Congress got back to work last week after its summer break, and immediately took up two key real estate questions: Are the Obama administration's efforts to keep financially distressed families out of foreclosure working?

And are major lenders doing their part, helping modify loans and restructure homeowners' debts, or are they dragging their feet?

At a House Financial Services Committee hearing, chairman Barney Frank, a Massachusetts Democrat, didn't hold back: Not only are the administration's results “disappointing,” he said, but major lenders are performing so poorly that Frank plans to push legislation allowing bankruptcy court judges to slash consumers' mortgage debts and payments - the so-called “cram down” approach that lenders hotly oppose.

On the other hand, Obama administration representatives at the hearing said lenders and servicers are picking up the pace of loan modifications, and that a new program to facilitate short sales will be rolled out shortly.

FHA Commissioner David Stevens said that since the start of the White House's “home affordable” efforts, lenders and servicers have offered 571,000 loan modifications to delinquent home owners, and that 360,000 borrowers are now in three-month trial modifications involving sharply lowered payments.

If those owners successfully complete their trials by paying on time, their loans will be permanently modified at the reduced payment levels.

Stevens predicted that the administration's goal of having more than half a million modifications completed or underway by November 1st will be achieved.

He also said the government is starting a “second look” program, whereby auditors double-check cases where modifications were turned down by loan servicers in error. The program will reopen borderline cases and possibly lead to additional modifications.

Stevens didn't provide much detail about the upcoming short-sale and deed-in-lieu effort, but did use the word “incentives.” That was interpreted by industry analysts as suggesting the government could provide financial incentives to lenders - especially those holding second liens on properties - to encourage them to speed short sales rather than stalling them.

Second lien holders often demand significant payoffs as the price of agreeing to short sales, even when the property is deeply underwater and the value of their collateral has been totally wiped out.

The Obama administration's plan almost certainly will offer payments or set minimum compensation levels for such lenders. Details of the program are expected within a week or two, and could be good news for realty brokers seeking to list and close short sales, and for borrowers who urgently need to bail out of houses that have lost much of their value.

Published: September 14, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.