Banks Fall Short on Mortgage Help

Govt. report says 15 percent of eligible borrowers have gotten help.

August 4, 2009, 9:55 AM

August 4, 2009— -- The Treasury Department today released the first report on the performance of loan servicers in the Obama administration's home mortgage modification program -- and the numbers weren't pretty.

Only 15 percent of eligible homeowners have been offered assistance under the Home Affordable Modification Program thus far, according to the report, and some loan servicers have yet to modify a single loan.

"There are some institutions that have done an infinitesimally small amount," Assistant Treasury Secretary for Financial Institutions Michael Barr told reporters on a conference call this morning.

"We are going to be requiring ramped-up effort across the board," he noted. "We're going to pay more specific attention to ensuring that institutions that have been slow out of the blocks ramp up more quickly and more effectively."

Among the companies that have not modified any loans were American Home Mortgage Servicing and National City Bank. Bank of America had a 4 percent assistance rate for trial modifications, with Wells Fargo marginally better at 6 percent.

"We're disappointed in the performance of some of the servicers," Barr said. "We think they could have ramped up better, faster, more consistently and done a better job of serving borrowers and bringing stabilization to the broader mortgage markets and economy and we expect them to do more."

Wells Fargo defended its loan modification results in an interview with today.

"I think what's important to keep in mind is the HAMP program is a very good program but, relative to the first seven months of 2009, it's just a piece of the overall story," said Mike Heid, co-president of Wells Fargo Home Mortgage.

Heid said that, from January to July, the bank modified a total of 240,000 loans. More than 20,000 were modified through HAMP while the rest of the modifications took place through separate Wells Fargo programs.

Bank of America also touted its own loan modification programs, saying that it modified 150,000 home mortgages in the first half of the year.

American Home Mortgage said in a written statement that it had joined HAMP late last month and will begin loan modifications under the program soon. The company said it had completed 64,000 loan modifications through its own programs between July of 2008 and this June.

At least two loan servicers and their parent banks, meanwhile, are drawing fire for not participating in the government's program at all: Litton Loan Servicing, which is owned by Goldman Sachs, and Barclays' HomEq Servicing Corp.

"No program can work unless people actually sign on and do it," said Gloria Swieringa of ACORN, a non-profit low-income advocacy group. "It's like leading a horse to water and not letting him drink."

ACORN has labeled mortgage servicers that don't participate in the program as "homewreckers," but both Litton and HomEq could escape the designation soon.

A HomEq spokesman told that the company has signed an agremeent to participate in HAMP and expects "confirmation of our HAMP servicer status momentarily." Litton said in a statement today that it hopes to "formalize its participation in the Treasury program soon."

Litton said it has offered more than 35,000 trial modifications using terms "consistent with the Treasury program" since it was announced. Litton modified another 44,000 loans, the company said, in the 12 months before the start of the program.

Under the government's program, some servicers helped as many as one in five qualified borrowers with a trial loan, according to today's report. JPMorgan Chase had a 20 percent trial loan modification rate, as did GMAC Mortgage Inc. Saxon Mortgage Services came in at 25 percent and Aurora Loan Services 21 percent. CitiMortgage Inc. has begun modifications for 15 percent of its eligible borrowers.

"There are many servicers that are performing at quite high levels and our expectation is that other servicers will come up to that high level," Barr said.

Loan Modifications: Banks Have a Long Way to Go

Upon unveiling the plan in February, the administration said that the $50 billion program was intended to help 3 to 4 million borrowers.

They've got a long way to go: As of now, 235,000 loan modifications have begun. Officials said today that they want to reach 500,000 borrowers by Nov. 1.

"It's increasing by 30,000 or more a week," White House economic advisor Lawrence Summers said on NBC's "Meet the Press" Sunday. "We expect it to be half a million by Nov. 1 and we're going to be holding the banks accountable for performance under that program."

Barr said today that, so far, the pace of modifications is too slow.

"We are more than on track to reach 3 to 4 million borrowers over the next three years," he said, "but, in our estimate, that is not fast enough and it's not good enough. We can do better. We want banks to reach borrowers more quickly and we are significantly increasing our efforts to reach borrowers as fast as humanly possible."

Queens, N.Y., homeowner Jean-Andre Sassine said he was surprised to see JPMorgan Chase's relatively high loan modification totals. JPMorgan Chase has offered loan modifications to 30 percent of program-eligible homeowners who are more than 60 days delinquent on their mortgage bills and begun modifications for 20 percent of homeowners, according to the government's report

"That sounds great on paper," Sassine said. "Yet, I'm having such a hard time reaching someone."

A Chase customer, Sassine said he has made countless phone calls to the bank, asking for a loan modification after losing his job last year.

Thus far, he's had no luck. Either his calls aren't returned or they get lost in a maze of transfers to various departments, Sassine said.

A JPMorgan Chase spokesman said he didn't have information on Sassine's case specifically, but acknowledged that the bank still has work to do on its loan-modification system.

"We've done a lot of modifications for borrowers and we know there's unprecedented levels of volume in the industry and there are some people we may not be doing as quickly as they would like or as we would like," spokesman Tom Kelly said. "But we've been adding staff, we've been adding technology, we've been adding space for staff aggressively for the last six months, so we continue to get better at it."

Are Banks Really Trying?

Other banks, too, say they've continued to devote more resources to mortgage modifications but such claims are met with skepticism by advocates like Ira Rheingold, the executive director of the National Association of Consumer Advocates.

Rheingold said mortgage servicers won't make real strides in foreclosure prevention until they have stronger incentives motivating them. Right now, under HAMP, servicers receive $1,000 from the government for every borrower that makes payments for three straight months. For three years of regular payments, servicers receive up to $4,500.

In addition, Freddie Mac is conducting random audits to find out whether borrowers are being improperly rejected for loan modifications.

Rheingold and others argue that struggling homeowners should have the option of having their loans modified by a bankruptcy judge -- an idea often referred to as a "cramdown."

The threat of having bankruptcy judges order loan modifications, he said, should be enough to motivate mortgage servicers to pursue more modifications on their own, early on.

"It's an incentive to get the mortgage industry off their collective rear ends and really get moving here because suddenly [homeowners] will get some leverage," Rheingold said.

For now, future reports on loan modifications will help make clear if the government's existing efforts to improve the program are working.

"The proof's going to be in the pudding," Barr said.

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