Treasury Responds to Mortgage-Mod Criticism

NEW YORK (TheStreet) -- The Obama administration's "Making Home Affordable" program has had many trials and tribulations since its debut in February 2009.

The program has faced several alterations, expanded its scope, partnered with Fannie Mae (FMCC.OB) and Freddie Mac (FNMA.OB) and pushed large mortgage servicers like Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C) to improve performance metrics. Yet, 18 months into the program, relatively few homeowners have received successful permanent modifications using it.

In response to criticism about the government's efforts, Treasury Department spokeswoman Andrea Risotto, who focuses on mortgage modification efforts, spoke with TheStreet.

Below is an edited transcript of her response to specific criticisms, explanations of what has gone wrong and suggestions for troubled homeowners who have yet to find a solution.

On Why It's Taken So Long:

To be candid, the mortgage companies weren't set up to deal with this sort of thing. They were used to sending people to collections and collecting their money and doing what they needed to do. You're dealing with a scale and a demand that they never had to deal with before...

It's important also to remember that when this crisis started, we saw a lot of homeowners with subprime mortgages struggling. But now ... the face of a person who is struggling has changed from a homeowner with a subprime mortgage to a homeowner who has either had a curtailment of income or is dealing with unemployment. And so we just try to remain responsive as the economy changes.

On Changes Implemented to Make the Program More Effective:

We have an unemployment program under "Making Home Affordable" to provide a forbearance to give homeowners a bit of a break until they can afford to pay their mortgage again and get back on track. But [we] also ... work with housing finance agencies in the hardest-hit states to set up programs that are really tailored to their local needs.

On Servicers' Better Performance Outside of the Home Affordable Modification Program:

I think what "Making Home Affordable" has done in many ways is, it forced their hand a little bit ... [by] getting their processes in place more quickly, [and] shifting from this idea of a debt-collection model to an underwriting model, where they look at what a homeowner really can afford to try and work with the homeowner in a much more meaningful way.

It set that affordability target of a debt-to-income [ratio] of 31% ... as an affordable mortgage. That's not only now being used in "Making Home Affordable," but for many of the homeowners who were unable to access "Making Home Affordable" for whatever reason. A lot of mortgage servicers are using that same model in their own proprietary modifications.

If you've had difficulty getting a mortgage rate modification, what was the main sticking point?
	Paperwork confusion Bank was unhelpful or slow in processing material Income was too high to qualify for the federal program Underwater loan made things tough with servicer and/or government