Feds say simplified paperwork should increase successful loan modifications

Successfully modifying loans has proved elusive at times because of multiple factors, including under-trained negotiators, lost paperwork and foreclosure proceedings inadvertently begun before trial loan modifications are complete, panelists at a Mortgage Bankers Assn. conference acknowledged today.

One of the most frustrating common problems is troubled borrowers who accept a trial modification, send in their lowered payments, but then fail to complete the paperwork that enables lenders and loan investors to OK a final loan modification.

The three-month trial period is a key part of the Home Affordable Mortgage Program developed by the Obama administration, which is using bank bailout funds to pay loan customer service firms to modify loans and pay borrowers to make regular payments.

Troubled borrowers who accept modification offers from lenders are supposed to use that time to completely document their financial situations so the restructured loans can be finalized.

Laurie Maggiano, policy director at the U.S. Treasury Department 's Office of Homeownership Protection, said the government is introducing a new, streamlined application with just two documents to be signed, acknowledging the original paperwork was onerous. 

Speaking at a session of the conference in San Diego, Maggiano said the government also intends to have the Internal Revenue Service use its formidable computer system to process these applications and get a "yes" or "no" answer back to servicers in two days.

Borrowers already in the three-month trial modification process will be given an extra two months so the lenders can get them the simplified paperwork and have them fill it out, Maggiano said.

Missing, incomplete or improperly filled-out paperwork has been a major problem in implementing the Making Home Affordable program, now more than six months old, said Douglas Potolsky, a senior vice president with Chase Home Loans.

"Getting those loans to the finish line is tough," Potolsky said. "I think the streamlining will help dramatically."

He also suggested that the Treasury Department add an option for borrowers to pay interest only on their modified loans, say for five years -- something that the government has resisted because the loan balance doesn't go down.

An interest-only option could make for larger "payment shocks" when the interest-only period runs out, but Potolsky said including the option would increase significantly the number of borrowers who could be helped. He said it's something Chase has offered to certain borrowers who don't qualify for the regular Home Affordable modifications.

-- E. Scott Reckard

Comments

[Laker]

I also heard that many fixed rate loans that prime borrowers can't/don't want to pay because of being up-side down, lost job, etc, are now offered to switch to interest only....
That way if say one was paying $3000 per month in P&I, not they will offer him to only pay $2000-2300 for IO loan for 5 years... That is pushing the can down 5 years...
But maybe a good deal for some...Keep in mind the principle balance is not reduced in this case...
I'm not sure what happens in 5 years, do they need to refi? or does it switch back automatically the the old loan?

[jdj]

Extend and pretend

[Nelcisco]

Treasury Department add an option for borrowers to pay interest only on their modified loans, say for five years --
Where has the treasury dept. been in the last couple of years? Don't they know that by adding an option for borrowers to pay interest only will recreat the subprime 2/28 A.R.M all over again? Its the reason why we're in this crisis in the first place, why modify?...Idiots!!!

Laker my friend the answer to your question is yes, borrowers will need to refi after 5 years if in fact they pay interest only or have to start paying the adjusted rate to full amortization after the 5 yrs.The government will be creating another bubble called kicking the can with a new 5/1 A.R.M, maybe they hope that the housing market will spike in value like before to justify a refi, or how about unemployment back down to 4% and the other 96% who work will be well into the 6 figure income range, or the Dow Jones at 14,000. It has to play out that way in order for this insanity to work.If we continue the course we're in, by 2014 unemployment will be probably 18 to 22%, who knows! we'll have elected a new president, forget a 2nd Obama term, Glenn Beck will have a best seller titled "I told you so",
Michael Savage will be the king of talk because the American public will be tired of spin from other media outlets, and of course we will be here at LA Land blogging about this (if LA Times is still LA Times as we know it)But hey at least the good news is that the Lakers will still be winning and Trojan football will continue their tradition of excellence :)