WASHINGTON - Faced with sluggish progress in its foreclosure-prevention effort, the Obama administration will spend the coming weeks cracking down on mortgage companies not doing enough to help borrowers at risk of losing their homes.
Treasury Department officials said Monday they will step up pressure on the 71 companies participating in the government's $75 billion effort to stem the foreclosure crisis. The will start this week by sending three-person "SWAT teams" to monitor the eight largest companies' work and requesting twice-daily reports on their progress.
The mortgage companies, also known as loan servicers, have had a hard time getting borrowers to complete the needed paperwork for the administration's loan modification program.
Nearly 60 percent of the 375,000 borrowers who qualify to have their loan modifications completed by year-end have either submitted incomplete paperwork or none at all.
"Borrowers must understand the urgency of getting their completed paperwork in so they do not miss out on the opportunity for more affordable mortgage payments," said Phyllis Caldwell, who recently was named to lead the Treasury Department's homeownership preservation office.
The program, announced by President Barack Obama in February, allows homeowners to have their mortgage interest rate reduced to as low as 2 percent for five years.
The administration is feeling intense pressure from lawmakers and consumer advocates to speed up progress. As of early September, only about 1,700 homeowners had finished all the paperwork and received a new permanent loan. About one-third of borrowers who have submitted complete applications are waiting for a decision.
While big lenders like Citigroup and Wells Fargo have made double-digit gains in the percentage of eligible borrowers they have signed up for trial modifications, other companies like Ocwen Financial and American Home Mortgage Servicing have only increased their borrower participation by 6 percentage points or less since July.
Paul Koches, executive vice president of Ocwen Financial Corp., said his company had already saved 90,000 of its roughly 370,000 distressed homeowners from foreclosure before the government program began. As of October, Ocwen had started trial modifications for 11 percent of its borrowers, up from 5 percent in July.
American Home Mortgage didn't have an immediate comment.
The participating mortgage companies signed contracts earlier this year that give the government the right to withhold incentive payments or end their contracts with Treasury.
But consumer advocates say the program has a key flaw. Since participation was voluntary, the government has little it can do besides shaming the industry into doing better.
"There's no meaningful accountability," said Diane Thompson, counsel at the National Consumer Law Center. "If you just aren't doing the loan mods, so what?"