Troubled homeowners are facing unacceptable delays when they turn to the Obama administration’s flagship foreclosure prevention program for help, the watchdog agency that oversees the initiative reported Wednesday.
The analysis found that the number of borrowers waiting to get approved for the Home Affordable Modification Program (HAMP) nearly doubled in the six months that ended May 31. The volume of unprocessed applications jumped from 133,600 to 221,500, an “alarming trend” that leaves the homeowners in limbo and exposes them to a higher risk of foreclosure. Some are waiting up to a year for a response to their applications.
And the report, issued by the special inspector general for the Troubled Asset Relief Program, names names. Take a look:
It’s important to understand how HAMP works in order to make sense of the numbers. The initiative lowers the monthly mortgage payments of borrowers who are in default or close to it, mostly by temporarily slashing the interest rate on their loans. It’s up to lenders to review applications and determine who qualifies for the modifications.
First, homeowners must be approved for a trial payment period to demonstrate that they can keep up with the new payment plan. If all goes smoothly, they should be approved for a “permanent” modification roughly three months later. (Permanent, as defined by the program, means five years of lower payments.)
When the report refers to unprocessed applications, it means the ones that have neither been denied nor granted a trial payment period.
JPMorgan Chase and Select Portfolio Servicing are singled out as being the least effective in keeping up with demand. They were the only firms to make a decision on less than half of the applications they received in the six-month period. JPMorgan processed an average of 35 percent of the applications each month, while SPS processed 42 percent, the report said.
According to the report, CitiMortgage takes the longest to process applications, with SPS and JPMorgan not far behind. Citi reviews 642 applications a month on average. At that pace, it would take a year to process all applications already in the pipeline and maybe two years if new requests are added to the mix, the report said.
Citi said it has not had a chance to review the report and declined to comment on it. But Mark Rodgers, the company's spokesman, said that when Citi receives the necessary documents from borrowers, it aims to notify homeowners of their eligibility within 30 days, not including the three-month trial period. (As required by federal rules, paperwork must be resubmitted for borrowers to transition to permanent status, which often frustrates borrowers.)
Ocwen has the largest number of applications in limbo at nearly 61,000, though it has improved its processing speed. Meanwhile, the applications keep coming, the report said. On average, about 31,000 homeowners whose mortgages are serviced by Ocwen requested HAMP modifications. Overall, roughly 10,000 homeowners enter into HAMP trial modifications each month.
Ocwen took issue with the report's findings. "The statistics used in the SIGTARP Report concerning Ocwen’s timeliness in processing HAMP modification requests are different from our internal data, in part due to definitions and timing of reports," an Ocwen spokesperson said in a statement. The firm said it complies with laws and regulations for handling modification requests.
The report comes from the same watchdog that reached a $320 million settlement with SunTrust Mortgage earlier this month to resolve criminal allegations that the company misled HAMP applicants as the housing crisis unfolded and failed to process their applications in a timely manner. SIGTARP said the floor in one SunTrust office buckled under the weight of unopened applications.
Wednesday's report relied on data compiled by the Treasury Department, which launched the program in 2009.
The administration questioned the math in this report. It suspects that the delays do not reflect wait times for HAMP alone, and may include delays for all types of mortgage modifications. New regulations that kicked in this year require lenders to consider all foreclosure-prevention options available to borrowers who ask for help. That means someone applying for HAMP must also be considered for other programs. Complying with the new rules may help explain some of the delays, industry officials said.
“We have been working with servicers and other stakeholders over the last several months to get a better understanding of underlying causes of trends noted in our monthly program data," Timothy Bowler, the department's acting assistant secretary, said in a statement. "Treasury remains committed to maintaining the standards HAMP has set while the industry implements new servicing regulations so that those households facing a hardship receive the best and most timely outcome.”
The new regulations were also cited in a statement provided by JPMorgan Chase, which said: "We are confident that when analyzing our HAMP pipeline with an understanding of these requirements, our performance would reinforce Chase's efforts to keep families in their homes."
Other changes are underway in the industry. Several traditional lenders have scaled back their mortgage servicing operations, which collect mortgage payments. They've sold their troubled loans to less-strictly regulated specialty servicers such as Ocwen and SPS, which may be why those two firms top the list in terms of volume of unprocessed loans. Industry observers say it's taking time for specialty servicers to get up to speed on the new mortgages they've purchased. (Some federal and state regulators are closely scrutinizing these transfers, including New York's top banking regulator, Benjamin Lawsky.)
Funding for HAMP came from the $700 billion that the Treasury Department used to bail out banks and other firms considered vital to the nation’s financial stability. SIGTARP, which produced Wednesday's analysis, oversees the bailout money and has consistently criticized the administration's handling of HAMP in its regular reports to Congress.
HAMP was to expire at the end of 2015, but Treasury has extended it for another year. Initially, the administration projected it wold help 3 million to 4 million struggling borrowers. But only 1.4 million homeowners got a permanent modification, or about 1 out of 6 who applied for one.
Many of those who entered the program during the darkest days of the foreclosure crisis were forced to drop out. Nearly 30 percent redefaulted. Of those who joined the program in 2009, about half redefaulted. The redefault rate was 40 percent for borrowers who came to the program in 2010. And it may get worse.
As we reported in March, roughly 800,000 borrowers enrolled in the program will see their mortgage interest rates gradually rise starting this year. As higher payments kick in, regulators and consumer advocates fear that homeowners won't be able to stay current on their mortgages.