Dow Jones Newswires: Treasury: Mortgage Servicer Performance ‘Uneven’

By Maya Jackson Randall and Jessica Holzer

WASHINGTON (Dow Jones)–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, the
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, respectively, in their servicing

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 the Treasury was encouraged by the program’s overall results.

Barr declined to comment on any particular institution’s performance, but
said the 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 nearly 11% from the previous quarter, according to a July RealtyTrac report.

The Treasury defines eligible borrowers as those who are 60 or more days
behind on their mortgage payments. Out of a current pool of 2.7 million 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 the 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. HomeEq spokesman Brandon Ashcraft said the servicer has submitted a signed agreement to participate in the program and expects confirmation by the Treasury “momentarily.”

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, the Treasury will continue to publicize servicers’ performance monthly.

Barr said the Treasury will provide more details in the coming weeks on its
program to encourage investors to remove second liens and a separate effort
to encourage alternatives to foreclosure, such as deeds in lieu of

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.”