More Benefit From Loan-Mod Program

The U.S. Treasury said its foreclosure-prevention program has cut mortgage payments for about 947,000 households, at least temporarily.
By: JAMES R. HAGERTY: wsj.com
That was the number of households benefiting from easier loan terms at the end of January through the Obama administration's Home Affordable Modification Program, known as HAMP.
The total was up about 11% from a month earlier. The administration estimates that 1.7 million households—about 3% of those with mortgages—are eligible for the program.

HAMP, announced a year ago by President Barack Obama, gives lenders incentives to help struggling borrowers avoid foreclosure by shrinking their payments through a reduction in the interest rate to as low as 2%. In some cases, loan terms are extended to 40 years.

Participants first are given three-month "trial" modifications. If they make payments on time and meet other requirements, including documentation of their income, they are given permanent modifications. As of Jan. 31, about 116,000 borrowers had such permanent fixes, up 75% from a month earlier.

On the Rise
Permanent loan modifications granted under the Obama plan.

September 1,711
October: 5,181
November: 31,382
December: 66,465
January: 116,297
Source: U.S. Treasury


The Treasury said 60,000 trial modifications have been canceled. Many more are likely to fall out of the program this month because extensions of the time available to verify incomes have run out.

For those who fail to qualify, lenders may proceed with foreclosure or seek other solutions, including short sales, in which homes are sold for less than the loan balance due.

The program's dropout rate is likely to be high, partly because lenders allowed many people into trials without first making sure they qualified. Wells Fargo & Co. said 92,000 of the borrowers it services had made three trial payments by Jan. 31. It expects about half of them to get permanent modifications. Others failed to provide all or some of the required documents or were found to be ineligible after the paperwork was reviewed.

Among loans with permanent modifications, the median monthly savings is about $522, the Treasury said. It said borrowers in trial and permanent modifications have saved more than $2.2 billion so far.

Prodding lenders to saving more borrowers, the Treasury is publishing monthly comparisons of their performance. As of last month, it said Citigroup Inc. had provided modifications to 50% of the estimated number of eligible borrowers. Both J.P. Morgan Chase & Co. and Wells Fargo were at 38%, and Bank of America Corp. was at 22%.

In a statement, Bank of America said it had made stronger gains than rivals last month in providing trial modifications and converting trials into permanent fixes.