In 2009, tens of thousands of homeowners with mortgages serviced by Goldman Sachs subsidiary Litton Loan Servicing entered into trial loan modifications. But fewer than 12% of those same people ever received permanent adjustments to their mortgages, not because they didn’t qualify, but because Litton’s system for handling paperwork was a horrendous mess.
Chris Wyatt, a former Litton employee who led the company’s Executive Response Team, spoke to ProPublica about the “total disaster” that resulted from a combination of too many modification applicants, too few staffers and paperwork being handled by an unreliable partner a couple continents away.
When homeowners faxed their documents, they didn’t go to Litton, Wyatt says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.
In a process internally referred to as a “denial sweep,” Litton’s computers would automatically generate denial letters for every homeowner who, according to Litton’s records, hadn’t sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.
Wyatt says a “vast majority” of the denials issued were not legitimate. He also states that even though there were incentives for each modification that was made permanent, the company was very wary of granting them because it meant more scrutiny from auditors.
“They could have addressed the crisis way earlier,” he says about the dire situation faced by Litton and other servicers. “Had companies changed their philosophy and said, ‘You know what? We’re not going to beef up our collections staff; we’re going to beef up our loss mitigation staff.’ Had they done that and come up with loan modification scenarios that were reasonable and put people into more affordable payments early on, we wouldn’t be where we are now.”
Excerpt: At Goldman Sachs Servicer, ‘Total Disaster [ProPublica]