Fewer Than 10% of Struggling Homeowners Are Receiving Help

No one can deny that the Obama administration inherited an economy in extreme trouble and most would agree that the administration has tackled economic problems head on, committing both big dollars and new programs designed to stimulate the economy.  One of the big areas of concern continues to be foreclosures, and a new report on the pace of loan modifications demonstrates that the foreclosure prevention plan is experiencing a very slow start.

The foreclosure prevention program committed between $50 billion and $75 billion to helping struggling homeowners to avoid foreclosure.  Over 1.5 million homeowners have received a notice related to foreclosure during the first half of the year, and foreclosures are likely to continue rising with unemployment increasing and the economy showing signs that recovery will be slow.  Of those homeowners that are behind on monthly mortgage payments, only 9% are getting help modifying their mortgages.

There are currently 38 companies that are participating in the loan modification program that handle 85% of the outstanding mortgage loans in the U.S., and 10 of these companies have not modified a single loan.  Other companies with a big footprint in the mortgage world, including Litton Loan Servicing (owned by Goldman Sachs) and Homeq Servicing (Owned by Barclay’s) have so far opted out of the program completely.

Lenders who participate aren’t doing it out of the goodness of their hearts.  Those who help customers to modify home loans and make payments more manageable receive a $1000 payment when a customer makes three consecutive monthly payments after loan modification and a much larger payment if the borrower is in good standing after three years of payments.  In addition, lenders stand to benefit from borrowers making payments as opposed to walking away from their homes and leaving lenders holding the bag.

The government released statistics on the financial institutions participating in the program as an accountability tool and it appears to have achieved that purpose.  Several companies that showed results that were lower than expected publicly re-committed to the program, promising to increase their efforts to work with homeowners that are in danger of losing their homes.  Of the major banks, both Wells Fargo and Bank America had modified only 6% and 4% of loans in default, respectively.  American Home Mortgage and PNC bank hadn’t modified a single loan as of the report date.

When asked why these companies had done so little to help their customers, most blamed a combination of technology, customer service, and staffing issues.  Chase had hired 950 loan specialists to help handle the 150,000 applications that are in process, while Citigroup’s mortgage unit has added 1400 employees.  Many companies are also implementing new computer systems capable of handling the growing base of applications.

Michael Barr, Assistant Treasury Secretary for Financial Institutions, asked lenders and loan servicers to respond to customer questions in a timely and respectful manner, adding, “We will be requiring ramped-up effort across the board. We expect them to do more.”

The lenders that have been the most proactive in modifying loans include Saxon Mortgage Servicers (a division of Morgan Stanley), JP Morgan Chase, Aurora Loan Services, and GMAC Mortgage, all of whom had modified loans for at least 20% of qualified borrowers.