The Department of Treasury yesterday took a critical step that many of us have been calling for. Treasury told mortgage servicers to extend the fast-approaching December 31st deadline for the 375,000 families who are in trial modifications but whose document requirements have yet to be finalized in order to make their modifications permanent.
But just as critical are the steps that Treasury did not take.
These 375,000 families represent about half of the country's participants in Treasury's mortgage modification program under TARP. They have endured particular stress and uncertainty during the holiday season because their deadline for servicers to acknowledge valid receipt of all their documents was the end of the year. If rejected by servicers, the homeowners would again face foreclosure just as they did before enrolling in the program.
These homeowners have proven a willingness and ability to meet their obligation under newly renegotiated mortgage terms; they have made all of their required modified monthly payments for at least three consecutive months and some for as many as five during a trial period. But servicers have yet to acknowledge valid receipt of the documentation that the program requires, or servicer outreach has not worked to obtain all the documents from the borrowers.
This notice of extension is too important to simply post on a website as administrative guidance and to rely on the servicers to spread the word. Treasury announced only a few weeks ago just how critical this deadline was and even placed "swat teams" inside the servicers to facilitate document collection and validation, stating that the families would face foreclosure and be unable to again re-enroll in the program.
The foreclosure issue is important to Huffington Post readers. I know because the readers were kind enough to submit hundreds of questions to me to pose to Secretary Geithner during a TARP oversight hearing in the spring. Foreclosure was rightfully high on the list of concerns. Thanks to the public outcry nearly one million families have signed up for the program and are benefiting from an average reduction of $740 per month on their monthly mortgage payments (an average interest rate reduction from 7.6% to 2.9%).
Treasury and mortgage servicers must clearly and publicly announce the extensions of the trial modification period to these families to bring certainty into these homes and to help the public better understand the program, both its merits and flaws.
But to be clear the extension must not serve as an excuse for continued delay by mortgage servicers or by Treasury to permanently place people into affordable mortgages. The opportunity must be taken to resolve critical implementation problems.
Mortgage servicers must use the extension period to finally acknowledge the many homeowners who have clearly submitted all of their required documents and to make their mortgage modifications permanent. Servicers must also improve outreach to those remaining borrowers who have submitted incomplete documents.
Treasury must use the extension period to streamline the documentation requirement itself, while continuing to safeguard against abuse. Redundant document requirements should be eliminated and servicers should be given flexibility to accept alternative documents from homeowners where possible. For example, the requirement that some homeowners provide individual profit and loss statements is ripe for reconsideration.
Further, Treasury must accelerate the March 31st date for making an upcoming web portal operational that many of us called for, so that homeowners can track their documents online. This reform will quickly make borrowers aware of missing or incomplete documents, and help avoid the need for yet another extension.
Finally, I hope Treasury will accept the recommendation to create an additional foreclosure prevention program to help people who fall outside of the scope of the current program. Specifically, we need a new initiative that helps people who are in affordable mortgages but have temporarily become unemployed as a result of the recession.
The current modification program has been a massive undertaking, but we cannot lose our resolve at this final stage of the process on account of bureaucracy in processing and receiving documents. At the Congressional Oversight Panel's foreclosure hearing in October, the testifying servicers rated their modification performance with a generous letter grade of B. Any servicers who do not take full advantage of this extension to complete the hard work of the past year will be deserving of an F.
The Treasury directive can be downloaded as a PDF here.
Richard H. Neiman is New York Superintendent of Banks and a Member of the TARP Congressional Oversight Panel