Obama mortgage rescue: Only 9% getting help

First report by Obama administration details slow, uneven performance by firms implementing $75 billion mortgage modification program.

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By Tami Luhby, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The Obama administration's first progress report on its foreclosure prevention plan confirms it is off to a slow start.

Just 9% of delinquent borrowers are in trial modifications so far, the Treasury Department said Tuesday. That translates into 235,247 loans that were at least two months delinquent.

Under fire for the program's rocky start, the Obama administration says it is on pace to help up to four million homeowners over the next three years. The initiative was announced in February and the first institutions to join began accepting applications in April.

Tuesday's report comes a week after the administration called servicers to Washington, D.C., to discuss ramping up the program's implementation after hearing a flood of complaints from borrowers. Officials want to see 500,000 loan modifications under way by Nov. 1.

By releasing the servicers' progress reports, the administration is hoping to hold institutions responsible for their performance. The monthly reports will allow the public to see which institutions are lagging in implementing the plan.

Institutions have extended modification offers to 406,542 troubled borrowers, or 15% of those behind in payments. The bulk of trial modifications have been done by a handful of servicers.

Performance was very uneven among the 38 servicers participating in the program. Saxon Mortgage Services, a subsidiary of Morgan Stanley (MS, Fortune 500), led the pack, putting 25% of its delinquent loans into trial modifications, followed by Aurora Loan Services, a subsidiary of Lehman Brothers Bank, with 21%.

GMAC Mortgage, which is partly owned by the federal government, put 20% of its delinquent loans into trial modifications.

Among the major banks, JPMorgan Chase (JPM, Fortune 500) came in first with 20% of late loans in trial modifications, followed by Citigroup (C, Fortune 500) with 15%. Wells Fargo (WFC, Fortune 500) and Bank of America (BAC, Fortune 500) lagged with 6% and 5%, respectively.

Servicers contacted acknowledged they need to improve their performance, saying they were committed to the president's foreclosure prevention plan. They also stressed that they were doing many modifications outside of the administration's initiative.

Wells Fargo said it will eliminate its backlog within weeks, attributing it to the time lag between when the government announced the initiative and when it released the guidelines. It did not start modifying loans owned by private investors until the end of June, though it began adjusting loans owned by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in April.

The bank soon will be able to send eligible borrowers the trial modification agreement within 48 hours. In a change from past practices, it will enroll homeowners in a preliminary adjustment right away after receiving the initial application if they meet the basic eligibility requirements. During the three-month trial, the servicer will gather additional information to see whether the borrower qualifies for a permanent modification.

The shift should address concerns that the bank is not responding to customers as rapidly as it should, said Mike Heid, co-president of Wells Fargo Home Mortgage, in an interview.

"We set a high bar for ourselves in terms of customer service, and we didn't hit that bar in all cases in the first seven months of this year," said Heid, noting that Wells Fargo added 4,000 employees in its loan workout division this year.

Chase, which said it has another 150,000 applications to process, is in the midst of training an additional 950 workout specialists hired earlier this year. This brings its modification staff to 3,500 people.

"We know we've got more work to do," said Tom Kelly, a Chase spokesman, noting that the bank is pleased with its performance to date.

CitiMortgage, the mortgage arm of Citigroup, has added 1,400 people to its modification team and opened a call center in Tuscon with 800 people dedicated to loss mitigation. The company started putting people in trial modifications in early June and expects the volume to grow.

"In the next quarter, one can expect the pace will be even higher," Sanjiv Das, head of CitiMortgage, said in an interview.

Bank of America also acknowledged it needs to improve its efforts to reach out to those in need, but noted that it accounts for nearly one in four trial modifications offered under the Obama plan. The bank has extended nearly 100,000 offers, though only 28,000 trial modifications are under way.

The bank, which purchased mortgage titan Countrywide Financial last year, has by far the largest number of eligible delinquent loans: nearly 800,000.

Both the Obama administration and the industry are feeling mounting pressure from borrowers who say their servicers are not responding to their calls and applications, losing their paperwork or not making decisions. The financial institutions said they are ramping up their staffing and computer systems to handle the crush of applications.

Treasury officials said they are working with servicers to make sure they can implement the program. In addition to increasing staff and training, servicers must treat borrowers with more respect and respond in a more timely manner, said Michael Barr, assistant Treasury secretary for financial institutions.

"For us, the bottom line is they need to reach the borrowers," Barr said. "We will be requiring ramped-up effort across the board. We expect them to do more."

Moving quickly is important. The number of people falling behind on their payments continues to mount, especially as unemployment rises. Some 1.5 million people fell into foreclosure in the first half of 2009, up 15% from a year ago.

Meeting the criteria

Participation in the program is voluntary, though once an institution agrees to participate, it must offer a trial modification to those who meet the criteria. The 38 participating servicers cover 85% of mortgages.

The loan modification plan allows eligible borrowers who are in or at risk of default to lower their monthly payments to no more than 31% of their pre-tax income through a loan modification. Adjusting the loan must recover more value than foreclosing on the home would for a modification to be offered.

The adjustments are made permanent after the homeowner makes three on-time payments. Homeowners, servicers and mortgage investors receive thousands of dollars in incentive payments in hopes of increasing participation.

So far, the government has committed $20 billion to the effort and has said it would provide $75 billion overall.  To top of page

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