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Despite Federal Aid, Lenders Slow to Modify Home Loans

Fewer than 8 percent of eligible borrowers have successfully modified their mortgages under a $75 billion federal plan aimed at halting home foreclosures, according to a Treasury Department report. Jeffrey Kaye reports on the early struggles of the program.

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  • GWEN IFILL:

    Next, are mortgage companies following through on the government's pledge to help the homeowners in trouble? That was the focus of a new report issued by the Obama administration today. It laid out the initial results of a program to entice banks to reduce foreclosures. The response of the banks varied considerably.

    Special correspondent Jeffrey Kaye has the story from Los Angeles.

    JEFFREY KAYE, NewsHour correspondent: From the beginning, it seemed like an ambitious plan.

  • U.S. PRESIDENT BARACK OBAMA:

    But by making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow.

  • JEFFREY KAYE:

    A $75 billion program announced by the president in February aimed to head off home foreclosures. The government would partner with banks to reduce monthly payments for as many as 4 million at-risk borrowers.

    But the program is getting off to a slow start. According to the Treasury Department report released today, so far, fewer than 8 percent of eligible borrowers have had their mortgages modified.

    MICHAEL BARR, Assistant Treasury Secretary for Financial Institutions: We are not satisfied with the progress of servicers of banks in reducing foreclosure sales.

  • JEFFREY KAYE:

    Michael Barr is the Treasury Department official in charge of the Making Home Affordable program. He says participating lenders, which represent 85 percent of the mortgage market, need to improve.

  • MICHAEL BARR:

    We're not satisfied with the pace of loan modifications. We're not satisfied that banks are doing enough to reach borrowers in a humane way, in a fair way, in an efficient way.

  • JEFFREY KAYE:

    Today's report shows that, since May, the 38 lenders involved in the administration's program have modified just over 235,000 home loans on a trial basis.

    But over the same period, foreclosures outstripped loan modifications by 5 to 1. That means for each home loan they modified, banks took possession of five homes.

    Banks seized a record 1.5 million properties during the first six months of the year, according to RealtyTrac. A quarter of the nation's foreclosure filings were in California.

    Many housing counselors and homeowners say that working out loan modifications can be frustrating and oftentimes fruitless.

  • YOLANDA MCCLINTON, Los Angeles Neighborhood Housing Services:

    So this will be, like, the fourth time we faxed it over.

  • COUNSELOR:

    It can be a long, drawn-out process. It takes a lot of dedication and being stubborn.

  • JEFFREY KAYE:

    At Los Angeles Neighborhood Housing Services, counselors help homeowners negotiate with lenders. Around the country, government-funded agencies like this one offer free assistance. Counselors say that things are gradually picking up, but delays have been significant.

  • YOLANDA MCCLINTON:

    We can submit their information, the lenders tell me directly. In theory, it would take them maybe 45 to 60 days to process the information. In reality, it's more like 120 to 150.

  • JEFFREY KAYE:

    Banks modify loans by either lowering interest rates or stretching out payments. Rarely do they lower the principal, the amount owed. Lenders are supposed to reduce monthly payments to no more than 31 percent of a borrower's income. In exchange, the government pays the mortgage company $1,000 for each completed modification, plus $1,000 a year for three years if borrowers make their payments on time.

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