500,000 Trial Loan Modifications – Oct 2009 Report

Article Bullets:

• 500,000 trial loan modifications completed under the Making Home Affordable program

• As of Sept. 1, the report says, only 1,711 homeowners have completed the three month trial period and been approved

• In mid May, Treasury announced that more than 55,000 homeowners had begun trial modifications

• Overall, servicers had started trial modifications for only about 487,000 homeowners, about 16 percent of those eligible

• 1 in 8 homeowners in default or foreclosure

• 10-12 million more foreclosures expected in near future

• HAMP was designed around the housing crisis 6 months ago, and doesn’t take into account conditions that impact foreclosures today – unemployment

via propublica.org

Every month, the Treasury Department gives an update on its $50 billion mortgage modification program. We’ve posted the latest breakdown of how the largest servicers are doing.

Treasury used the occasion of the report’s release yesterday to trumpet a “milestone”: More than 500,000 homeowners have begun a trial modification under the program. This was a goal set by the administration itself back in July, and, as we observed at the time, there was little doubt they’d meet it.

But it’s an accomplishment rife with caveats, as a report released this morning by the bailout’s Congressional Oversight Panel makes clear. The plan’s success will ultimately depend on how many of these modifications actually prevent foreclosures, the report stresses, and the number of trial modifications doesn’t answer that question.

Under the program, homeowners approved for a modification undergo a three-month trial. If they succeed in making their adjusted payments throughout, then the modification becomes permanent. If they don’t, then they’re back to square one. As of Sept. 1, the report says, only 1,711 homeowners had run that gantlet.

It’s unclear why the number is so low. In mid May, Treasury announced that more than 55,000 homeowners had begun trial modifications. The report stresses that the number is “preliminary” and says the low number may in part be because mortgage servicers are slow in assembling the final documentation or getting the data to Treasury. But another possibility may be that borrowers are re-defaulting in large numbers. The panel is “hopeful” that’s not the case, the report says, but adds that if the number of permanent modifications doesn’t rise fast, the program “will come nowhere close to keeping up with foreclosures.”

Of course, the program’s first six months has been chiefly marked by homeowners’ frustration in even getting to the trial stage. Treasury’s results show that servicers’ performance hasn’t accelerated over the past three months: each month, servicers have begun about 125,000 trial modifications.

As you can see from our breakdown by servicer, Bank of America, the biggest participant in the program, continues to lag behind others in its pace. As of Sept. 30, it had started trial modifications for about 11 percent of customers eligible for the program. Overall, servicers had started trial modifications for only about 487,000 homeowners, about 16 percent of those eligible.

Last month, NPR broadcast a report from Bank of America’s home retention department. During the visit, a reporter looking over the shoulder of a company employee thought she had incorrectly rejected a customer from the Making Home Affordable program. The employee stuck to her position, but when NPR inquired with her supervisors, they realized that the reporter was correct and offered the homeowner a modification.

The company said it would have caught the mistake eventually. Another homeowner who had been repeatedly denied a modification on the phone was also offered one after NPR questioned the company about the basis for that denial.

Last month, we wrote about Ian and Megan Bearce of Glendale, Calif., who had been asking Bank of America for a loan modification for months They finally got one on Sept. 8, but Megan says they began making progress only after ProPublica got involved and Bank of America plucked them out of the obscurity of the home retention department.

“From the sounds of it, several people have been told of our case, and we’re a priority,” she said on Sept. 1. She said it was “quite a difference” from the long hold times, missing faxes, delayed deadlines and unreturned phone calls they had endured before.

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On Oct. 9, 2009, the Treasury Department released data showing how the largest mortgage servicers participating in the administration’s $75 billion foreclosure prevention program have been performing. You can see that breakdown below.

To give an indication of each servicer’s performance as a percentage of its loans eligible for modification, the Treasury listed the number of eligible loans that are more than 60 days delinquent. While that number is useful to compare servicers, it underestimates the total number of loans that are eligible for the program. Treasury only released data for servicers with over 1,000 eligible loans.

The “incentive cap” listed is the amount of money allotted to each participating servicer based on its estimate of how many loans are eligible for the program, but some of that money will also go to lenders and borrowers.

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Related Articles:

• Chris Adams, McClatchy Newspapers, Gets It! Servicers Suck!
• Congressional Oversight Panel – Foreclosure Mitigation Report
• S.1731 – Preserving Homes and Communities Act of 2009 – Will Issue Grants To Unemployed Homeowners
• When Walking Away From Your Home Becomes A Business Decision

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