The Obama administration announced today stepped up measures to persuade big banks to help strapped mortgage holders. Currently over 14 percent of all mortgages are at risk – the highest percentage since the Great Depression.
Treasury and housing officials said the measures range from offering financial incentives to publishing lists of banks who fail to provide permanent adjustments on loans.
The program provides for up to three $1,000 incentives to banks who agree to lower mortgage payments. The idea is that a “small cash incentive will induce the banks to cut their losses and accept smaller payments,” writes The New York Times.
The Obama administration hopes that publishing the names of uncooperative banks will shame them into better behavior.
The U.S. government will also halt payments to banks slow to cooperate. “The Treasury Department said it will withhold payments from mortgage companies that aren’t doing enough to make the changes permanent. Officials will monitor the largest mortgage companies through daily progress reports,” writes AP.
Banks, however, are often reluctant to renegotiate terms. Fees collected from outstanding loans prove highly profitable and are milked for all they are worth.
Critics say the administration has opposed allowing judges to force renegotiated loan terms.
Today’s report points to a huge turnaround in addressing the crisis by the administration. In September, only 1,700 had been able to turn temporary trail adustments of loan terms into permanent arrangements. By November 650,000 homeowners were in the trial program. The goal is to turn these temporary adjustments into permanent arrangements, some 350,000 by the end of the year.
The housing crisis, initially sparked by subprime loans, is now largely due to increases in unemployment.
Big banks like J P Morgan Chase and Goldman Sachs, a year ago in dire trouble because of subprime loans – and received bailout funds, boasted $3.6 and $3.2 billion in profits in October.
Some are questioning the banks’ real motives. Even after renegotiating terms, they continue to push for eviction. ABC News writes that housing advocates maintain “mortgage servicers generally continue with foreclosure proceedings against homeowners, even after they have qualified for a temporary loan modification under the government’s program. This incurs costly fees for the homeowner and further damages their credit.”
Over $84 billion was allocated earlier in the year to relieve the mortgage crisis.