US gets tough on mortgage lenders

NEW YORK - United States banks and mortgage companies which are failing to help struggling borrowers refinance into more affordable home loans could be fined, under a drive aimed at cutting the foreclosure rate in the world's most important housing market.

Amid concern that soaring repossessions could undermine the nascent economic recovery, the Obama Administration yesterday promised tighter regulation of the mortgage industry's efforts to aid borrowers.

It threatened "penalties and sanctions" for any mortgage firm that fell behind in its obligations under a US$75 billion ($104 billion) government programme funnelling support to borrowers.

The US Treasury unveiled its Home Affordable Modification Programme earlier this year, claiming it would keep up to four million Americans in their homes by subsidising mortgage firms which arrange lower monthly payments for struggling borrowers.

But only 650,000 people have begun even trial modifications, and just "tens of thousands" have converted to affordable new mortgages.

The disappointing performance of the scheme has frustrated the Administration, which has repeatedly ratcheted up pressure on mortgage firms and made efforts to name and shame the big banks that are making the fewest refinancings.

Mortgage firms say there have been problems finding new loans that homeowners could afford, and the scheme has also been plagued by a lack of public awareness and difficulties getting borrowers to submit the right paperwork.

All the while, the housing market has remained fragile, and economists worry that high foreclosures could lead to a glut of unsold houses that push down prices.

That could set off a second round of the credit crisis, since many credit derivatives traded on world markets are based on US mortgages and the value of house prices.

Phyllis Caldwell, head of the Treasury's Homeownership Preservation Office, said yesterday staff would fan out across mortgage service firms to monitor their work.

She said some 350,000 borrowers could be settled into new mortgages by the end of the month, at which point her office will publish a list of the firms which are falling behind.

- INDEPENDENT