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WASHINGTON — Senate Majority Whip Richard Durbin said Monday that, if voluntary loan modifications do not increase significantly within three months, he will revive a legislative effort to let judges rework loans in bankruptcy.
August 3 -
Mortgage servicers are urging the Treasury Department to relax some of the requirements of the Obama administration's loan-modification program, claiming the time-consuming process of gathering documents and collecting signatures has become a major impediment.
August 3 -
House Financial Services Committee Chairman Barney Frank warned Wednesday that if efforts to increase loan modifications do not pick up pace soon, lawmakers will revive legislation that would allow judges to rework loans in bankruptcy proceedings.
July 29 -
The failure of yet another voluntary plan to rework mortgages is likely to renew a push for bankruptcy reform and other measures to force lenders to compromise with borrowers.
July 28 -
During the boom, loans were often set up without an escrow account for property taxes and insurance, which traditionally are collected monthly by the servicer along with principal and interest. Leaving taxes and insurance out of the monthly bill made the mortgages look more affordable to borrowers (who often got hit later with a large annual or semiannual tax bill). Today, many of these subprime borrowers are trying to get loan modifications. But servicers generally require that an escrow account be created as a condition of rewriting loan terms. This is one reason that so many borrowers who get modifications redefault, observers said.
July 27
WASHINGTON — Treasury Department officials acknowledged Tuesday that new data on loan modifications showed that many servicers are underperforming in trying to carry out the Obama administration's foreclosure prevention plan, but they appeared to have little leeway to force improvements.
For the first time, a report detailed how individual institutions were faring: Bank of America Corp. and Wells Fargo & Co. were listed among the worst performers; JPMorgan Chase & Co. had one of the highest rates for helping eligible borrowers.
Though servicers have pledged to more than double the number of trial modifications offered through the program, to 500,000, by Nov. 1, Michael Barr, the Treasury assistant secretary for financial institutions, said there clearly is room for improvement.
"We're disappointed in the performance of some of the servicers," Barr said during a conference call on the loan modification data. "We think they could have ramped up better, faster, more consistently and done a better job bringing stabilization to mortgage markets and the economy."
But there appears to be little the Treasury can do to require servicers to step up. During the call, Barr said officials would be carefully watching the worst-performing servicers and that Freddie Mac would do random audits of servicers to ensure they were following the rules.
"For some of them that means better training," he said; "for some of them that means ramping up capacity; for some of them that means treating people better in their call centers, with more respect."
But many observers said these things alone would not be enough to stimulate the pace of modifications.
"It's hard to tell what it would take for servicers to do more," said Alan White, a professor at Valparaiso University Law School, "but it's sort of a national economic necessity. We have to find a way."
After the report's release, some servicers said they were committed to improving their efforts; it was just taking longer than expected to ramp up, they said.
Mike Heid, a co-president of Wells Fargo Home Mortgage, said his institution waited for the administration to release specific Home Affordable Modification Program guidelines on April 6 before diving in. Wells helped 6% of its potentially eligible borrowers — those who were 60 or more days delinquent and fell within the program's parameters — to get trial modifications. (The borrower must stay current for at least three months before being offered a permanent modification).
"It was a new program," Heid said, saying the servicer did not want to put borrowers in a trial modification and later re-underwrite the loan. "We took more of a 'gather the documents first' path. We wanted to make sure that we had the actual pay stub, the actual tax returns in hand… Now that we've got some operating experience on the program, we feel we can be less restrictive on that."
A spokesman for Chase Home Mortgage said it was able to help 20% of eligible borrowers because it began work early.
Though CitiMortgage was able to help 15% of eligible borrowers, its chief executive, Sanjiv Das, said it was committed to increasing the number of modifications.
"We are pleased with our numbers and with what we have been able to accomplish in the past two months. But we can, and want to, do more," Das said.
In a press release Tuesday, Barbara Desoer, the president of Bank of America Home Loans, which helped 4% of its eligible borrowers, had performed loan modifications outside of the parameters of the Obama program, and had halted foreclosure sales in cases where borrowers could qualify for the plan.
Ron Faris, president of Ocwen Financial Corp., which helped 5% of its eligible borrowers, said in an earnings call Tuesday that some of the numbers are deceiving. He said some servicers are just taking verbal income information from the borrower and sending them an offer immediately, following up at a later time with required information. He argued such a method would result in a high number of modifications initially, but they may not last.
Other institutions, like Ocwen, are requiring borrowers to submit all the documentation first before underwriting a modification.
"Many of the big servicers are using the first option and therefore showing more initial offers and more active trial plans," he said. "We believe that in the long run, our approach will result in a greater number of sustainable loan modifications."
