Banks Blame Borrowers For Lack Of Progress On Mortgage Modifications

mortgageagreeYesterday, the House Financial Services Committee held a hearing to examine problems with the Home Affordable Modification Program (HAMP), which is the cornerstone of the administration’s Making Home Affordable program. HAMP has sputtered since its inception, with trial mortgage modifications not even keeping up with new foreclosure starts.

One of the main factors holding back HAMP is that servicers have been dragging their feet in getting eligible borrowers into the program (partially because there is no disincentive to gumming things up), and then failing to turn trial modifications into permanent ones. To try and get to the bottom of things, the committee brought representatives of Bank of America and JP Morgan Chase in to testify, and both banks claimed that, actually, the problem is borrowers can’t get their documents together:

JP Morgan Chase: The focus of our immediate attention is finding ways to assist the 51 borrowers out of 100 that are missing some or all of the documentation required under HAMP or where the documents are incomplete, not current enough or otherwise not acceptable under the HAMP rules.

Bank of America: Bank of America has approximately 65,000 customers who have made more than three trial modification payments on time and their modifications are set to expire on December 31, 2009. Unfortunately, 50,000 have either not submitted some or all of the required documents or have submitted all their required documents, but the documents reveal discrepancies that require an additional response from the customer. It is unclear why this has happened to such a high degree.

As ProPublica’s Paul Kiel pointed out, “the data from servicers should be viewed with skepticism, given another clear trend: Banks and other mortgage servicers are themselves not very good at managing documents.” Indeed, stories abound about workers submitting their documents, only to be run in circles by the servicers and asked to resubmit.

But there’s not just anecdotal evidence showing that some banks are having trouble navigating the program. After all, there are very large differences between different servicers in the program, with some, like Saxon and CitiMortgage, getting upwards of 40 percent of eligible borrowers into the program, while others struggle.

Bank of America has been participating in HAMP since April, but has trial modifications on just 14 percent of its eligible mortgages. Wachovia has trials on only 3 percent. US Bank, meanwhile, signed up for the program in September, yet has 15 percent of its borrowers in trial modifications.

Are Saxon’s, US Bank’s, and Citi’s borrowers just a lot more responsible than BofA’s or Wachovia’s? I find that hard to believe. BofA’s dumping the blame onto borrowers for its shoddy stats (though it did cite “shortcomings in document maintenance” as an exacerbating cause) is particularly galling, because, as Andrew Jakabovics and I reported, the bank is siphoning potentially HAMP-eligible borrowers into its own private modification program, in violation of its contract with Treasury.

Of course, there are bound to be borrowers who can’t get their documents together and therefore fall out of the program. But it’s completely irresponsible for the banks to pass the buck onto borrowers, when they can’t get their own houses in order. And this could all be remedied by the implementation of mandatory mediation programs, which require a servicer to actually meet with a borrower before finalizing a foreclosure. Oftentimes, mediation sessions result in a borrower previously thought to be ineligible for HAMP discovering that an administrative error has been made, and that he or she does in fact qualify.