Treasury Department reported to issue new mortgage relief guidelines

The United States Treasury Department yesterday outlined new guidelines to streamline requirements for mortgage relief under the Obama administration's Home Affordable Modification Program (HAMP) that was launched a year ago, according to an article today in the Wall Street Journal by James R. Hagerty.

The program is intended to simplify the paperwork for people seeking lower home-mortgage payments to avert foreclosure.

Under the new guidelines, the article reported, guidelines specify that borrowers must provide three items to loan servicers, the companies that collect mortgage payments: a form requesting a loan modification, authorization for the servicer to seek tax information from the Internal Revenue Service and evidence of income, such as two recent pay stubs. "Previously," the article continued, "some servicers have asked borrowers to fax in copies of their tax returns. Borrowers sometimes couldn't find the needed tax forms or complained that servicers repeatedly lost material faxed to them. The previous documentation requirements were 'somewhat overwhelming' for some borrowers, says Morgan McCarty, head of mortgage servicing at Regions Financial Corp., a banking company based in Birmingham, Ala."

The article also said that "The Treasury also said that, effective June 1, servicers must collect the information before starting borrowers on three-month 'trial' loan modifications, during which borrowers must show they can make the payments before being granted a permanent reduction in their loan costs. Many servicers have been starting trial modifications based on unverified information provided orally by the borrower, only to find later that the borrower wouldn't or couldn't provide documentation."

According to the article, "as of Dec. 31, about 900,000 borrowers had been given trial modifications but only 66,465 had been converted to a permanent fix. That largely reflects problems getting documentation. The Treasury acknowledged that some of those 900,000 borrowers won't end up qualifying for a loan modification through the program. As of Sept. 30, about 7.5 million households - about 14% of those with home loans - were behind on payments or in the process of foreclosure, according to data from the Mortgage Bankers Association, a trade group."