Mortgage Servicers Set To Defend Record At Treasury Meeting

Executives from 25 mortgage servicers are set to defend their record helping strapped borrowers at a meeting with top administration officials Tuesday.

Each company has agreed to send two senior executives to the Treasury Department to discuss how to improve their performance under the Obama administration's $75 billion foreclosure-prevention effort.

Industry lobbyists said they were told Treasury Secretary Timothy Geithner may appear at the meeting, which is expected to last several hours. Treasury and the Department of Housing and Urban Development will issue a press release after the meeting concludes, Treasury spokeswoman Meg Reilly said.

With foreclosures mounting at an alarming monthly pace, the Obama administration is under intense pressure to improve the program, which has had a lackluster start. So far, it has helped far fewer borrowers than officials had anticipated.

"Servicers are going to voice their opinion that the program was rolled out without a lot of forethought and not enough time for them to ramp up," David Sisko, Deloitte Services LP's head of default management and loss mitigation, said he expected servicers to say in the meeting.

"They're overwhelmed. They're simply overwhelmed," he said.

When officials unveiled the effort in March, they predicted it would help as many as 4 million borrowers get modified loans and up to 5 million underwater borrowers refinance into more affordable mortgages.

But overloaded servicers, surging unemployment and rising mortgage rates have combined to throw the administration way off track.

Only about 200,000 borrowers had received trial modifications and about 55,000 underwater borrowers had refinanced under the program, Reilly said.

Lawmakers are ratcheting up pressure on the administration to make the program a success. Senate Banking Chairman Christopher Dodd, D-Conn., last week sent a letter to Geithner and Housing Secretary Shaun Donovan asking them to look into alleged abuses by servicers participating in the program.

Diane E. Thompson, an attorney at the National Consumer Law Center who trains attorneys representing troubled homeowners, testified before Dodd's panel that she had observed frequent non-compliance with the program's rules.

For example, she said servicers are charging borrowers fees for modifications, initiating foreclosures while loans are still pending review for modification and turning down qualified borrowers - all prohibited under the program.

"The administration needs to find a way to hold servicers accountable," she said in an interview.

Deloitte's Sisko said servicers were increasing staff to meet surging customer inquiries about modifications, but that they weren't always building employee skills so more could perform modifications. He also said low interest rates, particularly in the second quarter, had pulled staff qualified to help strapped borrowers onto the origination side of the business.

The administration will begin next week to issue reports on each servicer's performance in the program as an incentive for servicers to improve.

It has also asked Freddie Mac (FRE), which was designated the government's compliance agent for the program, to develop a "second look" program to minimize the chances that borrowers were wrongly denied a modification.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; [e-mail]