U.S. Halts Mortgage Aid for 3 Banks

The federal government has stopped providing assistance to three big banks with funds from its Making Home Affordable Program until they substantially improve their performance with respect to mortgage modification.
These three banks, J.P. Morgan Chase & Co. (JPM - Analyst Report), Bank of America Corp. (BAC - Analyst Report), and Wells Fargo & Co. (WFC - Analyst Report), have burned up taxpayers’ money in the form of aid but have done almost nothing to protect distressed people from losing their homes.
The Making Home Affordable Program was initiated by President Obama in 2009 with the goal of providing homeowners, who are struggling to maintain their home mortgage payments, the opportunity to refinance or obtain a loan modification.
Also, the Treasury is in the process of using up a significant amount of taxpayers’ money through Troubled Asset Relief Program (TARP) to continue with housing and other support programs. However, given the lackluster progress, it can be said that the foreclosure-prevention program is a failure.
The government’s Home Affordable Modification Program (HAMP) has assisted about 609,000 homeowners to retain their homes through proper mortgage modification. But the number is significantly lower that the target of modifying mortgages of 3 to 4 million homeowners.
Now the government feels that these three banks are primarily responsible for the malfunction in its program. The Treasury Department said on Thursday that support from these banks were not sufficient to help distressed homeowners to permanently lower their mortgage payments. As a result, there are chances that these people will be evicted from their homes.
These banks had harassed borrowers at the time of modifying their mortgages. They often forced borrowers to repeatedly submit paperwork, polluting the system with red tape.
While the government wanted to make distressed homeowners’ life easier, these banks made them run around for months with hope. According to the Treasury, these banks incorrectly determined that many borrowers were ineligible to even get help from them.
Considering these banks’ uninspiring progress during the first quarter of 2011, the government has decided to withhold up to $1,000 per permanent loan modification aid from these lenders.
In May, these banks received $24 million in government aid for the program. In total, the Treasury has spent about $2 billion as yet out of the total $50 billion TARP funds allotted to the housing and other support programs.
According to these banks, the Treasury had squeezed the program several times in its first two years. As a result it was difficult for them to comply.
We believe punishing these banks would be a good lesson for all the lenders who get government assistance but do not perform properly. This withholding of financial assistance would prevent these banks to modify mortgages.
But the harassment of distressed borrowers would reduce to some extent as lenders will now be under pressure to enhance their performances for fear of losing government assistance. Hopefully, borrowers can now live in their own homes.
Source http://www.zacks.com/