By CU Senior Attorney, Norma Garcia

In September Michael Barr, the Treasury’s Assistant Secretary for Financial Institutions, testified before the House Financial Services Committee on what the they are doing to stabilize the U.S. housing market and support homeowners who are facing foreclosure.

In his remarks, Barr highlighted several initiatives undertaken by the Obama Administration to stabilize the housing market, including the progress being made by the loan servicers participating in the Home Affordable Modification Program (HAMP). Barr said that HAMP is expected to provide “sustainable, affordable mortgage payments for up to 3 to 4 million borrowers.”

In a nutshell, the HAMP program is a $75 billion federal initiative designed to aid our nation’s economic recovery from the deep financial crisis caused by putting too many borrowers into loans they could not afford. Taxpayer dollars are being spent to prop up the lender/servicers participating in HAMP by paying them incentives to put eligible borrowers into affordable loan modifications to avoid unnecessary foreclosures. HAMP is an important initiative that has the potential to prevent many unnecessary foreclosures that hurt individuals, communities and the national economy. Executed properly, HAMP could provide promise and hope to many.

However, today, nearly eight months after the program launched, in spite of the number of HAMP trial loan modifications started, the vast majority of homeowners estimated to be eligible for HAMP assistance are still without relief. Per the latest data, only 20% of those who are estimated by Treasury to be eligible are in HAMP trial loan modifications. While some of the largest participants have made progress, Bank of America, holding the largest portfolio of HAMP eligible loans, is seriously lagging behind.

How do the Large HAMP Participants Compare?

According to the latest data from Treasury, the participants with the largest estimated shares of HAMP eligible loans are:

1. Bank of America, (990,628 eligible loans)

2. JP Morgan Chase, (422,807 eligible loans)

3. Wells Fargo Bank, NA, (323,198 eligible loans)

4. CitiMortgage, (221,916 eligible loans)

Together, these four participating lender/servicers account for a little over 60 percent of the total estimated number of loans eligible for HAMP assistance, according to the Servicer Performance Report for activity through October 2009. Bank of America, alone, accounts for 30 percent. Yet, Bank of America’s HAMP performance to date indicates that it has not kept pace with the other three large lender/servicers which have, at a minimum, placed twice the percentage of eligible loans held into trial loan modifications. Examining the chart below, it’s clear that Bank of America has the potential to make the largest difference in the success of the HAMP initiative yet it is the poorest performer to date. It currently holds nearly one million estimated eligible loans but has only 14% of that amount in HAMP trail modification status. By contrast, Wells Fargo has 29% of its eligible loans in HAMP trial modifications, JP Morgan Chase has 32%, and CitiMortgage has 40% of its estimated eligible portfolio in HAMP trial modifications.

500,000 Loan Modifications by November—Goal Too Low

When the HAMP program began in March 2009, Treasury indicated that it had established a goal of 500,000 trial loan modifications by November 2009. The goal of 500,000 HAMP trial loan modifications was reached on October 8, 2009, a few weeks ahead of schedule. This is welcome news.
However, after we analyzed the HAMP trial loan modification numbers and the lackluster performance by one of the biggest players in the HAMP program we must conclude that the goal of 500,000 trial loan modifications by November 2009 is too low. CU believes more can and should be done by the banks and loan servicers participating in HAMP to make the program a success.

Looking Back: HAMP Off to a Slow Start and Inching Forward

Since the program went into effect in March 2009, CU has closely watched the progress of the participating lenders and servicers to see if they are getting eligible homeowners into trial loan modifications to avoid foreclosure. Initial results in the first few months of the program were disappointing, but we acknowledged that the program was getting underway and could take a month or two to gain momentum. The slow start also caught the attention of Treasury. In an effort to boost performance and enhance transparency, in August 2009, Treasury began publishing a monthly report on the progress of the HAMP participants and their success in making trial loan modifications for eligible borrowers whose loans they hold. The monthly Treasury reports lift the veil on how well the participants are doing to help their eligible borrowers obtain affordable loan modifications and avoid foreclosure.

The first report for activity through July 2009
showed that in the first four months of the program, only 9 percent of all estimated eligible loans were being modified under HAMP. The second report for activity through August 2009 showed that the percentage of total trial modifications in place from HAMP increased slightly from the previous reporting period from 9 to12 percent. The report issued showing activity through September 2009, indicated another slight improvement with trial loan modifications being reported on 16 percent of the loans held by the participants. The most recent report, issued on November 10, 2009 showed a 4 percent increase over the previous month with HAMP trial loan modifications on 20 percent of the estimated eligible loans 60 or more days delinquent.

