Trade Group: Obama Mtge Modification Plan Will Strain Indus
February 24 2009 - 1:05PM
Dow Jones News
A major mortgage industry trade group warned Tuesday that
mortgage servicers will be stretched thin modifying the millions of
loans contemplated by the Obama administration housing plan.
Mortgage servicers will have to manually process millions of
credit reports, pay stubs and home appraisals to carry out loan
modifications in accordance with the plan, Mortgage Bankers
Association President John A. Courson wrote in a letter to Treasury
Secretary Timothy Geithner and Housing Secretary Shaun Donovan.
Mortgage servicers will also have to erect automated systems to
screen applicants for program eligibility, he said.
"Neither the quantity of work required by the proposed refinance
and loan modification plans or the time to implement them should be
underestimated," Courson wrote. "MBA wants the government and
borrowers to have realistic expectations of how quickly all of the
loans eligible under the program can be identified and
processed."
The Obama administration said its plan to stabilize the housing
market, unveiled last week, could help as many as 7 million to 9
million homeowners. The plan would allow homeowners who owe more
than 80% of the value of their homes to refinance into
lower-interest mortgages. The government would also provide
generous incentives for mortgage servicers to modify loans for
certain at-risk borrowers, and pay up to $1,000 a year for five
years to borrowers who stay current on their modified loans.
Lenders will have to reduce interest rates on mortgages such
that borrowers' monthly payments are no greater than 38% of their
income. Then, the government will partially fund further reductions
in interest rates to bring the debt-to-income ratio down to
31%.
More details about the plan and borrower eligibility are
scheduled for release on March 4.
In its letter to Geithner and Donovan, the mortgage bankers
trade group enumerated several suggestions to improve the plan. It
argued that the administration should expand eligibility for the
refinancing program. Currently, only borrowers with loan-to-value
ratios below 105% who have mortgages backed by Fannie Mae (FNM) and
Freddie Mac (FRE) would qualify. The trade group wants the
loan-to-value cap abolished and also wants the administration to
help borrowers whose mortgages aren't backed by Fannie Mae and
Freddie Mac to access current lower market rates.
The trade group also argued that the administration clarify that
the largest loans backed by the government-sponsored enterprises
should qualify for loan modifications.
It pushed for statutory changes included in legislation pending
before the U.S. House aimed at easing the modification of mortgages
insured by the Federal Housing Administration, the Veterans
Administration and the Department of Agriculture.
Under the legislation, mortgage servicers would be allowed to
assign loans intended for modification to the government in order
to avoid the costs associated with buying loans already packaged
into Ginnie Mae securities.
The government would also pay partial claims to investors in
mortgages insured by those agencies that have been modified. The
legislation could hit the House floor as soon as Thursday.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com