Tuesday, August 04, 2009

How They Fared: Treasury Releases Rankings of Mortgage  Modification Units

Morgan Stanley's (MS: 30.06, 0.74, 2.52%) mortgage servicing unit, Saxon Mortgage Services, led major servicing companies in providing trial loan modifications to struggling homeowners under the Obama Administration's $75 billion foreclosure-prevention program, according to the Treasury Department's first monthly report tracking the companies' loan modification efforts.

The rankings are based on the number of modified mortgages as a percentage of total homeowners that the government says were eligible for a loan modification in a company's serving portfolio. "Eligible homeowners" are those who were more than 60 days late on their monthly payments and thus were headed into the foreclosure process -- or are already in it -- the Treasury said.

The report is part of the Administration's new "name and shame" strategy to push servicing companies to modify more home loans through more transparency and accountability. 

Through July 31, Saxon had approved 21,000 -- or 25% -- of its 84,000 eligible homeowners for trial modifications, or 25%. 

Among other big servicers, JPMorganChase (JPM: 40.17, 0.55, 1.39%) tied GMAC Mortgage in approving 20% for trial modifications. Wells Fargo (WFC: 26.53, 0.73, 2.83%) and Bank of America (BAC: 15.649, 0.329, 2.15%) trailed them at 4% and 6% respectively. (Wells Fargo's result excluded mortgages modified by Wachovia Bank, which Wells Fargo acquired last year. Wachovia modified just 2% of its mortgages, the Treasury report said. Bank of America's results included mortgages from Countrywide, which it acquired last year.)

Citigroup's (C: 3.25, 0.08, 2.52%) mortgage unit, CitiMortgage, approved 15% of its eligible homeowners for trial modifications.

The average percentage for trial modifications for the more than three dozen large and small servicing companies participating in the Administration's Home Affordable Modification Program was 9%, or 235,000 homeowners, out of the 2.7 million who could be eligible, the Treasury report said. Treasury said servicers had offered trial modifications to 15% of the 2.7 million eligible homeowners, about 400,000. In most cases, a modification consists of reducing the interest rate on a loan for several years and/or extending the term of the loan.

In raw numbers of loans modified, JPMorganChase led the industry with 79,000 trial modifications, more than a third of the total. You can see trial HAMP modifications for each servicing company here.

Treasury officials expect servicers to approve many homeowners in the trial modifications for permanent changes starting this month. Last week, after a summit meeting with the companies, officials set an industry goal of 500,000 trial modifications by November 1. 

Michael Barr, the Treasury's assistant secretary for financial institutions, would not comment on the results of specific firms. But he said that while "we are encouraged by the overall performance under the program…we're disappointed in the performance of some of the companies. We think they could have ramped up better, faster, more consistently," including by hiring and training more staff. 

The Financial Services Roundtable, which represents 100 of the nation's top financial firms -- including many banks that service mortgages -- said, "This is a significant new program and program requirements have just been provided to servicers in recent weeks.  As it becomes more fully implemented, we believe its impact will grow.  However, more can be done."

The Treasury has paid more than $20 billion in Troubled Asset Relief Program bailout funding to the servicing companies to cover their costs of modifying loans, as well as for incentive payments to them, homeowners and lenders to participate in HAMP. Morgan Stanley's Saxon has received $632 million under the program; JPMorganChase has received $3.6 billion; Wells Fargo/Wachovia has received $2.5 billion, GMAC Mortgage has received $1 billion, and Bank of America/Countrywide has received $6 billion.

Barr said the report excluded mortgage modifications outside of HAMP.  Several banks and servicers have launched their own in-house programs to restructure mortgages for struggling homeowners. The Financial Services Roundtable program, Hope Now, said its participating banks provided mortgage "workouts" for 310,000 homeowners in June, a 25% increase from May. 

"The HAMP story is just a piece of the overall loan modification story," Mike Heid, co-president of Wells Fargo Home Mortgage, said in an interview.

But mainly because of rising unemployment, foreclosures are swamping government and industry efforts. So far this year, lenders have pushed 1.5 million homeowners into the foreclosure process, according to a recent report from RealtyTrac. Government officials predict that up to six million homes could be lost to foreclosure in the current economic crisis. The unemployment rate hit 9.5% in June, the highest level in 26 years, fueling the rise in foreclosures.

"The report card issued by the Treasury Department today shows that financial companies deserve a failing grade in their voluntary efforts to modify home loans," said the Center for Responsible Lending. "Unfortunately, the numbers show that too few people behind on their mortgages are being reached.  While the number of families receiving help has increased during the past few months, the number of struggling homeowners continues to outweigh mortgage modifications by a wide margin."  

When the Administration announced HAMP in February, it said the program could help three million to four million struggling families.

"We are more than on track to reach three to four million borrowers over the next three years," Barr said after Treasury released the HAMP report. But he said "the proof is going to be in the pudding" with the industry's HAMP results, which will continue to be reported on a monthly basis.

In a statement, Wells Fargo said that, combining its HAMP trial mortgage modifications with mortgages modified through its in-house modification program, the company has modified more than 240,000 Wells Fargo and Wachovia home loans, with trial and longer-term changes.

Wells Fargo and Barr noted that Treasury announced new servicer provisions for HAMP on Friday, which should help increase loan modifications.

"Now that the program details are largely complete, our company has been accelerating our use of HAMP," Heid said "We're confident we can achieve our portion of the government's goal to reach 500,000 HAMP trial modification starts by Nov. 1."

Wells Fargo added that it hired and trained 4,000 people in the first half of 2009 to handle mortgage modifications, bringing total U.S. staff working on the effort to 11,500. The company also said that "within weeks, it will eliminate the customer service backlog created by the time lag between when the government announced HAMP and when the guidelines were defined." Consumer groups have complained to Treasury officials and members of Congress about servicer backlogs.

A spokesperson for Bank of America did not respond to requests for comment.

If more transparency for servicing companies doesn't generate the modification results politicians are looking for, consumer advocates predict Congress could consider new legislation to push companies