Administration tightens documentation requirements for mortgage relief.

Facing mounting criticism about the effectiveness of the government's foreclosure-prevention efforts, the Obama administration announced Thursday that it will tighten the documentation requirements for borrowers applying for its marquee mortgage relief program.

Starting June 1, borrowers must prove they qualify for the mortgage help upfront, providing two pay stubs and other paperwork before their payments can be lowered. The change attempts to prevent a repeat of the current backlog of borrowers who received mortgage relief after a phone conversation with their lender but did not satisfy the government's documentation requirements within three months.

More than 300,000 borrowers were at risk of losing their aid under the Making Home Affordable program by the end of January because they had not submitted required paperwork. But lenders were given new flexibility Thursday to make those loan modifications permanent despite the lack of documentation, Treasury Department officials said.

"Increasing the number of borrowers receiving permanent modifications under [the government program] is critical to our efforts to preserve affordable and sustainable homeownership," William Apgar, a senior adviser for the Department of Housing and Urban Development, said in a statement.
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While lenders blamed borrowers for not submitting their documentation on time, homeowners and housing counselors have complained that banks often lost the paperwork. In some cases, lenders have been slow to complete the loan modification even after the borrower met all the requirements, they have said. Government officials said the new paperwork requirements will be easier to understand and less onerous for borrowers.

The government program has helped lower the mortgage payments of more than 850,000 borrowers by more than $500 a month since it was launched in March. But it got off to a slow start, and only about 66,000 borrowers had moved all the way through the program and received permanent loan modifications by December, according to Treasury data.

About a quarter of the borrowers in the program are delinquent on their new, lower payments, and thousands have been dropped from the program because they didn't make their payments or lenders learned they didn't qualify after all. And economists and housing experts have been critical of the program's scope, complaining that it does not do enough for unemployed workers and should include a reduction of principal for borrowers who owe significantly more than their home is worth.

The administration's changes to the program come as new data show that the foreclosure problem is worsening. Freddie Mac said the delinquency rate for the single-family mortgages it backs has more than doubled to 3.87 percent in December, compared with the same period last year.