2nd UPDATE: Treasury: Mortgage Servicer Performance 'Uneven'
August 04 2009 - 12:06PM
Dow Jones News
Only 9% of eligible borrowers have received trial modifications
under the Obama administration's ambitious effort to help
struggling homeowners, according to data released by the U.S.
Treasury Department on Tuesday.
Participating mortgage servicers, which receive hefty government
payments for modifying loans, have had "uneven" success at rescuing
borrowers, Treasury acknowledged, as a wave of foreclosures
continues to pummel the U.S. housing market.
Bank of America and Wells Fargo Bank have started trial
modifications for only 4% and 6%, respectively, of the eligible
mortgages in their servicing portfolios, Treasury reported.
Meanwhile, J.P. Morgan Chase Bank has started trial modifications
for 20% of eligible loans.
"I think it's safe to say we're disappointed in the performance
of some of the servicers," Treasury's Assistant Secretary for
Financial Institutions Michael Barr said in a conference call with
reporters. He insisted, however, that Treasury was encouraged by
the program's overall results.
Barr declined to comment on any particular institution's
performance, but said Treasury was pushing servicers to step up
modifications. "We expect them to do more," he said.
The administration is feeling heat from lawmakers on Capitol
Hill, as its foreclosure-prevention effort has failed to help as
many people as expected. A major component of the plan devotes $75
billion of financial-rescue funds to pay incentives to mortgage
servicers, borrowers and investors that agree to modify loans
according to certain standards. When it announced the program in
February, the administration said it would help as many as 4
million borrowers avoid foreclosure.
Officials say they are still on track to reach that goal. But so
far, just 235,247 trial modifications have been started since the
program was launched in March. Meanwhile, foreclosures are
accelerating amid ongoing weakness in the labor market. U.S.
foreclosure activity in the second quarter was up 11%, according to
a July RealtyTrac report.
Treasury gauged program and servicer performance against an
estimated 2.7 million borrowers that are 60 or more days behind on
their mortgage payments. The pool of borrowers represents a rough
snapshot today of borrowers currently eligible for the program,
Barr said.
In a meeting at Treasury last week, participating mortgage
servicers committed to more bring the total number of trial
modifications underway to 500,000. Under the program, no incentives
are paid out until borrowers are current on their modified loans
for three months. Thirty-eight servicers, representing 85% of the
U.S. mortgage market, have agreed to participate in the
program.
To pressure servicers to improve their performance, the
administration recently announced that Freddie Mac (FRE) will audit
the applications of borrowers turned down from the program to see
whether they slipped through the cracks. Meanwhile, Treasury will
continue to publicize servicers' performance monthly.
Barr said Treasury will provide more details in the coming weeks
on its program to incentivize investors to remove second liens and
a separate effort to encourage alternatives to foreclosure, such as
deeds in lieu of foreclosure.
Barr acknowledged that the dismal job market was making it even
more difficult to help some borrowers. Treasury officials are
mulling ways to help borrowers who have lost their jobs. Barr said
the current program contained flexibility to provide short-term
assistance to such borrowers.
"If there's no income at all to support the home mortgage, it's
very hard to see how a loan modification will be long-term
successful."
-By Maya Jackson Randall and Jessica Holzer, Dow Jones
Newswires; 202-862-9255, maya.jackson-randall@dowjones.com