In this July 14 file photo, a "For Sale" sign rests on a vacant house in Cleveland.
(Tony Dejak/AP)Photos (1 of 1)
Banks slow to modify mortgages
The Bank of America modified just 4 percent of eligible home loans, says a new government report aimed at prodding banks to do more to prevent defaults.
By Mark Trumbull | Staff writer/ August 4, 2009 edition
Two of the nation’s four largest banks, Bank of America and Wells Fargo, rated below average in the pace at which they are modifying loans to prevent defaults, according to the government’s first monthly progress report on its foreclosure prevention campaign.
The report, released Tuesday by the Treasury Department, found a wide variation in the help banks are offering to at-risk homeowners.
Bank of America has modified 4 percent of its home loans that are eligible for the program as of last week. (Loans must meet criteria for being at risk of foreclosure.) Wells Fargo had modified 6 percent of eligible loans. Among the big four, JPMorgan Chase has modified 20 percent of eligible loans, and Citigroup 15 percent.
The report comes after President Obama, faced with record foreclosures and a recession rooted in a housing bust, announced plans in February to spend up to $75 billion on incentives for lenders and borrowers to agree on loan modifications.
More than 230,000 loan modifications have begun since February, the Treasury Department said, and the “making home affordable” program is on track to reach a three-year target of aiding 3 million to 4 million homeowners. But the report called on banks and loan servicing firms to move at a faster clip.
By releasing data on individual firms, the administration may put pressure on some firms to do just that. The report comes at a time when the public is casting a critical eye on both bankers and federal bailouts.
Some Americans wonder what financial firms are doing to help them, after taxpayers paid to rescue those firms last fall. Voters also wonder whether the Obama administration, at a time of soaring federal deficits, should be targeting $75 billion toward an effort to help about 8 percent of American households with mortgages.
That’s a matter of debate among policy experts. In one camp, skeptics of government intervention point out that many foreclosures aren’t worth trying to prevent – even if the borrower is living in the home. It’s often better for the borrower and lender alike to cut the mortgage cord and move on. Otherwise, there’s a high risk of re-default, and the borrower may still spend an outsize share of income on housing.
Another view is that efforts to prevent loan defaults make sense, given the record number of foreclosures. Foreclosure may be “the economic solution for lenders individually, when it is not for lenders in the aggregate,” said Susan Wachter, a University of Pennsylvania housing expert, at a congressional hearing last week. A glut of houses on the auction block means steeper losses for banks - and downward pressure on home prices that can lead to more borrower defaults.
The Obama program could fail to quell foreclosures, Ms. Wachter says, because too few of the loan modifications include a reduced principal balance. Falling home prices mean borrowers often remain deeply “under water,” with loan balances above the value of their homes.
A third view holds that foreclosure policies should be tailored differently because job losses push so many borrowers into default. The solution: Instead of modifying loans, the government should consider a program that provides out-of-work borrowers with bridge loan so they can keep making mortgage payments while they find a new job.
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Comments
2. Tom Martin | 08.04.09
Let the market alone, Housing prices are still too high and it is the governments policy of meddling that is at fault.
Government attempting to keep the housing bubble inflated only lengthens the time of pain and ironically keeps the lower middle class and poor excluded from home ownership defeating the very thing (affordability of a home) that justified government intervention in the housing market in the first place.
3. oldbliker1 | 08.05.09
we qualify for the modification (wife retired last year and my self-employment income is low). we’re not officially “late” — past 30 days, but have had to pay the late fee for the last six months (over 15 days late). we’re not going to try to do it on our own — it won’t work. so, we are going with a company who will do everything for us. there’s no substitute for professional experience… so pay the money and have them do it — you’ll get your money back in a few months because your pymt will be significantly reduced.
4. BS | 08.06.09
This makes no sense. These people do not deserve a modification. The banks to not deserve a bailout. They both need to fail and learn their lessons. People should be able to purchase housing at an affordable prices. These fools ruined it. They made their beds.
5. mike | 08.06.09
I tried doing a loan modification for my mother with Indymac Bank/Ocwen. At first I tried the “do it myself” gig. Well, that was a waste of 60 days..I found myself up against Indymac/Ocwen giving me excuses like, “That person you spoke to is no longer here,” “Sorry, you have to fax it”, “We never received your fax”,”Oh, you faxed it to the wrong number”, Even had one of their reps tell me “You are wasting your time, Deustche Bank who holds your note doesn’t do loan modifications”,”We got your financial paperwork..then by the next phone call..we can’t find your file can you resend it again?”
The banks/lenders are like insurance companies..if they keep denying enough a certain percentage will just “give up and go away!”
Well, I hired a loan modification company for my mom(she lost her job and replaced it with one that pays less. NO she doesn’t have a second mortgage, no she did not live beyond her means, no she never refied, no she is not underwater. She moved right before the boom to be closer to her kids and took on a mortgage with a small modest home.) The loan modification company stayed on top of Indymac/Ocwen. The standard response after the servicer having the paperwork is that it is under review. Do they need more stuff? NO. SO what is the holdup? This file is as straight forward as they come, yet Indymac/Ocwen is just dragging their feet. The file has been under review for 6 WEEKS!!…they gave out loans like nothing and closed on them in 2 weeks when things were rocking and rolling!
The simple answer is the banks/lenders want everything from you and want to give nothing back. It is a shame. When the homebuyer made a commitment to purchase a home and pay on it for the next 15 or 30 years, lenders should understand they made the commitment too on the expectation that the borrower would be wiling and able to do it. Life isn’t a perfect road. It is filled with ups and downs and lenders shouldn’t make a 30 year commitment if they are not going to take that into consideration.
Sorry for the rambling just think the whole system is disgusting. Too many friends have lost jobs over the past year and are in danger of losing their home before they can even have a chance to get back on their feet. Lenders need to make sacrifices just like everyone else and for the benefit of the shareholders, who are losing their retirements as well as their homes.
6. NB123 | 08.06.09
Well, even though the previous inhabitants were foreclosed upon (house pictured above), at least we know they were able to swing DirecTV!
9. James Moore | 08.07.09
I needed some help with my mortgage and I turned to http://www.MortgageRefinancing.com they were able to answer all of my questions and layout all of my options for me. I am happy with where I am at now with my mortgage.
10. Fazsha | 08.08.09
Yes, but over time, a home has always proven to be your best investment. Bwaahaahaa!!!
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1. kenb | 08.04.09
As you stated, unless the loan modification includes a principal reduction, the chances of another default a few months later are high. The only way the banks will consider a principal reduction is if the homeowner applies “legal leverage” against them. This typically means suing the lender for fraud and predatory lending practices in federal court.
If homeowners apply this leverage, their chances of getting a principal reduction are much greater. This is the only realistic chance many homeowners have of staying in their homes and getting back on their feet financially within a reasonable time frame. If not, they will be faced with paying on a home with negative equity for many, many years (if not a decade or more).