Bankers Could be Forced to Modify Loans

The last chance for bankers to voluntarily modify mortgages may be at hand, according to a report in American Banker. For the past year and a half, the government has pressed for modifications and set incentives for them — but has stopped short of forcing them. Though servicers have pledged to improve their efforts, progress has been slow, and many still refuse to modify loans in ways that lead to lower payments for the borrower. The result is a wave of re-defaults and increasing evidence that public and private efforts to stop the foreclosure crisis have failed. Observers say if changes being pressed by the Obama administration cannot improve the situation, Congress or regulators are likely to take more drastic action, including a renewed push for legislation to allow judges to rework loans in bankruptcy. "If modifications don't pick up, I think mortgage bankruptcy returns with a vengeance," said Jaret Seiberg, a policy analyst with Washington Research Group. "Bankruptcy is the tool that the government can use to modify contract terms without incurring liability. If we enter the fall, and we've helped hundreds of people rather than tens of thousands, there's going to be tremendous pressure to pass full-scale mortgage bankruptcy. So there's a lot riding on the implementation of the mortgage modification plan."