressed borrowers will have to fill out a three-page request form that asks them to explain their hardship and list their income and expenses. They will also have to sign an IRS 4506-T form that allows servicers to pull their tax returns. Both forms are available on the Making Home Affordable program’s Web site.

Also, applicants will have to verify their income. For those earning a salary, two recent pay stubs will be sufficient. Other earnings, such as income from self-employment, benefits, or rental properties, must still be documented.

Those who are approved for trial adjustments and make three timely payments will be automatically converted to long-term modifications.

Returning to the original plan

Under the original plan, borrowers were supposed to submit their documents before entering a three-month trial period. The trial was a time that borrowers had to prove their could make the requirement payments.

The program, however, was slow to start as servicers were deluged by applications. In order to get more people into trial modifications, the administration started allowing servicers to approve borrowers’ applications as long as they met the minimum requirements and to track down the necessary documents during the trial period.

The problem then shifted to converting those in the trial modifications to permanent assistance. Servicers attributed the slow pace to the fact that they didn’t have all the needed forms. The Treasury Department responded by lengthening the trial period to five months and lightening the documentation requirements.

Coming under fire once again, the administration in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

As for the end of the year, some 66,500 people have received permanent adjustments, with another 787,200 homeowners in trial modifications.

A Treasury spokesman acknowledged that fewer people will get trial modifications under the new rules, but more of those who make into the program will receive long-term help.

Those already in trial modifications

The administration also reiterated that servicers must review all those currently in trial modifications and determine whether they have been timely with their payments and have handed in their paperwork.

Those who haven’t handed in any documents or have missed payments will be denied permanent modifications, according to the Treasury guidance. These borrowers must be considered for other foreclosure prevention alternatives, such as servicers’ own programs or short sales.

In the case of those who are on time with their payments but have submitted only some documents, servicers must attempt to obtain the required paperwork. If they cannot, then the borrower will be kicked out of the program.

Borrowers have the right to appeal denials.

Some 450,000 people could be at risk of being denied permanent help because of paperwork problems, according to Richard Neiman, the New York banking superintendent who serves on the State Foreclosure Prevention Working Group. He urged Treasury officials last week to reduce the documents requirements and to make it easier for borrowers to submit forms. To top of page

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