WASHINGTON — The Treasury Department said Monday that it would send financial "SWAT" teams to leading mortgage servicers to police their performance in a government program that seeks to reduce the high rate of foreclosures.
It's an effort to ratchet up pressure on mortgage servicers, who act as bill collectors on behalf of banks that originate mortgages or investors who own bundles of mortgages pooled together as securities.
These servicers have been slow to modify mortgages, the administration charges, despite Treasury Department efforts since February to provide financial incentives to participate in the $75 billion Home Affordable Modification Program.
"In our judgment, servicers to date have not done a good enough job of giving people a permanent modification," Assistant Treasury Secretary Michael Barr said.
In a conference call, Barr said servicers had extended more than 650,000 trial mortgage modifications, but had moved too slowly in converting them to new permanent mortgages.
About 375,000 could be converted to permanent mortgages in December, Barr said. The trial modifications have saved borrowers an average of $576 per month on mortgage payments, he said.
The Obama administration will send teams to keep an eye on the six largest mortgage servicers, who collectively handle about 85 percent of outstanding U.S. mortgages.
Participating servicers also will be required to report to the Treasury twice daily on their progress to convert trial modifications to permanent fixes. The failure to boost permanent solutions significantly will trigger consequences, Barr said.
Pressed to detail those consequences, Barr refused, instead repeating that the Treasury wants servicers to step up their efforts and borrowers to do a better job of providing documents to servicers.
Insufficient documentation remains a major hurdle for struggling homeowners, but the problem cuts both ways. For more than two years, McClatchy reporters have sat in on borrowers' phone calls with mortgage servicers. Virtually all the servicers have lost or misplaced documents repeatedly or are unaware of documents that they have in their possession.
Consumer advocates such as the Center for Responsible Lending in Durham, N.C., say that the solution is legislation that would allow bankruptcy judges to modify mortgages if servicers won't.
"The root failure of the current loan-modification program is that it has been voluntary," said the group's spokeswoman, Kathleen Day, advocating a revamp of bankruptcy laws. "It's the only way to focus industry's attention."