Gov't Readies Changes to Mortgage Relief Plan

The Treasury Department on Thursday plans to unveil changes designed to streamline burdensome paperwork required for its foreclosure relief plan, according to people briefed on the matter.

The tweaks to the problem-plagued program could help more borrowers complete loan modifications. But they are unlikely to placate critics who have been calling for far more dramatic changes.

Lenders will now be required to collect two pay stubs at the start of the process, and borrowers will have to give the Internal Revenue Service permission to provide their most recent tax returns at the same time, according to the people who declined to be identified because the details were not yet final.

Participating mortgage companies must acknowledge they received a borrower's application within 10 days and approve or deny the application within 30 days. After that, borrowers will still be required to make three months of trial payments before the modification becomes permanent.

Treasury officials are also working on a plan to give unemployed borrowers a break on payments — possibly for six months — but those details were not expected Thursday. A Treasury spokeswoman declined to comment.

With foreclosures at record-high levels, the Obama administration's program to attack the crisis has been a disappointment. Only about 66,500 borrowers, or 7 percent of those who signed up, had completed the program as of December.

The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years.

Mortgage companies say they have struggled to get back the necessary paperwork, while homeowners and housing counselors say navigating the bureaucratic maze often seems impossible.

The $75 billion program has been such a dud that some housing advocates say the Obama administration needs to rethink its entire approach.

"What we need are massive changes that help a lot," said John Taylor, chief executive of the National Community Reinvestment Coalition, a Washington-based consumer group.

Taylor says the government should work harder to help borrowers with mortgage balances above their property values stay in their homes. The administration has been studying ways to encourage investors to cut borrowers' mortgage balances. But officials appear wary of subsidizing such reductions with taxpayer money.

Doing so could spark a backlash from critics who claim it is unfair to people who are still paying their mortgages on time and a bailout for banks that made reckless loans.