Legislation requires banks to live up to their promise to modify mortgages, protects homeowners from foreclosure

March 25, 2010

(Washington, D.C.)-U.S. Senator Jeanne Shaheen today applauded a decision by the Treasury Department to prevent big banks from initiating or continuing foreclosures on homeowners who have requested a mortgage modification under the Home Affordable Modification Program (HAMP) and called on Secretary Geithner to take further steps to hold banks accountable.  Yesterday, Shaheen introduced legislation that would institute this prohibition on foreclosures while homeowners while wait to be evaluated for a modification as well as further protections, including penalties on banks that fail to evaluate homeowners swiftly and a review process for improper denials.

Over the past year, mortgage servicers participating in HAMP have failed to deliver on their promise to modify millions of mortgages.  Servicers continue to drag their feet on applications, impose late fees on homeowners while they wait to be evaluated, and continue the foreclosure process even when the homeowners requested to be evaluated for the program.

"I'm pleased the Treasury is taking this step to protect homeowners, but more needs to be done to prevent these big banks from dragging their feet," said Shaheen. "For this program to work, we need to make sure that the homeowners this program was set up to help are being protected.  Banks that don't act swiftly to help homeowners who are working in good faith to establish modified repayment terms should face consequences.  My legislation will require the Treasury to hold banks more accountable."

Treasury announced today that these banks or "mortgage servicers" may not refer any borrower who is potentially eligible for HAMP to foreclosure until the borrower has been evaluated and determined to be ineligible.  Shaheen's legislation called for that protection as well as others, including penalties for servicers who do not improve their performance and additional protections for homeowners who find themselves in limbo while they wait for a response from their servicer. 

Under a program that was designed to help between three and four million homeowners, servicers have offered trial modifications to less than 30 percent of eligible homeowners, according to the Treasury Department.  In addition, banks have provided permanent modifications to only about a third of all homeowners who have successfully completed the trial period.  The Treasury Department expected servicers to have made almost 75 percent of trial modifications permanent by this time.

To protect homeowners and make HAMP more effective, the Mortgage Modification Reform Act will:

  • Impose late fees on servicers.
    • Reduce payments tied to a loan by 10 percent each month that the servicer fails to evaluate a borrower.
    • Reduce all payments to servicers who do not evaluate 70 percent of trial modifications for conversion to permanent modifications within three months of enactment.
  • Protect homeowners while waiting for a decision.
    • Prohibit servicers from continuing the foreclosure process on HAMP applicants until the servicer has evaluated the homeowner for a modification and require the Treasury to impose penalties on banks that violate this prohibition.
    • Require servicers to submit supporting documentation of any denials.
    • Require servicers to evaluate borrowers on a first-come, first-served basis. Servicers may not discriminate on the basis of income or the value of the loan.
    • Prohibit servicers from imposing delinquency fees on borrowers while they wait for a decision.
  • Create a review process for improper denials.
    • Require the Secretary of the Treasury to create a process by which a homeowner can request a review of their denial for a HAMP modification, using qualified housing counselors.
    • Require the Secretary impose penalties on servicers for improper denials.

Shaheen hears from more constituents who need help obtaining a mortgage modification than any other constituent service issue. According to the New Hampshire Housing Finance Authority, New Hampshire experienced a record number of foreclosures in January 2010 for that month, which was second only to October of last year in the number of foreclosures recorded in any one month.  With more than nine percent of New Hampshire homeowners behind on their mortgages, thousands of homeowners are still at risk of foreclosure.

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