Starting Today, Treasury/Fannie teams will visit the eight largest servicers for three days to monitor their Home Affordable Modification Program efforts and troubleshoot any problems.

One-third of the 375,000 borrowers have submitted all the necessary documentation to qualify for a permanent loan modification and they “deserve” a timely decision from their servicer, said Treasury Assistance Secretary Michael Barr to reporters. Meanwhile, 37% of the borrowers have submitted some documentation and more 20% have not submitted anything.

“Borrowers need to submit the necessary information or they could lose their eligibility for a permanent affordable modification,” said Phyllis Caldwell, who joined Treasury in November to oversee the conversion campaign.

“We are also working with 300 outreach partners — including state, local and community officials as well as homeownership counselors and advocacy groups,” Ms. Caldwell said. Several years ago she headed community development banking for Bank of America.

Servicers are expected to continue their outreach efforts while Treasury engages in a “robust” communications and outreach campaign to reach those borrowers.

In addition, each HAMP participating servicer will report to Treasury twice a day on their conversion progress during the month of December, according to Mr. Barr.

In a month-long campaign to convert 375,000 borrowers in payment trials into permanent loan modifications, Treasury Department and Fannie Mae staffers will be hounding servicers on a daily basis to achieve the highest conversion rate.

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House Financial Services Committee chairman Barney Frank, D-Mass., is threatening to attach a bankruptcy cram-down provision to a regulatory reform bill if servicers don’t speed up the loan modification process.

Rep. Frank said he is “disappointed” in the servicers’ efforts to implement the Obama administration’s Home Affordable Modification Program. But he noted there are legal obstacles such as second mortgage and servicing agreements that made modification decisions difficult.

The 45 Home Affordable Modification Program servicers are now on track to meet the Obama administration’s initial goal of starting 500,000 trial modifications by Nov. 1, according to Treasury Assistant Secretary Michael Barr. Servicers participating in the administration’s Home Affordable Modification Program had over 360,000 homeowners in 90-day trial modifications as of the end of August up from 235,000 in July, according to the latest Treasury report.

While performance of individual servicers has been “uneven,” Mr. Barr told a congressional panel, “we think all the servicers can do more than they are doing now and we would like to continue to work with them for better results.”

If the frustration over voluntary modifications continues to build, Mr. Frank said, it will make it easier to pass a provision that allows bankruptcy judges to modify mortgages on a primary residence. “The best lobbyists we have for getting bankruptcy legislation passed are the servicers that are not doing a very good job of modifying mortgages. If they do not improve their performance then they improve the chances of the legislation,” Chairman Frank said. Previously Frank has warned that a lack of progress on modifications could lead to more cram-down related legislation efforts.

Meanwhile the major mortgage servicers are preparing for the Treasury Department to roll out a short sale program and they are signing up vendors that specialize in handling these difficult real estate transactions that help troubled homeowners avoid foreclosure. Loan Resolution Corp. chief operating officer Travis Olsen said one of the top 10 servicers has hired his firm to manage the short sale process. “We will take their borrowers who have been denied a home retention plan and hand-hold them during the rest of the process,” he said.

Treasury is expected to provide incentives for servicers to conduct short sales and share some of the costs of paying off second lien holders. “The final details of the short sale program are being finalized, and will be announced as soon as completed,” HUD assistant secretary David Stevens told a congressional panel.

In a short sale, the lender agrees to accept a loss on the sale of the property and forgive the remaining balance on the mortgage. If a modification or short sale doesn’t work, the next stop is foreclosure.

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