Nearly 25 percent of homeowners receiving help under a federal government foreclosure prevention program have already lapsed on their new mortgage payments, according to a Treasury Department survey released.
The delinquency figures raise questions regarding the effectiveness of the current program from the Obama administration’s Home Affordable Modification Program, a $75 billion taxpayer-financed program that has been running since last year.
Last week, the Department of the Treasury announced a campaign to put new pressure on lenders to do more to move struggling homeowners into permanent loan modifications containing easier terms.
So far, more than 650,000 borrowers are participating in the trial phase of the program and have seen their payments lowered, on average, nearly 40% a month.
Trial modifications were initially for three months, but the Treasury added 60 days, making them last five months.
Moving homeowners from the trial phase into a permanent modification has become the program’s most recent obstacle.
Borrowers must make three payments and submit more detailed documents showing that they qualify for the program to move forward and make the modification permanent.
A Treasury Department survey of large mortgage servicers found “over 73 percent of borrowers are current in their trial plan payments,” according to Assistant Treasury Secretary Herbert Allison.
That leaves about 27 percent who have fallen behind on the payments.
Allison said to a Congressional Oversight Panel that “while not all eligible borrowers will convert to permanent modifications; it is too early to estimate a failure rate, diagnose causes and predict future success rates.”
He also said the Treasury has projected an initial re-default rate of 40 percent on the foreclosure prevention program, improving the industry’s record of over half of borrowers defaulting on loans a year after a permanent modification, according to government records.
The Treasury Department is expected to release data next week showing that the vast majority of borrowers remain stuck in the initial phase of the program, Treasury Department spokeswoman Meg Reilly said.
This week Treasury officials threatened to place fines on mortgage lenders unless they accelerate efforts to give struggling homeowners permanent loan modifications.
Housing advocates say in numerous situations borrowers have submitted all of the necessary documentation to qualify for a modification, but remain helpless, awaiting a lender’s decision.