Treasury Responds to Mortgage-Mod Criticism

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NEW YORK (TheStreet) -- The Obama administration's "Making Home Affordable" program has had many trials and tribulations since its debut in February 2009.

The program has faced several alterations, expanded its scope, partnered with Fannie Mae and Freddie Mac and pushed large mortgage servicers like Bank of America , Wells Fargo , JPMorgan Chase and Citigroup to improve performance metrics. Yet, 18 months into the program, relatively few homeowners have received successful permanent modifications using it.

In response to criticism about the government's efforts, Treasury Department spokeswoman Andrea Risotto, who focuses on mortgage modification efforts, spoke with TheStreet.

Below is an edited transcript of her response to specific criticisms, explanations of what has gone wrong and suggestions for troubled homeowners who have yet to find a solution.

On Why It's Taken So Long:

To be candid, the mortgage companies weren't set up to deal with this sort of thing. They were used to sending people to collections and collecting their money and doing what they needed to do. You're dealing with a scale and a demand that they never had to deal with before...

It's important also to remember that when this crisis started, we saw a lot of homeowners with subprime mortgages struggling. But now ... the face of a person who is struggling has changed from a homeowner with a subprime mortgage to a homeowner who has either had a curtailment of income or is dealing with unemployment. And so we just try to remain responsive as the economy changes.

On Changes Implemented to Make the Program More Effective:

We have an unemployment program under "Making Home Affordable" to provide a forbearance to give homeowners a bit of a break until they can afford to pay their mortgage again and get back on track. But we also ... work with housing finance agencies in the hardest-hit states to set up programs that are really tailored to their local needs.

On Servicers' Better Performance Outside of the Home Affordable Modification Program:

I think what "Making Home Affordable" has done in many ways is, it forced their hand a little bit ... by getting their processes in place more quickly, and shifting from this idea of a debt-collection model to an underwriting model, where they look at what a homeowner really can afford to try and work with the homeowner in a much more meaningful way.

It set that affordability target of a debt-to-income ratio of 31% ... as an affordable mortgage. That's not only now being used in "Making Home Affordable," but for many of the homeowners who were unable to access "Making Home Affordable" for whatever reason. A lot of mortgage servicers are using that same model in their own proprietary modifications.

So it really actually has mortgage companies thinking in a way they never had before. They shifted staff onto their loss-mitigation teams. I've seen a lot of mortgage companies now set up brick-and-mortar homeownership centers to actually work with struggling homeowners.

So that's been a real shift over the past year, and for the size of some of these companies, they've worked to turn it around as quickly as possible. And there's no doubt that "Making Home Affordable" really pushed them to do it faster...

This is in many ways the gateway for homeowners getting help. It is the first step in the waterfall when a homeowner asks for help; they have to be evaluated for "Making Home Affordable" when their servicer participates, but there are other options that the servicer might make available for them.

Before we had an unemployment program or a negative equity program, there weren't options. ... The feedback we've gotten is that previously, nobody really wanted to entertain short sales or deeds in lieu because they were long bureaucratic nightmares. But HAFA has really put a standard in place for both homeowners and mortgage companies...

We've made more options available under "Making Home Affordable," we want to give servicers more tools in their toolbox, if you will.

On Homeowners Who Didn't Qualify for Federal Assistance:

"Making Home Affordable" wasn't intended for every homeowner, and for some homeowners it's not going to be the right product.

Certainly, it does have requirements: Mortgage of less than $729,750; you have to be owner-occupant; it's never meant for jumbo mortgages; it's not meant for investment properties. It's set out to help a certain population of homeowner -- bearing in mind that it is a government program, and we wanted it to be responsible.

But we certainly have seen that for homeowners who have been unable to get permanent modifications under our program, the top reasons have either been 1) They weren't able to get all of their paperwork in, so the servicer wasn't able to make a decision. 2) They weren't able to sustain the trial payments, making them on time, so we couldn't convert them to permanent. We have the trial period sort of as a check for taxpayers to make sure that this is indeed something this homeowner will be able to afford and sustain over time.

And the third reason is actually that when homeowners did submit their documentation, there was already a debt-to-income of less than 31%. So, by "Making Home Affordable" standards, the payment was already affordable; they didn't qualify.

In Response to Unsatisfied Homeowners:

Of course, for a struggling homeowner, in many cases, they're going to feel like it's never going to be fast enough. ... We know there have been many homeowners who have been struggling and we've tried to remain responsive to that. ... As we're moving along, as we're learning lessons, as the economy is changing, we're trying to make decisions to help homeowners there...

At the end of the day, homeowners have to be their own best advocates. ...The good news is that homeowners today have more options than they did a year and a half ago.

On Where Homeowners Can Go for Trustworthy Assistance:

It's called "MHA Help," or "Making Home Affordable Help." Basically it puts them in direct contact with a team of HUD-approved housing counselors that they can work with for free not only to understand program guidelines and to make sure they were treated correctly under program guidelines, but also to work ... with their mortgage company to make sure that their questions were resolved.

That's something that a lot of homeowners are able to take advantage of, and believe it or not, not as many as you think. And we shoot for a target of getting homeowner cases resolved within 20 days.

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