Obama Administration Pressures Banks on Foreclosure Prevention

One of the issues surrounding foreclosure prevention programs offered by the government is the fact that these programs are voluntary for mortgage lenders. Which means many mortgage lenders just aren’t participating — or they’re making things difficult. As a result, the Obama Administration is increasing the pressure on mortgage lenders.

The Administration plans to require loan servicers to report on how they plan to reach a decision on loan modification applications they receive. Communication with borrowers will also be scrutinized. Failure to comply could mean sanctions and/or penalties. Also, the Obama Administration is working to provide more information to borrowers so that they better understand the loan modification process, especially as it relates to permanent modifications. CNN Money reports on complaints from borrowers:

A growing number of borrowers are complaining that they are stuck in trial modifications. Some 650,000 homeowners are currently in this preliminary phase, but only a small fraction have received permanent assistance. …

Borrowers that qualify for long-term modifications can keep making the lower payments for five years. At that point, the interest rate will be set at the rate at the time of the adjustment, currently about 5%.

Loan servicers, however, say they are having trouble getting the necessary documents from borrowers, while homeowners maintain that their financial institutions are repeatedly losing the paperwork.

You can see where things are getting out of hand. But will pressure from the president help streamline the process?