MANATEE — Faced with sluggish progress in its foreclosure-prevention effort, the Obama administration plans to crack down on mortgage companies that aren’t doing enough to help borrowers at risk of losing their homes.
But a local mortgage expert said the get-tough policy announced Monday likely will do little, if anything, because of inherent flaws in the Home Affordable Modification Program.
The program, announced by President Barack Obama in February, allows homeowners to have their mortgage interest rate reduced to as low as 2 percent for five years.
Treasury Department officials said they will step up pressure on the 71 companies participating in the $75 billion program, starting this week by sending three-person “SWAT teams” to monitor the eight largest ones and requesting twice-daily progress reports.
“In our judgment, servicers to date have not done a good enough job,” said Michael Barr, an assistant Treasury secretary. Companies, he said, “that don’t meet their obligations under the program are going to suffer consequences.”
The companies have had a hard time getting borrowers to complete the needed paperwork for the loan modification program. Nearly 60 percent of the 375,000 borrowers who qualify to have their loan modifications completed by year-end have either submitted incomplete paperwork or none at all.
As of early September, only about 1,700 homeowners had finished all the paperwork and received a new permanent loan. About one-third of borrowers who have submitted complete applications are still waiting for a decision.
In an effort to shame the companies into doing a better job, Treasury officials will publish a list next week of lagging mortgage companies.
The participating mortgage companies signed contracts earlier this year that give the government the right to withhold incentive payments or end their contracts with the Treasury. But mortgage companies don’t receive those payments until they make a modification permanent, so there is little leverage over companies that aren’t performing well.
That difficulty highlights the program’s key flaw: Since participation was voluntary, the government has little it can do besides shaming the industry into doing better.
“I don’t think it’s going to work,” Karen Blondin, owner and president of Blondin Mortgage Co. in Sarasota, said of the crackdown. “They can’t force the banks to do something they don’t want to do.”
And then there’s lender limbo. About one-third of borrowers have submitted complete applications but haven’t received a decision.
The program has other flaws that also have hindered homeowner participation, especially in Florida, analysts said. For example, it’s limited to homesteaded properties whose mortgages are owned or backed by Fannie Mae or Freddie Mac.
And many who meet that criteria still are ineligible for the program because they owe more than 125 percent of what their home is worth, the result of plummeting home values.
“The biggest problem here is the number of people upside-down on their homes,” Blondin said “This program doesn’t really address that at all.”
Nearly 60 percent of the homesteaded properties in Manatee that fell into foreclosure in October exceeded that 125 percent cap, according to a Bradenton Herald analysis of court records.
Industry executives acknowledge there have been problems.
“The documents were confusing. Borrowers did not understand the process wasn’t closed until the documents came in,” Sanjiv Das, chief executive of Citigroup’s mortgage unit, said earlier this month. “Even when the documents came in, they were not always complete.”
Mortgage finance company Freddie Mac has hired an outside company, Titanium Solutions Inc., to send real estate agents around the country to knock on borrowers’ doors and help them complete the paperwork.
Analysts, meanwhile, say the foreclosure crisis is likely to persist well into next year as rising unemployment pushes more people out of their homes.
About 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter, according to the Mortgage Bankers Association. In Florida, it was 25 percent.
Homeowners who may be eligible for assistance can call 888-995-HOPE, or visit www.makinghomeaffordable.gov.
Duane Marsteller, Herald reporter, can be reached at 941-748-0411, ext. 2630.