LITTLE ROCK — Permanent loan modifications through a U.S. program to cut foreclosures rose at the slowest pace in a year as fewer homeowners qualified and half of the trial mortgage plans were canceled, the Treasury Department said Monday.
An additional 27,840 delinquent borrowers qualified for permanent alterations through the Treasury’s Home Affordable Modification Program, bringing the total to 495,898. The 5.9 percent increase from August was the smallest gain since at least September 2009. Of the 1.37 million trials started under the program, 53 percent have been canceled, the department said.
The Home Affordable Modification Program, known as HAMP, is a $50 billion program authorized by Congress in 2009. It was targeted to reach more than 3 million homeowners by paying mortgage servicers a $1,000 fee to rewrite loan terms to reduce monthly payments and $1,000 annually for as much as three years as long as the borrower participates.
“With many unavoidable foreclosures still in the pipeline, it’s clear that we have a hard road ahead,” Raphael Bostic, assistant secretary of the U.S. Department of Housing and Urban Development, said in a statement.
Lenders seized a record 102,134 properties in September, RealtyTrac Inc., a real estate information service in Irvine, Calif., reported Oct. 14. About 2.5 million homes have been taken back since 2005, while 6.5 million more homes may soon face repossession, Morgan Stanley said Oct. 12.
The number of HAMP trial loan modifications seems to have passed its peak andthe pace of delinquent borrowers filing applications probably will slow, Diane Pendley, managing director at Fitch Ratings in New York, said in a telephone interview. That’s because many borrowers have already failed to qualify and new applicants must document their qualifications before starting a trial period, she said.
“The huge numbers of potentially qualifying borrowers the program was designed to assist have, for the most part, been worked through,” Pendley said.
Many homeowners who don’t qualify for HAMP modifications turn to private programs for assistance, Pendley said. Bank of America Corp., the largest U.S. loan servicer, completed 16,500 loan modifications in September, 77 percent of which were through proprietary programs outside HAMP, the Charlotte, N.C.-based bank said in a statement Monday.
“Unfortunately, with the slow economic recovery and continued high rates of unemployment and underemployment, some customers are having difficulty sustaining even reduced payments,” Rebecca Mairone, default servicing executive for Bank of America Home Loans, said in the statement.
At Wells Fargo & Co, 89 percent of 556,868 trial and permanent loan modifications were non-HAMP, the San Francisco-based lender said Monday.
Permanent loan modifications under HAMP reduced monthly housing payments by a median $520.68, the Treasury Department report said. Homeowners in the program spent 63 percent of their monthly gross income on debt payments after the modifications, down from 80 percent before the reductions.
Through August, 5.3 percent of homeowners who weren’t accepted for HAMP trial modifications were in the process of a short sale, in which lenders allow a home to be sold for less than is owed, or a deed in lieu of foreclosure, sometimes called “cash for keys,” in which a borrower surrenders title without a fight. Seventeen percent started or completed foreclosure, according to the report.
The September data precedes the effect, if any, of foreclosure suspensions by loan servicers such as Bank of America, Ally Financial Inc. and JPMorgan Chase & Co. after allegations they used “robo-signers” to push through repossessions without verifying documentation.
The irregularities prompted the Federal Reserve to examine “foreclosure practices at a number of large financial institutions,” Chairman Ben Bernanke said Monday at a housing conference in Arlington, Va. “We take violations of proper procedures seriously.”
Regulators are likely to discover more problems related to loan servicing by some of the biggest banks as they investigate claims that documents were mishandled, Federal Deposit InsuranceCorp. Chairman Sheila Bair said.
Bank of America and Ally were scheduled to resume foreclosure processing Monday in several states, including Florida. That state’s attorney general, Bill McCollum, has launched investigations of loan servicers and law firms amid concerns that “people might be put out of their houses unfairly and unjustly,” he has said.
Information for this article was contributed by Phil Mattingly of Bloomberg News.
Business, Pages 23 on 10/26/2010