Obama Administration To Push Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC) To Modify More Loans

The Obama Administration is expected to announce on Monday a renewed effort to encourage banks, including Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC) to concentrate resources and intensify their effort to modify troubled home mortgages.  Increasing pressure from consumer groups, rising anger from home owners mired in limbo waiting for a decision from their lender, and frustration with banks seeming reluctance to modify loans has lead to the call for additional government action.

The plan will consist of more dedicated resources from the government for borrowers, and will include additional financial support to organizations that offer homeowner assistance.  The Treasury Department also will indicate their desire for increased transparency and accountability from banks and loan servicers, including periodic reporting of the number of troubled homeowners that receive permanent mortgage adjustments.

The number of homeowners who are currently in a trial (also known as “temporary”) mortgage modification is fairly well known (40% of the eligible delinquent borrowers at Citigroup, 32% at JPMorgan Chase, and 29% at Wells Fargo are currently in a trial modification, see figures here), however banks continue to be disturbingly reluctant to disclose the number of permanent modifications.  Based on the few released industry figures, there are some 650,000 borrowers in the United States who have undergone some form of temporary mortgage adjustment, but the number of permanent modifications remains frustratingly low.  According to Freddie Mac (NYSE:FRE) figures, fewer than 5% of trial adjustments on loans owned or guaranteed by the mortgage company were modified permanently as of September 30, 2009.

The administrations anticipated move is the latest maneuver to get the $75 billion loan modification plan back on track and increase public confidence in the program.  The goal of the loan modification was to change the home mortgages of up to four million homeowners faced with foreclosure, short sale, and bankruptcy.  The Congressional Oversight Panel, which has been tasked to oversee the government’s use of bailout funds, noted that as of September 1, only 1.26% of all trial adjustments had been made permanent.

Under the administrations’ plan, delinquent borrowers were allowed a trial modification for a determinate period (typically several months) to ensure the new payments are tolerable, and to allow adequate time to submit their financial paperwork to the service provider.  The banks have stated that borrowers can’t seem to master the paperwork process, but increasing anecdotal evidence tells the story of lost documents (despite multiple submissions to the bank), poor communication from the bank, lack of adequate staffing, and indifferent personnel.  In short the actual experiences of delinquent homeowners undermines the message by the banks that they are making every effort to permanently refinance mortgages.