3 big lenders undercut foreclosure-prevention effort, Obama team says
But banks blame the homeowners
WASHINGTON - The Obama administration is blaming the three largest US mortgage lenders for the failures of its foreclosure-prevention program.
Wells Fargo & Co., Bank of America, and JPMorgan Chase & Co. have failed to help enough people permanently lower their mortgage payments so they can stay in their homes, the Treasury Department said yesterday.
Based on those lenders' lackluster performance, the government is withholding financial incentives of up to $1,000 per permanent loan modification. Treasury said the three lenders incorrectly determined that many people were ineligible for the program.
The lenders dispute the data. They say the findings are based on old reports, not audits from the first quarter of the year, as Treasury claimed. Wells Fargo is formally appealing the government's decision.
The three lenders had received about $24 million from the government as of last month. The program, launched in 2009, was intended to help those at risk of foreclosure by lowering their monthly payments. Borrowers start with lower payments on a trial basis. But the program has struggled to convert them into permanent loan modifications.
More than 1.6 million homeowners received trial modifications over the past two years. Roughly 44 percent of those who applied, or about 700,000, had their mortgages permanently lowered as of April. A majority, about 843,000 homeowners, had dropped out of the program.
Those in the program receive interest rates as low as 2 percent for five years. They can repay their loans over a longer period. The median savings for those who remain in the program is about $526 per month.
Homeowners have complained that the program is a bureaucratic mess. Many have said they were disqualified after banks lost their documents and failed to return their phone calls. Banks have blamed homeowners for failing to submit paperwork.
The banks are not obligated to participate, so the administration can't fine them. But Timothy Massad, Treasury's acting assistant secretary for financial stability, said the administration can publicly shame them. Foreclosures are at record levels and are hurting the economy.
The banks questioned why the audits date back to the early months of the program. Treasury tweaked the program dozens of times in its first two years, making it difficult for the companies to comply, they contend.
Ocwen Loan Servcing was cited as needing substantial improvement.
American Home Mortgage Servicing, CitiMortgage, GMAC Mortgage, Litton Loan Servicing, OneWest Bank, and Select Portfolio Servicing require moderate improvement. None will lose their cash incentives.