WASHINGTON — Senate appropriators are annoyed at the slow implementation of the government's Home Affordable Mortgage Program and want residential servicers — including the nation's megabanks — to be held accountable.
The Senate Appropriations Committee, in a new report, says it is "dismayed that many of the banks participating in the program continue to drag their feet or are unfairly denying loan modifications to troubled borrowers after receiving billions of taxpayer dollars."
A committee report on Housing and Urban Development appropriations for fiscal year 2011 says HAMP has the potential to help millions of struggling homeowners, saying it's "vital" that the program "do a better of job" of helping eligible borrowers receive permanent modifications.
The panel said it is asking FHA to submit a report to Congressional appropriators "within 90 days of enactment of this act outlining the measures the administration is taking to increase oversight of servicers, and hold them accountable...."
Treasury and HUD officials have threatened to penalize lenders and servicers with poor performance records but so far have been reluctant to follow through.
To date, HAMP has helped nearly 400,000 struggling borrowers receive permanent modifications, reducing their monthly mortgage payments to 31% of income.
However, 1.3 million borrowers have entered the three-month payment trials and 520,000 have been cut off or denied a permanent modification for a variety of reasons — usually nonpayment, job or income loss, lack of documentation, among others.
"There's been a lot said about the effectiveness of the current programs. But they are having an impact," said Fannie Mae chief executive Michael Williams.
Speaking at a recent luncheon sponsored by Women in Housing and Finance, he noted there are five million mortgages that are 90-days or more past due. Nearly 1 million of those seriously delinquent loans are guaranteed or owned by Fannie. (The GSE functions as chief administrator of the program, acting as a contractor, of sorts, to Treasury.)
"We don't want those families to lose their homes," said Williams. "The cost to them, to their neighborhoods, to the housing market and to our company, is quite significant."
Fannie has 2,200 employees working on foreclosure prevention. Recently, it increased its outreach efforts by opening "Mortgage Help Centers" in cities hard hit by the housing downturn, including Atlanta, Chicago, and Miami. More offices will be opened in the fall.
Williams stressed that the GSE is focused on helping struggling homeowners and cutting its losses on its 2005 — 2008 books of business where the vast majority of the credit losses is concentrated.
"The book prior to 2005 is solid" and the "post-2008 book is very strong," he said.
Loan buybacks forced on seller/servicers also are an important part of Fannie's loss mitigation strategy, he told reporters at the luncheon.
He noted that buyback requests are increasing because so many loans have gone into default. In the first quarter, lenders repurchased $1.8 billion of problem mortgages that didn't comply with Fannie's underwriting guidelines.
Industry executives, not surprisingly, say buybacks — and buyback requests — are straining their resources. Some have hired outside attorneys and consultants to fight them.
Buybacks are a standard provision in all seller/servicer contracts, noted the GSE chief. It is the way "we have always done business with lenders," he said.
