Government Increases Pressure On Mortgage Industry

The Obama administration is pushing the mortgage industry to do more for homeowners at risk of foreclosure. A $75 billion government program has yet to provide permanent help for many borrowers. Some consumer advocates say it's time the government took a harder line with lenders. The Treasury Department says it could levy fines on companies that aren't doing enough.

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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning.

Some consumer advocates are pushing the government to try harder to crack down on lenders. The advocates are responding to a brutal reality. The worldwide financial crisis may be over, but for many people who lost their jobs and have a mortgage to pay, it's just beginning.

MONTAGNE: There is a government program to provide help for borrowers. It's got a price tag of $75 billion, but so far it's only helped a fraction of the people that it promised to help. NPR's Scott Horsley reports.

SCOTT HORSLEY: When President Obama announced his foreclosure prevention effort back in February, he said it would help between three and four million families hold on to their homes. So far, only about 650,000 homeowners have negotiated the maze of paperwork and telephone hold messages to qualify for the program, and most of those have gotten only a temporary break in their monthly payments. This week, the Treasury Department announced a new push to move borrowers, lenders and the middlemen known as servicers towards a more lasting fix.

Ms. PHYLLIS CALDWELL (Homeowner's Preservation Office): This campaign is about making sure that as many of those homeowners convert to permanent modifications are able(ph) to stay in their homes. This will take efforts from the servicers and homeowners working together.

HORSLEY: Phyllis Caldwell, who heads the Treasury Department's new Homeowner's Preservation Office, says borrowers have to do their part, making sure lenders have all the necessary documents. Though much of the government's focus is on servicers, this week the Treasury Department is sending so-called SWAT teams out to study servicers' operations with an eye towards speeding up the loan modifications. Servicers could face penalties if they don't deliver on the promised relief, but an assistant Treasury secretary refused to elaborate on what those penalties might be. Consumer advocate Julia Gordon of the Center for Responsible Lending says even if all the borrowers now in the government's program got permanent help, it wouldn't be enough.

Ms. JULIA GORDON (Center for Responsible Lending): If all 650,000 were magically converted tomorrow, we're still not at a scale that is solving this problem to the extent that it's going to help the numbers of homeowners who are at risk right now.

HORSLEY: For every borrower in the program there are about nine more falling behind on their monthly payments. Gordon says voluntary fixes are inadequate. She wants the government to require lenders to explore alternatives before starting the foreclosure process, and she'd like to give bankruptcy judges the power to modify loan terms, an idea the Senate rejected earlier this year.

Ms. GORDON: The judicial modifications piece would have provided what you might call the stick to go along with the carrot of the Treasury and Senate payments to servicers for participating in the HAMP program.

HORSLEY: Lenders oppose any effort to let bankruptcy judges tinker with home loans, warning that would simply drive up future borrowing costs. CEO John Courson of the Mortgage Bankers Association calls the administration's goal of helping three to four million struggling borrowers unrealistic.

Mr. JOHN COURSON (Mortgage Bankers Association): I think the goal doesn't recognize the change in economic realities that we've been dealing with from the time the goal was originally announced.

HORSLEY: Since the announcement in February, the nation's unemployment rate has jumped from 8.1 percent to 10.2 percent. Chief economist Mark Fleming of the research firm First American CoreLogic says rising unemployment rather than exotic adjustable mortgages is what's responsible for a lot of today's foreclosure problem.

Mr. MARK FLEMING (First American CoreLogic): People who can't make their mortgage payments, little less than one in four are under water on their home. Therefore (unintelligible) re-finance is less of an option. These are the real driving forces of delinquency these days.

HORSLEY: Courson of the Mortgage Bankers Association says the best foreclosure prevention program would be an improved job market. President Obama turns his full attention to jobs later this week.

Scott Horsley, NPR News, Washington.

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