Under the threat of being fined, Bank of America (NYSE:BAC), Citibank (NYSE:C), Wells Fargo (NYSE:WFC) and J.P. Morgan Chase (NYSE:JPM), among others, will meet with officials from the Obama administration next week concerning moving borrowers into permanent loan modifications.
It’s unfortunate that the Obama administration is issuing threats like this, as the major reason the loans aren’t being moved into permanent status is the paperwork required by the government to allow the process to move forward in the first place. So even though the government is at fault, they’re passing the fault on to the banking industry, implying they’re somehow holding back the move forward.
The paperwork required by the government is the key obstacle, with borrowers either not sending in all the required documents or if they do, many times they get lost on the banking side of it. In other words, the huge amount of forms required by the government to get a permanent loan modification are what is holding back the progress, but they’re putting it on the banks to deal with it.
Another great feature is once they start filing their documents electronically the system will allow the progress of the borrower to be followed, and so if there are any questions or required documentation, it can easily be found on the service end, giving banks a better way to service their customers.
According to officials at the Treasury, there are approximately 375,000 homeowners that qualify to turn the trial modifications into permanent modifications by the end of 2009. Of those, about 33 percent have all the required documentation on file at the mortgage servicer, while 37 percent only have part of the required forms, and 20 percent haven’t even bothered to turn in any paperwork at all.
In response to this, the Treasury Department is sending out teams to the eight largest lenders in the country (taking part in the program) in order to find out what is delaying the conversion to permanent loan modifications.
What it sounds like is the banking industry and borrowers are over their heads with all of this, and the process itself as instituted by the government could be the cause of the problem. There aren’t enough people to handle the paperwork on the service side, and it also seems that homeowners are overwhelmed by the volume of paperwork required to qualify for permanent loan modification status. Hopefully the online Web site will help move that along and make it easier for borrowers to get a permanent solution to their loan problems.
