3rd UPDATE: Treasury: Mortgage Servicer Performance 'Uneven'
August 04 2009 - 1:27PM
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 Corp. (BAC) and Wells Fargo & Co. (WFC) were
among the poorest performers in the program, having started trial
modifications for just 4% and 6% of eligible borrowers in their
servicing portfolios, respectively.
Meanwhile, J.P. Morgan Chase & Co. (JPM) has started trial
modifications for 20% of eligible loans. And CitiMortgage, the
mortgage unit of Citigroup Inc. (C), has begun trial modifications
on 15% 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 and housing
groups 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. The administration predicted the
program will help as many as 4 million borrowers avoid foreclosure
over three years.
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 defines eligible borrowers as those that are 60 or more
days behind on their mortgage payments. Out of a current pool of
2.7 million of such borrowers, only 15% have been offered a trial
modification and just 9% have accepted. Under the program,
borrowers must complete a three-month trial period with the
modified loan before any incentives are paid out.
Bruce Dorpalen, ACORN Housing Corp.'s national director of
housing counseling, attributed the poor response rate to fear and
confusion. "People are scared. People don't know what they are
being asked to sign," he said.
Dorpalen said ACORN's housing counselors had intervened to stop
500 foreclosures from happening where the borrower was eligible for
the administration's program. In many cases, borrowers were being
offered loan modifications that violated the program guidelines -
such as interest-only loans or modifications with upfront fees, he
said. ACORN is calling for a full halt to foreclosures while
servicers review all eligible borrowers for the program.
In a meeting at Treasury last week, participating mortgage
servicers committed to bring the total number of trial
modifications underway to 500,000. Thirty-eight servicers,
representing 85% of the U.S. mortgage market, have agreed to
participate in the program.
Two servicing arms of major investment banks - HomeEq Servicing,
owned by Barclays PLC (BCS), and Litton Loan Servicing, a unit of
Goldman Sachs Group Inc. (GS) - haven't signed onto 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