The good news is that the program has steadily increased the number of trial loan modifications but the pace of those increases has been very small. CU is concerned that the pace of the increase is not enough to keep up with today’s demand and the anticipated growth in loans eligible for HAMP assistance in the future. Borrowers have been reporting for months that their lenders/servicers have in many instances not been timely in responding to their applications for HAMP modifications. The new wave of HAMP eligible loans could grow substantially when the next batch of adjustable rate mortgages resets in the near future, potentially overwhelming the fledgling HAMP initiative.

Some Positive New Trends:

More Servicers Choosing to Participate

According to Treasury, there are approximately 2,300 loan servicers that are part of the GSE, entities that own or service loans guaranteed by Fannie Mae or Freddie Mac, that automatically participate in HAMP. Additionally, every month, new loan servicers have voluntarily signed on to participate in the program. The report of data through August 2009 indicates that the number of voluntarily participating loan servicers grew from 38 to 47. In September 2009, the number increased from 47 to 63. Data reported through October 2009 show that there are now 71 servicers voluntarily participating in HAMP. This is an encouraging trend because it means more homeowners will have access to participate in HAMP through their servicers.

Trial Loan Modifications Finally Outpacing Number of Eligible Loans

The data reported for July, August and September 2009 indicate that during those months, the number of loans becoming eligible for HAMP assistance outpaced the number of trial loan modifications offered. The good news is that this trend appears to have reversed in October 2009 with more trial loan modifications being offered than new loans gaining HAMP eligibility status.

According to Treasury data, the number of eligible loans grew at a rate of almost 10 percent from July 2009 through August, 2009, from 2,705,302 to 2,965,980 eligible loans. Through September 2009 the number of eligible loans heading toward foreclosure and eligible for HAMP grew again at a rate of approximately 4.5% from 2,965,980 to 3,100,305. However, from July to August 2009, the increase in new HAMP eligible loans, as determined by Treasury, outpaced the increase in trial loan modifications by 135,760. In September 2009 there were 7,409 more new HAMP eligible loans than there were modifications. Finally, in October 2009 the trial loan modification deficit reversed and the increase in new trial loan modifications outpaced the increase in new HAMP eligible loans by 45,026. Future data reports will tell us if this trend continues.

Better Results Require More Accountability and Action
Bank of America: The One Way Bailout?

What if Bank of America were to perform on par, on a percentage basis, with the next lowest large participant, Wells Fargo Bank, NA, which has 15 percent more of its eligible loans in trail modifications? That improvement alone would produce an additional 150,288 trial loan modifications significantly boosting the overall success of the HAMP initiative. And if Bank of America were to boost its performance to the same level as the highest performer, CitiMortgage, which has 27 percent more of its eligible loans in trial modifications, this would produce an additional 259,257 trial loan modifications.

Bank of America is a major recipient of taxpayer bailout dollars, yet it is the poorest performer of the large banks participating in HAMP. Various sources peg Bank of America’s government assistance haul at between $25 billion and $45 billion dollars. CNN reported that Bank of America received $45 billion in government assistance.
ProPublica confirmed this figure. However, The Wall Street Journal reported on April 22, 2009 that Bank of America received a total of $25 billion in government assistance.
Whether Bank of America has received $25 billion or $45 billion, what’s troubling is that there is no doubt that Bank of America has benefited substantially from taxpayer dollar assistance, yet they have performed the poorest of the big bank/servicers participating in HAMP. This is especially appalling because Bank of America has the power to make the biggest difference in the success of the HAMP initiative.

Opportunity and Obligation for All: Step up to the plate to make HAMP work.

It’s time for all loan servicers participating in HAMP to step up to the plate to make the program work, but especially Bank of America whose performance has been lackluster. Bank of America can improve its numbers and all servicers can do a better job of helping distressed borrowers seeking HAMP modifications. Too many borrowers are reporting problems with trying to process their HAMP applications and those complaints involve more than just Bank of America borrowers. Increasing the number of trial loan modifications is well within the reach of all servicers, and improving customer service relative to processing HAMP applications is a critical imperative for all.