Treasury official says recent changes should boost mortgage relief program

Official says changes will help mortgage plan

WASHINGTON — The Obama administration is working to get its flagship foreclosure prevention effort on track after a slow and problem-plagued start, a Treasury Department official told lawmakers Wednesday.

The plan has “encountered a number of policy and operational issues that have been challenging to address,” Phyllis Caldwell, chief of the Treasury Department’s homeownership preservation office, told House lawmakers. “We continue to improve it based on lessons learned.”

The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Mortgage companies get taxpayer incentives to reduce borrowers’ monthly payments.

Through March, about 231,000 homeowners have completed loan modifications. That’s about 21 percent of the 1.2 million borrowers who began the program over the past year.

But about 158,000 homeowners have dropped out of the program so far — either because they didn’t make payments or failed to return the necessary documents. Many more are still in limbo, awaiting a final answer from their bank.

Among U.S. homeowners, about 6 million have missed at least two months of payments.

Earlier in the day, a watchdog panel’s report said the $75 billion program lags well behind the foreclosure crisis and leaves consumers strapped with high levels of debt.

More than a year after the plan’s launch, the Obama administration “is still fighting to get its foreclosure programs off the ground,” said Elizabeth Warren, who heads the independent Congressional Oversight Panel set up by Congress.

Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.

Obama officials, meanwhile, stress the plan’s limitations.

“We cannot stop every foreclosure,” David Stevens, who runs the Federal Housing Administration, told lawmakers. “Some people simply cannot afford to stay in their homes.”

Earlier in the week, top banking industry executives expressed skepticism about helping troubled borrowers by forgiving a portion of their debt.

The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That’s because consumers who are paying their mortgages on time are likely to see such reductions as unfair.

But Jamie Dimon, chief executive officer of JPMorgan Chase & Co., which has been skeptical about mortgage reductions, told analysts Wednesday that “we’re not ideologically opposed to principal forgiveness. The issue with that it’s got to be done loan by loan to be fair.”

AP Business Writer Daniel Wagner contributed to this report from Washington.