Treasury: You Think Bank Foreclosure During Loan Mod Process Will Really Stop?

We are reading up on the latest Treasury statements after a two day trial against an insurance company.  From what we are hearing, the Treasury is issuing yet another set of guidelines for the federal loan modification program.  In testimony before Congress, Treasury officials testified that one of the major problems with the HAMP program was lenders foreclosing during the loan modification process.  We reported that problem here weeks ago.

A Treasury official testified as follows before Congress: "The new guidelines will make clear that if the homeowner enters into a fully verified modification plan, all pending foreclosure actions must be stopped."  It has also been reported that there will be no foreclosure until homeowners have first been deemed ineligible for the program.  The fact that Treasury had to clarify this point is a little disconcerting given the federal program was designed to prevent foreclosures.

We are not confident that this latest clarification from the Feds will change anything.  From what we are hearing and seeing, the lenders and servicers have not devoted the necessary effort and resources to make HAMP work.  A major failure of the program has been its "voluntary" nature.  Lenders will look out for their best interests unless there is a strict set of guidelines to follow with financial and legal penalties for non-compliance.  Acess to TARP funds should not have come so easily.

How is a new guideline preventing foreclosure during the loan mod process going to stop forelclosures when the servicers and lenders lack the internal communication systems and procedures to stop the foreclosure train after it leaves the station?  We will wait and see what happens.  But we are not optimistic.