Loan-Modification Plan Hits Target By Ruth Simon and Corey Boles Wall Street Journal 10-09-2009

Loan-Modification Plan Hits Target
By Ruth Simon and Corey Boles
The Wall Street Journal
October 9, 2009

The federal government said Thursday it had met its goal of beginning trial loan modifications for 500,000 financially troubled homeowners in a sign the foreclosure-prevention plan is gaining traction.

The loan numbers were released as several senior House lawmakers expressed support for extending an $8,000 tax credit for first-time home buyers. Talk of extending the credit shows how lawmakers believe the fragile housing market remains dependent on federal support.

Treasury Secretary Timothy Geithner said the number of people participating in the modification effort is, for the first time, increasing at a rate faster than that of new families facing the risk of foreclosure. But the number of families at risk is still "unacceptably large," he said.

Under the modification program, eligible borrowers who are behind on their mortgage payments or at risk of imminent default can get their payments reduced. It is too soon to tell whether the program will be a success; most of the modifications are still in a trial period.

Borrowers typically must be current on their payments in the trial program after three months -- and submit such documentation as tax returns and pay stubs -- to qualify for a reworked mortgage.

"The issue, of course, is how many people will be able to remain in their homes and that we don't know," says Thomas Lawler, an independent housing economist.

Among large mortgage servicers, Bank of America Corp. and Wells Fargo & Co. have begun trial modifications for 11% and 20%, respectively, of their eligible borrowers who are at least 60 days past due. Citigroup Inc. has started trial modifications for 33% of eligible borrowers, and J.P. Morgan Chase & Co. 27%.

With the unemployment rate at 9.8%, one challenge for the government is how to help unemployed or underemployed borrowers who don't qualify for modifications. One proposal by Obama administration and industry officials would temporarily lower those borrowers' monthly payments below 31% of income -- the standard for the program -- while they search for work, mortgage executives say. No changes are imminent, a Treasury official said.

Many borrowers who are successfully making trial payments haven't submitted any of the required documents, or have provided only some of the material, mortgage executives say. The administration said Thursday that it was relaxing some documentation requirements. Also, borrowers will now be able to download a standard application form from a the government's Making Home Affordable Web site.

With the changes, at least 50% of the trial modifications are likely to result in full modifications under the program, said Steve Bailey, a Bank of America executive working on its modification program.

On the first-time home-buyer tax credit, House Speaker Nancy Pelosi of California said some consideration was being given to extending the credit to all buyers purchasing a principal residence, but that no decisions had been made.

Two other members of the Democratic leadership team said they would support an extension of the existing credit, which is to expire Nov. 30, but hadn't made up their minds about expanding it to a larger group of buyers. Reps. Chris Van Hollen of Maryland and John Larson of Connecticut said they wanted to see how much a wider tax credit would cost.

Meanwhile, Rep. Eric Cantor (R., Va.), the minority whip, said he had long supported both an expansion of the home-buyer credit to all purchasers of principal residences, and he said he favors increasing the value of the credit to $15,000.