WASHINGTON — Frustrated by the lack of progress in preventing foreclosures, House Financial Services Committee Chairman Barney Frank said Tuesday he wants to create a system to align the interests of servicers and investors.
Speaking at a hearing, the Massachusetts Democrat said he would introduce a bill next year that would designate one investor to represent the interests of the others in order to smooth the path for mortgage modifications.
"It is going to have to be one person who is in charge of other investors," Frank said. "There's got to be a way in which somebody can say, 'We're going to modify.' "
Frank also said he plans to offer an amendment to his regulatory reform legislation today that would allocate $3 billion of Troubled Asset Relief Program funds for mortgage assistance to unemployed homeowners.
Both measures reflect the committee's discontent over the administration's loan-modification efforts to date.
"We have a great frustration with the failure of the combined efforts of elements of the federal government to make a substantial impact on the foreclosure crisis." Frank said.
The amendment to his reform bill would direct the Department of Housing and Urban Development to give $3 billion of relief to homeowners who have lost their jobs. Grant assistance would be capped at $50,000 per homeowner. The measure also would allocate $1 billion from Tarp for neighborhood stabilization and redevelopment of abandoned and foreclosed homes.
The amendment is expected to be adopted as part of the broad regulatory reform proposal on the House floor.
The hearing came a day before the Treasury Department is expected to release data showing that 6% of the trial loan modifications under its Making Home Affordable program have become or are likely to become permanent. Lawmakers on both sides of the aisle said they were disappointed in the administration's program and called for a revamp.
"We are very unhappy," said Rep. Maxine Waters, D-Calif. "Our constituents are in pain. Our communities are at great risk. Treasury, you are just too slow."
Herb Allison, the assistant Treasury secretary for financial stability, blamed the program's problems on the industry. "The banks have a long way to go to get up to their full potential to help alleviate this problem," he said. "We are not satisfied by any means. They are on notice that we are not."
But Waters said this was not good enough.
"I don't think the jawboning and trying to embarrass these servicers into doing the right thing works," she said.
Rep. Jeb Hensarling, R-Texas, said that, "by any standard of measurement, the foreclosure programs in this administration and this Congress have been abject failures."
Representatives of Bank of America Corp. and JPMorgan Chase & Co., in turn, blamed the few permanent modifications on borrowers' providing insufficient documentation.
Servicers were allowed to accept oral statements of income and expenses for trial modifications. To get a permanent modification, a borrower must make three consecutive months of payments and supply verifying documentation before a loan can become permanent.
So far, 650,000 trial modifications have been made. But the Treasury data says 11% of trial modifications have been canceled, 49% lack some or all of the documents needed to convert them to permanent loans, 33% have the required documentation but have not been converted and 6% are slated for conversion.
Rep. Shelley Moore Capito, R-W.Va., blasted the administration for letting the trial-modification program proceed with low or no documentation. "I was very troubled to learn some modifications are being performed with minimal documentation," she said. "After all, it is this very practice of low documentation that helped create the housing crisis we face today."
It also has become clear the program is incapable of handling such a large group of borrowers, she said.
Democrats used the dismal results to push again for legislation that would let judges rework mortgages in the bankruptcy process. The House has already passed such a measure, and Democrats will try again today to attach it to the regulatory reform package. The Senate has so far not acted.