Friday, January 29, 2010; A17
Facing mounting criticism about the effectiveness of the government's foreclosure-prevention efforts, the Obama administration announced Thursday that it will tighten the documentation requirements for borrowers applying for its marquee mortgage relief program.
Starting June 1, borrowers must prove they qualify for the mortgage help upfront, providing two pay stubs and other paperwork before their payments can be lowered. The change attempts to prevent a repeat of the current backlog of borrowers who received mortgage relief after a phone conversation with their lender but did not satisfy the government's documentation requirements within three months.
More than 300,000 borrowers were at risk of losing their aid under the Making Home Affordable program by the end of January because they had not submitted required paperwork. But lenders were given new flexibility Thursday to make those loan modifications permanent despite the lack of documentation, Treasury Department officials said.
"Increasing the number of borrowers receiving permanent modifications under [the government program] is critical to our efforts to preserve affordable and sustainable homeownership," William Apgar, a senior adviser for the Department of Housing and Urban Development, said in a statement.
About a quarter of the borrowers in the program are delinquent on their new, lower payments, and thousands have been dropped from the program because they didn't make their payments or lenders learned they didn't qualify after all. And economists and housing experts have been critical of the program's scope, complaining that it does not do enough for unemployed workers and should include a reduction of principal for borrowers who owe significantly more than their home is worth.
The administration's changes to the program come as new data show that the foreclosure problem is worsening. Freddie Mac said the delinquency rate for the single-family mortgages it backs has more than doubled to 3.87 percent in December, compared with the same period last year