Three banks singled out for not helping homeowners modify mortgages

The Obama administration singled out three of the nation's largest mortgage servicers for hampering its foreclosure-prevention efforts by failing to help homeowners modify their loans. 

The administration will withhold incentive payments to Wells Fargo, Bank of America and JPMorgan Chase & Co. which it says has done little to work with homeowners to lower monthly mortgage payments through the government's Home Affordable Modification Plan (HAMP), according to the Department of Housing and Urban Development's (HUD) and the Treasury Department's May housing scorecard released Thursday. 

"While we continue to get tens of thousands of new homeowners into mortgage modifications each month, we need servicers to step up their performance to meet the needs of those still struggling," Treasury Secretary Timothy Geithner said in a statement.

The three lenders received about $24 million in incentives from the government in May and get about $1,000 for each completed modification under HAMP. 

Treasury expects to know within the next few days how much money will be withheld in June after servicers complete reporting their activity mid-month, according to a Treasury spokeswoman.

Another firm, Ocwen Loan Servicing also was mentioned as needing substantial improvement in their practices but their incentives aren't being withheld.

So far, the administration has paid $1.3 billion in incentive payments to 84 services, with funds from the 2008 Troubled Asset Relief Program (TARP). 

The number of new permanent modifications fell to 28,867 in April, the latest month for which the data is available, from 36,432 in March, according to the report.

At the end of April, 608,615 homeowners had permanent loan modifications. 

This is the first assessment of the performance of the 10 biggest servicers in the program and Treasury is requiring participating servicers to take specific actions to improve their servicing processes.  

The other six firms evaluated as part of the administration’s Making Home Affordable Program -- American Home Mortgage Servicing, CitiMortgage, GMAC Mortgage, Litton Loan Servicing, OneWest Bank and Select Portfolio Servicing -- were cited for needing moderate improvement but will not lose their cash incentives.

The program, which started in 2009, has been plagued by a high drop-out rate and has struggled to provide a reliable avenue for homeowners to modify their mortgages.

The Treasury Department has acknowledged that when the program began most of the lenders didn't have the needed staff, procedures or systems in place to respond to the volume of homeowners struggling to pay their mortgages.

"In addition to providing greater transparency about servicer performance in the program, the new assessments are intended to prompt mortgage servicers to correct identified deficiencies to improve program implementation and more effectively reach eligible homeowners," the report said. 

“While we continue to get tens of thousands of new homeowners into mortgage modifications each month, we need servicers to step up their performance to meet the needs of those still struggling,” said acting Treasury Assistant Secretary for Financial Stability Tim Massad. “These assessments set a new benchmark by providing an unprecedented level of disclosure around servicer performance and will serve to keep the pressure on servicers to more effectively assist struggling families.”

Banks were quick to respond to the report with Wells Fargo saying it is formally disputing the data. 

“It paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury,” said Wells Fargo spokeswoman Vickee Adams in a statement. “The report reviews activities that date back a year or more and in no way reflects the improvements Wells Fargo has made in our processes and the work we have done to help homeowners.”

Wells Fargo reported Thursday that as of April 30 in its servicing portfolio 673,179 loans were active trial or completed mortgage modifications initiated since the beginning of 2009. 

Of those modifications, 574,128, or 85 percent, were done through Wells Fargo’s own modification programs and 99,051 have been done through HAMP.

"We are willing to accept fair and accurate criticism," Adams said. "We realize that continued improvements are needed, but this report does not fairly reflect our leading role in making loan modifications. Our priority is to prevent as many foreclosures as possible by working with financially-distressed customers to afford their home payments."

Bank of America agreed that it needs to improve its mortgage modification practices. 

“We acknowledge improvements must be made in key areas, particularly those affecting the customer experience,” said spokesman Richard Simon in a statement. “We have made great progress in several key performance areas and, in the first quarter, Bank of America was responsible for one of every four modifications completed under HAMP. We believe future reviews will confirm that progress."