Banks Slow to Modify Mortgages

By Renae Merle
Washington Post Staff Writer
Wednesday, August 5, 2009

Less than 10 percent of delinquent borrowers eligible for the Obama administration's foreclosure prevention program have received help so far, according to Treasury Department estimates released Tuesday, which also illustrated how unevenly the effort has been carried out.

Of the 2.7 million borrowers who have missed at least two mortgage payments, only 235,247 have received loan modifications since the $75 billion program was launched in March. Most of those modifications have been completed by just a few banks; other lenders have modified far fewer loans under the program.

"We're encouraged by the way the program is ramping up," said Michael Barr, Treasury's assistant secretary for financial institutions. But "we're disappointed in the performance of some of the servicers -- we think they could have ramped up faster . . . and we expect them to do more."

Under the program, J.P. Morgan Chase has modified 20 percent, or 79,304, of its borrowers who have missed at least two payments. Saxon Mortgage Services, which is owned by Morgan Stanley, has modified 25 percent of its eligible delinquent borrowers. Citigroup has modified 15 percent, or 27,571, of its delinquent borrowers.

But other large banks are lagging. Bank of America has modified 4 percent, or 27,985, of its delinquent borrowers. Wells Fargo has modified 6 percent, or 20,219.

This is the first progress report on the administration's Making Home Affordable program. Under the initiative, the government is offering subsidies to help lenders offset the cost of lowering mortgage payments for distressed borrowers.

Industry executives said they are reacting quickly to a complicated program. It took time, for example, to develop a protocol for judging when a borrower who has not missed any mortgage payments should qualify for the program, they said. The data also do not reflect modifications that banks have made outside of the government initiative. Wells Fargo said that it had completed more than 220,000 modifications this year besides the 20,000 counted under President Obama's program.

"It would be false or unfair to paint Wells Fargo as if [the government program] was the only thing we were doing," said Mike Heid, co-president of Wells Fargo Home Mortgage.

Bank of America has doubled the number of employees working on loan-modification efforts since last year, the company said in a statement. "Despite our aggressive efforts to find solutions for homeowners in default, we must improve our processes for reaching those in need," said Barbara J. Desoer, president of Bank of America Home Loans and Insurance.

But part of the problem is that there is a lot of confusion, even within some of the banks, about what kind of help is available to troubled borrowers. Lisa Harris of Lorton requested a loan modification from Bank of America earlier this year after her husband's work hours were cut and her family incurred medical bills. Harris said the bank offered her in June a modification outside the federal program that would lower her payments by about $250 a month.

She declined the deal and asked for a modification under the federal program that would lower her payments by about $1,000 a month. But Bank of America refused, saying her loan was not covered by the initiative. "Servicer participation in this program is voluntary," according to a June letter Harris received from the company's loan modification department. The bank "is not actively participating in this program."

Bank of America said that Harris received the letter by mistake and that she would qualify for a modification under the federal program. The company is reviewing its records to make sure no similar letters exist, a company spokesman said. "It was very frustrating," Harris said. "At all levels at Bank of America, they were wrong and not coming through. It's just unbelievable."

Banks have been facing increasing pressure to speed up implementation of the program, and the administration set a goal last week of more than doubling the number of borrowers who will receive help, to 500,000, by Nov. 1. Some Democrats in Congress are threatening to revive legislation allowing bankruptcy judges to modify the mortgages of troubled borrowers, known as cramdowns, if lenders don't do more to prevent foreclosures.

The results of the program so far are disappointing, said Senate Majority Whip Richard J. Durbin (D-Ill.), who has led two previous attempts to pass legislation to allow loan modification in bankruptcy proceedings.

"I think it's further evidence that voluntary programs have not succeeded. We need to create some deadlines" for these lenders, Durbin said. "This mortgage foreclosure crisis will not to come to an end until we have a more aggressive approach than we have seen up to this point."

© 2009 The Washington Post Company