Feds move up income verification for mortgage-modification plan

Homeowners in the main U.S. foreclosure-prevention plan will be required to provide proof of income earlier in the loan-modification process as the Obama administration tries to make the mortgage program more efficient.

The Home Affordable Modification Program, or HAMP, will now require that key documents including proof of income be provided before a borrower evaluation can begin, the U.S. Treasury Department said Thursday.

"This will make it easier for servicers to determine a payment level that's affordable and sustainable," said Phyllis Caldwell, who runs the Treasury's Homeownership Preservation Office.

HAMP, created last year to help more than 3 million people hold onto their homes, made 66,465 trial payment plans permanent through December.

Obama administration officials have cited delays in getting borrowers who had been accepted into the program on a trial basis to submit the needed paperwork to move forward to a permanent modification.

Shifting some of the document requirements to earlier in the process may help, they said.

HAMP is designed to lower monthly mortgage payments by reducing interest, lengthening repayment terms and deferring principal repayments for as long as five years.

The program had 787,231 borrowers in trial loan-modification plans as of December, according to Treasury data released earlier this month.

HAMP has been a "failure" so far at converting temporary repayment plans into permanent loan reductions, said Bose George, an equity analyst at Keefe Bruyette & Woods in New York.

Borrowers in trial-payment plans that have fallen behind on mortgages and haven't turned in all of their paperwork will be kicked out of the program and steered toward other alternatives, said Treasury officials.

About 25 percent of the program's participants have missed one or more payments, officials said in a Jan. 15 conference call. An additional 115,000 homeowners who started trial-repayment plans last year have either dropped or been kicked out of Obama's Home Affordable Modification program, the officials said.