The blame for the slow rollout of the Obama Administration’s Making Home Affordable Program (HAMP), at least in part, rests with Bank of America and Wells Fargo, according to the report on home loan modifications released by the Treasury. The two banks, which also rank as the largest mortgage servicers in the country, came in last in terms of the initiation of trial modifications as a percentage of their eligible loans. Bank of America, which initiated 27,985 trial loan modifications under the guidelines of HAMP, had the lowest percentage at 4% of its eligible loans while Wells Fargo carried a rate of 6%. Wells Fargo’s poor performance is due in part to their acquisition of Wachovia Corp., which modified only 2% of their mortgages.
The banks defended their performance saying that they had modified considerably more loans outside of the government program than inside it up to this point. Bank of America reported that they had modified 150,000 loans, in addition to the trial modifications reported by the Treasury, through other in-house programs while gearing up to modify loans under the guidelines of HAMP. Wells Fargo has their modifications at a total of 240,000 mortgages for the year inclusive of the 20,219 done through the government program. Officials at the Treasury concurred, saying that the big servicers had a much bigger project to complete in order to deal with hundreds of thousands of applications and requests for information. “The biggest servicers certainly have the biggest ships to turn,” Seth Wheeler, a deputy assistant Treasury secretary for federal finance, said in a recent interview. “Some of the strongest performers are smaller servicers, but it’s not a uniform correlation.” Measuring by percentage may not be a fair way to compare all loan servicers as evidenced by Pasadena, California-based Wescom Central Credit Union had a 28 percent rate for its 136 eligible loans, the best performer among servicers on the list that had at least 100 qualifying mortgages. At 28%, Wescom has modified 38 loans or approximately one quarter of the loan modifications that Wells Fargo does in a single day.
The meeting last week between at the Treasury and officials of loan servicers was representative of the government’s effort to prod the servicers into delivering better results from its cornerstone program which has initiated about 235,000 trial modifications for homeowners out of the 4 million targeted for help. At the close of the meeting, The Obama administration and Treasury announced their goal of starting at least 500,000 trial modifications by Nov. 1. At this point, about 15% of homeowners that qualify for the program have had offers extended by lenders and servicers with about two thirds of those entering into trial modifications. The trial modification is the first phase of the loan modification process in which homeowners make reduced payments for three months while the final loan modification terms are prepared.
There are still many lenders and servicers that don’t have the bandwidth to process the sheer volume of loan modifications, the associated paperwork, and the requests for information. The typical work load for a loan modification processor has increased from an average of 75 per month to between 200 and 300, according to David Sisko, the head of default management services for Deloitte & Touche LLP.
The servicers have been subject to allegations and criticism beyond just the government. “Unless key challenges are addressed, this program will never get to full scale,” said Brenda Muniz, the legislative director for the Association of Community Organizations for Reform Now (ACORN). “Servicers remain woefully understaffed, they are overwhelmed by the large volume of borrowers seeking loan mods and they are violating” program terms, she said. It has also been alleged that the servicers are dragging their feet on modifications because they receive much higher fees when loans go delinquent for extended period. Servicers typically charge the equivalent of 6% of the monthly mortgage payments for extra legal, title, and miscellaneous fees once a loan becomes delinquent.
Participation in the government program is not voluntary for the largest servicers in the country due to their receipt of federal funds via the Treasury’s Troubled Asset Relief Program (TARP). Citigroup and Bank of America each received about $45 billion from TARP, while Wells Fargo took $25 billion. Mandated into the program, performance by the large servicers has been varied with the appearance that some, like JPMorgan Chase with 87,000 HAMP modifications through June 30th, have embraced the program while others have been deliberately slow with their uptake of the program. “HAMP was just a piece of the overall loan modification story,” said Mike Heid co-president of Wells Fargo Home Mortgage. The delay in ramping up capacity at Wells Fargo is “just a function of program availability, when the guidelines and specific requirements became known,” he said. Wells Fargo and others have also defended their slow start saying that details of the program were released in a piecemeal fashion with the program’s announcement in February, the final protocol for processing the loan modifications owned by Fannie Mae and Freddie Mac released in April, and guidelines for loans owned by other investors finally provided in June. Servicers have also complained that the administration announced the program before they could get people and infrastructure in place to handle the flood of interest.
According to California-based RealtyTrac Inc, 1.5 million properties received a notice of default, an auction notice, or were repossessed by banks through the first half of the year with estimates for another 2 million by the end of the year. To stem that tide, the pace of loan modifications will have to pick up dramatically and without excuses. At the end of the day, keeping properties off of the market with loan modifications is an obvious benefit to homeowners but will also limit the burgeoning supply of foreclosures going to auction. That, in turn, would prove significant in stabilizing prices, the first step in building even a modest recovery in real estate across the country.
