More Changes for Lenders as Additional Foreclosures Loom

August 1, 2009

In a series of meetings this week at the Treasury Department, government officials reached a verbal agreement with executives from 25 mortgage companies on a new goal of completing 500,000 loan modifications by November 1, 2009. This comes in response to fears that the Obama administration will not meet their original goal of helping over 3 to 4 million troubled borrowers with modified loans. Treasury secretary Timothy Geithner said, “Today’s meeting was an opportunity to identify ways to accelerate the program and bring relief faster”.

Mortgage companies have complained since the inception of this program that the public was left with the impression that the program would be instantly available. Dan Frahm, a spokesman for Bank of America said, “It was very difficult as an industry as a whole to try to live up to those expectations” and also called the exchange in the Tuesday meetings ‘realistic’ about how the industry can improve efforts.

Some added changes for lenders include:

Lenders will be required to give loan cost estimates within 3 business days of application for refinancing.
Fees for services, such as application and appraisals, can not be charged up front.
Lenders must disclose to consumers they are not required to go through with loans.
A 7 day waiting period until closing starts once the lender mails or delivers final cost disclosures.
Borrowers can waive the waiting period for personal finance emergencies such as foreclosures.

Lenders have been required to provide updated cost disclosures to borrowers within 3 business days of closing if the APR is off by more than 0.125%. This requirement is now expanded to refinancing, second homes, and home equity loans.

Group’s have complained for months that the process is a confusing, bureaucratic nightmare. Brenda Muniz, a legislative director for ACORN, said in a statement, “There needs to be a lot more accountability and oversight, mortgage companies are doing things that are just outright prohibited under the plan”.

If this program does not gain the momentum this administration hopes for, the recent optimism over real estate and the economic recovery could fade. According to Andrew Jakabovics of the Center for American Progress, “Foreclosures are still rapidly escalating, if we don’t get a handle on on that… the economy is going to have a difficult time recovering”.