500,000 helped by Obama mortgage rescue
The administration reaches its goal a few weeks early. But it remains to be seen how many of these trial modifications will work.
NEW YORK (CNNMoney.com) -- Loan servicing companies have put 500,000 troubled borrowers into trial mortgage modifications, the Obama administration said Thursday.
The administration set that target in late July after it came under fire for not helping homeowners fast enough.
Officials have increased the pressure on servicers to speed up their implementation of the president's foreclosure prevention plan, which calls for reducing eligible borrowers' monthly payments to no more than 31% of their pre-tax income. Servicers had until Nov. 1 to hit the half-a-million mark.
The administration also released a related report Thursday showing that 16% of eligible troubled borrowers at least 60 days delinquent were placed into trial modifications as of the end of September. This is up from 12% a month earlier.
Consumer advocates have said that the president's initiative has prompted servicers to help more people than ever before. But, there is still a long way to go.
The administration's efforts are only "chipping away" at the problem, said Barry Zigas, director of housing policy for the Consumer Federation of America
"It's very, very frustrating that so many borrowers are on track to lose their homes," Zigas said. Thursday's report "is not a cause to rest."
President Obama announced the $75 billion initiative in February and the first institutions to join began accepting applications in April.
The plan, which was projected to help up to 4 million homeowners, puts qualified borrowers into three-month trial modifications before the adjustment is made final. Servicers, borrowers and investors can get financial incentives to participate.
Servicers' performance, however, remains very uneven.
Saxon Mortgage Services once again led the pack with 41% of eligible delinquent borrowers in trial modifications, while Citigroup (C, Fortune 500) and Aurora Loan Servicers following at 33%. JPMorgan Chase (JPM, Fortune 500) has put 27% of its clients into trial modifications, while Wells Fargo (WFC, Fortune 500) has placed 20% and Bank of America (BAC, Fortune 500) 11%.
Several servicers, including many of the largest banks, have made great strides in recent months. Wells Fargo, for instance, had helped only 6% of eligible borrowers by the end of July. The bank's numbers rose after it started putting people into the trial modifications before collecting all the documentation, a practice which many of its peers do.
Administration officials met with servicers Thursday afternoon to press for further improvements in their modification efforts and responsiveness to borrowers. Many people have complained that financial institutions lose their paperwork, transfer them repeatedly between departments and require that they fill out applications again and again.
Though the housing market is showing signs of stabilizing in some locations, the foreclosure crisis continues to plague the nation. The president's plan has been credited with reducing the number of homes falling into foreclosure, but some experts worry that the modifications will only delay many inevitable defaults.
Many banks put delinquent homeowners into the trial modifications as long as they meet the basic criteria, such as having a first mortgage of less than $729,750 and living in the home as their primary residence. During the three-month trial, banks gather detailed income documentation and determine whether they'll recover more money by foreclosing on the home or by offering a permanent modification.
Banks, however, say they are having trouble obtaining the needed paperwork from borrowers, said Zigas.
Borrowers, meanwhile, must make timely payments during the trial.
The industry is now waiting to see how many borrowers in trial modifications will qualify for permanent adjustments. Banks said they have yet to compile how many people were ultimately denied permanent modifications.
Treasury said it would start reporting that statistic in coming months.
Have you finished your trial modification period under the president's foreclosure prevention plan? Were you approved for a permanent modification or rejected and are facing foreclosure? Please email your stories to CNNMoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.