Amid mounting foreclosures, the Obama administration has announced additional steps to get long-term help for troubled borrowers, CNN reports.
Under his plan, the government will provide more resources for borrowers and will partner with organizations to offer homeowners assistance, a Treasury Department spokeswoman told the cable network. The plan also calls for increased transparency and accountability on the part of loan servicers.
The administration's move is its latest attempt to jumpstart its $75 billion loan modification plan, which many fear will fall far short of its goal to help up to 4 million delinquent homeowners, writes CNN.
While some 650,000 people have had their mortgage payments temporarily adjusted, only a fraction have received permanent modifications. More comprehensive data should be released soon, but preliminary figures show the extent of the problem.
For example, CNN reports, fewer than 5 percent of the trial adjustments on loans owned or guaranteed by Freddie Mac were converted to permanent modifications as of Sept. 30, according to the mortgage finance giant.
Looking more broadly, the figures are even lower. As of Sept. 1, only 1.26 percent of all trial adjustments were made permanent after three months, reported the Congressional Oversight Panel, which monitors the government's use of bailout funds.
Meanwhile, more and more people are falling into foreclosure. The combined percentage of loans in foreclosure or at least one payment past due was 14.4 percent in the third-quarter, CNN writes, citing the Mortgage Bankers Association. That's the highest the group has ever recorded, CNN says.
The struggle to score more permanent modifications highlights the depth of the foreclosure problem: Officials are leaning on banks to offer more homeowners trial relief, but the real test will be whether homeowners will receive lasting help.
"No one is really sure why the conversion rate is so low," Mike Zoller, assistant economist at Moody's Economy.com, told CNN. "We're concerned these loans will eventually become foreclosures."
Under the president's plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.
Borrowers that qualify for a long-term modifications can keep making the lower payments for five years. At that point, the interest rate will be set at the rate at the time of the adjustment, or about 5 percent today.
Loan servicers, however, say they are having trouble getting the necessary documents from borrowers, while homeowners maintain that their financial institutions are repeatedly losing the paperwork.
And once homeowners send in their forms, servicers may find these borrowers don't have enough income or have too much equity or savings to qualify. Or it may just be more profitable for the bank to foreclose on the home than modify the mortgage.
While the foreclosure rate has eased a bit recently, some experts fear foreclosures will start rising again unless more people receive permanent assistance.
"Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications," said Guy Cecela, publisher of Inside Mortgage Finance, a trade publication. The president's program "won't result in a significant number of loans being modified and won't put a significant dent in foreclosure rates."
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