Mortgage servicers are urging the Treasury Department to relax some of the requirements of the Obama administration's loan-modification program, claiming the time-consuming process of gathering documents and collecting signatures has become a major impediment.
In meetings last week with Treasury officials, servicers requested that they be allowed to use just a borrower's last two pay stubs to verify their incomes, rather than having to get written confirmation from the Internal Revenue Service. The servicers also said they should not have to obtain signatures from borrowers who filed their tax returns electronically.
"Borrowers are quite confused," said Sanjiv Das, the chief executive of CitiMortgage, (whose parent company, Citigroup Inc., is 36%-owned by the government). "You have a lot of people who had lost a job or lost hours and are now faced with the prospect of not being able to pay their mortgages. They are not even sure what questions to ask with respect to the options they have on their mortgage."
In that context, "they are either forgetting to send in their tax-return documents or are sending them without signatures," Das said.
A Treasury spokeswoman, Meg Reilly, confirmed that servicers had made the request and said the department "is considering it."
Of course, servicers may be making excuses as they brace for the government's release today of company-by-company data on loan modification efforts under the Obama program.
Tom Booker, a senior vice president in the default information unit at First American Corp. in Santa Ana, Calif., agreed that the complexity of the government's program had created roadblocks.
"The obligation to take a tax return and interpret it and support that was an additional step," said Booker, a former Fannie Mae executive.
However, there is also the question of whether simplifying the document-gathering process amounts to a further relaxation of underwriting standards — the kind of thing that led to the crisis in the first place.
"If you are going to reduce so many other requirements associated with getting a workout and base it entirely on a statement of income, you want to go deeper to make sure that income is accurate. But how do you do that?" Booker said. "If the goal is to get as many people in the program as quickly as possible, then how do you do that quickly and efficiently if you don't know that they qualify?"
Since April, lenders have extended roughly 370,000 modification offers through the program. To qualify for a three-month trial, borrowers must send back a signed hardship affidavit, documents verifying their incomes and a first payment.
Jason Nadeau, the president of Home Retention Services Inc., a unit of Stewart Information Services Corp. of Houston, said 80% of the financial packages his company receives from borrowers are incomplete. Home Retention, which Freddie Mac hired last week to help servicers contact and gather documents from borrowers, receives 3,000 to 5,000 FedEx packages a day.
"Verification of income and signing forms are two huge problems causing a bottleneck," Nadeau said.
Many of the borrowers requesting loan mods received low documentation or "no doc" mortgages during the boom and now are hesitant to return information that would verify their income, he said.
The Obama loan mod plan goes a step further than previous programs by requiring verification of "other" forms of income such as child support payments, alimony and commissions. It even requires a signed letter from an employer specifying that any tips or commissions received by the borrowers will continue for the life of the loan mod, typically three to five years.
"It's an extraordinary amount of work," Nadeau said, referring to the back-and-forth necessary to collect documents for final approval from servicers.