Some of the money that the Obama administration is spending on the Home
Affordable Modification Program, aimed at homeowners facing
foreclosure, is benefitting corrupt mortgage servicers, an Associated
Press investigation found. Under the program, if a borrower who
received a mortgage modification makes payments on time for three
months, the mortgage servicing company that modified the loan may
receive up to $5,500 for each successful modification. In order to
receive a larger payoff, some companies have turned to illegal
practices. Of the 38 servicers the government is paying to help
distressed homeowners, at least 30 face lawsuits from homeowners and
advocates claiming they charged illegally high fees; 14 have been
accused of misleading customers before the program began; and three
have settled federal predatory collection allegations by pledging to
correct their behavior. The Treasury Department said it has no choice
but to work with all servicers — refusing to work with a
non-reputable firm would deprive homeowners whose mortgages came from
that servicer from getting modifications, said Treasury spokesperson
Jenni Engebretsen. [more]

In a letter sent Thursday to companies participating in the
government’s mortgage modification program, the Obama administration
urged mortgage servicing companies to work faster to modify mortgages.
The program has offered financial incentives to the 25 companies that
have agreed to participate. So far, more than 270,000 borrowers have
been able to modify their mortgages through the program. But the
administration wants the program to help 4 million homeowners. [more]

The Obama administration is considering altering its loan modification
program to match the current foreclosure landscape. The program was
created to address the subprime crisis, but now most foreclosures are
driven by unemployment and underemployment. The current program gives
mortgage servicers and investors incentives to reduce mortgage payments
to 31 percent of homeowners’ incomes, but many homeowners now no longer
have sufficient income to qualify for refinancings under this system
due to job losses or pay cuts. Around 27 percent of homeowners who
called the mortgage industry’s “Hope Hotline” in the second quarter of
this year said unemployment was the primary or secondary reason for
their mortgage payment problems, up from 9.7 percent of callers in the
second quarter of 2008. The administration may create more specific
guidelines for borrowers on dealing with homeowners who have lost jobs. [more]