Sept. 9 (Bloomberg) -- Bank of America Corp. and Wells Fargo & Co., among the worst performers of banks in the U.S. government’s main foreclosure prevention plan, stepped up their pace of mortgage modifications by at least 60 percent in August.
Bank of America more than doubled its number of modifications started through the Making Home Affordable Program to 59,891 in August from July, while Wells Fargo improved by 64 percent to 33,172, the U.S. Treasury said in a report today from Washington. Overall, 47 banks have begun 360,165 modifications through the program, up from about 235,247 in July.
Wells Fargo and Bank of America, which have taken a combined $70 billion in taxpayer-funded aid, had been criticized by lawmakers for not doing enough to offer assistance to struggling homeowners. The banks have cited the time needed to boost staffing in loan servicing departments and government delays in distributing information about the program.
“A lot of our momentum pickup is working with those customers we had already made offers on, making sure they were aware of the offer and converting those offers into trial starts,” Steve Bailey, a Bank of America home retention strategies executive, said in an interview yesterday.
Bank of America’s modification pace may quicken as the Charlotte, North Carolina-based bank accounted for about 22 percent of the 571,354 modification offers made to borrowers, though not all started, through the program. San Francisco-based Wells Fargo accounted for about 13 percent.
Capacity and Transparency
Bank of America and Wells Fargo still lag their peers including JPMorgan Chase & Co. and Citigroup Inc. As of August, Bank of America had started modifications on 7 percent of its eligible loans. Wells Fargo was at 11 percent. Citigroup’s rate was 23 percent, while JPMorgan’s was 25 percent. The best performer among servicers that had at least 100 qualifying mortgages was Morgan Stanley’s Saxon Mortgage Services, which had begun trials for 39 percent of its 73,694 eligible loans.
The Treasury said today that the program has been more successful than any other foreclosure relief effort for “at- risk borrowers.”
“Nonetheless, we recognize that challenges remain in implementing and scaling up the program,” Michael Barr, the Treasury’s assistant secretary for financial institutions said in written testimony to the House Financial Services Committee panel on housing. “We are focused on addressing challenges in three key areas: capacity, transparency and borrower outreach.”
Millions of Foreclosures
Barr said the Treasury has asked loan servicers to expand call centers, add more staff than planned, increase training and to allow borrowers to escalate complaints, among other things.
The program won’t be able to help everyone, Barr said. “Even if HAMP is a total success, we should still expect millions of foreclosures, as” President Barack Obama said when he announced the program in February, Barr said.
Eligible loans under HAMP are those originated prior to 2009, where the owner is “at risk of imminent default” and the underlying property is owner occupied and conforms to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans.
‘Besieged With Volume’
“The servicers are still besieged with volume,” said David Sisko, the head of default management services for Deloitte & Touche LLP.
Molly Sheehan, a senior vice president for JPMorgan’s home lending business, told the panel that her company has made progress by hiring more people and investing in technology.
“We believe that the industry as a whole is making significant capacity investments like those made by Chase to provide assistance to as many families as possible,” she said.
The program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.
The Treasury numbers released today doesn’t include redefault rates on the HAMP modifications.
“A lot of these loans shouldn’t have been made in the first place,” Sisko said. “The issue really comes down to how many are going to be successful.”
Unemployment Rate
Government-controlled mortgage-finance company Fannie Mae reported last month that 41 percent of the loans it modified in the fourth quarter, before HAMP was implemented, were still current or had been paid off.
“With unemployment still near 10 percent, even the most ambitious loan modification program will not be able to assist borrowers who have no ability to make a reasonable mortgage payment,” Jack Schakett, a credit loss mitigation strategies executive at Bank of America, said in written testimony to be delivered today to the House subcommittee.
The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs, highlighting threats to consumer spending.
Mike Heid, co-president of Wells Fargo Home Mortgage, said the program is too new to calculate meaningful success rates and that previous redefault rates may not apply.
“The last couple of months the vast majority of mods all have payment decreases,” Heid said in an interview today. “So historic redefault rates really are no longer appropriate given that the type of mod that’s getting done is just very, very different than it used to be.”
Obama announced the programs in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac were released in April. Specific program guidelines for loans owned by other investors were provided in June, and the Treasury later gave new details for loans backed by the Federal Housing Administration.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.
source: http://www.bloomberg.com/apps/news?pid=20601087&sid=alOtDve_vu1s
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Wednesday, September 9, 2009 |