The agreement is designed to clarify the mortgage assistance process for borrowers and the industry alike, but it is not legally binding.
It also tries to alleviate a major stumbling block: the reluctance of companies that hold second mortgages, such as home equity loans, to agree to such modifications. Such requests should be approved, the agreement says, unless the holder of the second mortgage would be put in a worse financial position.
Consumer groups, however, say Hope Now’s efforts will never match the growth in foreclosures around the country, and are pushing for a new $300 billion program to allow the government to back new loans for struggling homeowners.
“There isn’t a serious level of modification going on because the program is voluntary,” said John Taylor, president of the National Community Reinvestment Coalition, a consumer group in Washington, who described the newest announcement as “baby steps.”
Housing counselors have complained that the process of loan modifications is bureaucratic and difficult to understand, and say it is tough for consumers to get someone on the phone with the authority to help.
The industry has also favored repayment plans, which aim to help borrowers get back on track after missing a few payments, rather than lower interest rates or forgive part of the principal balance.
Consumer advocates have pressed Congress to let bankruptcy judges rewrite the terms of mortgages for strapped borrowers, but that proposal faces intense opposition from the Bush administration and Republican lawmakers and is unlikely to make it through Congress this year.
Statistics released last month by Hope Now showed that nearly 183,000 borrowers received some form of loan workout in April, the highest monthly number since the effort started last summer.
But the group was also criticized last week by a federal bank regulator, who questioned the accuracy of trade groups’ mortgage assistance data. The regulator, Comptroller of the Currency John Dugan called them “responses to surveys that produced aggregate, unverified results from individual firms.”
Mortgage industry consultant Howard Glaser, a housing official in the Clinton administration, questioned the significance of the changes Hope Now is announcing, noting that lenders approve a new loan far more quickly than the 45-day period.
“When they are repairing their defective loan product, they take their time,” Glaser said.
Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.