Study Says 800K Homeowners Should've Avoided Foreclosure But Big Banks Messed It All Up

Getting a mortgage modification has been hard enough for homeowners, what with disorganized big banks not having enough well-trained people on staff to deal with the necessary ins and outs of the process. But a new study says that things should’ve been easier under the Home Affordable Modification Program and resulted in 800,000 fewer foreclosures than we ended up with.

ProPublica delves into the study by the Federal Reserve Bank of Chicago, the government’s Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago. The results come down that hefty number of 800,000 homeowners who ended up in foreclosure but shouldn’t have under the government’s foreclosure prevention program.

The results showed that some banks were better than modifying loans than others because they had the extra ammo of larger staffs and better trained employees who knew the best way to guide homeowners to avoid foreclosure.

The study found that if all the mortgage servicers that weren’t as good at modifying loans had performed as well as their peers, there would’ve been 800,000 more modifications under HAMP. That would’ve brought the total to 2 million homeowners who avoided foreclosure, instead of 1.2 million. While it’s still an impressive tally, it’s a lot less than the 3-4 million promised by the administration when HAMP was introduced in 2009.

The authors of the study don’t name names when it comes to the banks and servicers that didn’t perform as many successful modifications, simply saying a “few large servicers [have offered] modifications at half the rate of others. The authors add that some of the banks “may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans. In addition, this may have involved significantly altering their organizational capabilities, such as building appropriate infrastructure and hiring and training servicing staff.”

Basically — too much work and too much cost to be bothered with.

Bank of America — one of the four largest U.S. banks along with Citi, JPMorgan Chase and Wells Fargo — says it hasn’t done a thing wrong, with a spokesman telling ProPublica that the bank’s “home retention results are significant and in line with our industry peers to date.”

And again, while no mortgage servicers are named, as it is a large mortgage servicer we asked Wells Fargo to respond to the report. A spokeswoman issued the below statement to Consumerist:

Because of the product choices we have made, our disciplined underwriting, and the manner in which we approach foreclosure prevention, our delinquency and foreclosure rates have, over time, continued to be significantly less than the industry average.

93% of our first- and second-mortgage customers were current in their payments as of the second quarter of 2012. Over the last 12 months, less than 2.0% of our owner-occupied servicing portfolio has proceeded to a foreclosure sale.

We help 7 of every 10 customers who choose to work with us to avoid foreclosure through efforts including 781,099 modifications (Jan 2009 to June 2012)—or 2 mods for every 1 foreclosure sale. Through those modifications we have done $5B in principal forgiveness (Jan 2009 – April 2012), including forgiveness customers earn through on-time payments. Of those modifications, approximately 84 percent have been done through our own modification programs and the remainder through the federal government’s Home Affordable Modification Program.

The Treasury Department runs HAMP and responded to the new report and any criticism of its oversight of big banks by saying the program has resulted in “one of the most comprehensive compliance reviews of mortgage servicing operations in the country. Servicers in the Making Home Affordable Program are subject to an unprecedented level of compliance oversight.”

The good news? Modifications that happened under HAMP have worked out better for homeowners than those outside of the program, and there are more modifications than there would’ve been without it. Ah, a bright side.

Foreclosure Fail: Study Pins Blame on Big Banks [ProPublica]



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  1. duncanblackthorne says:

    The big banks didn’t “mess it up”, they would just rather have taken people’s homes from them, and their money previously paid on the mortgages, so they could sell the house to someone else.. who would get their loans “messed up”, house taken away, repeat ad infinitum. Seriously, screw the banks, they need to be dragged out into the streets and shot.

    • TuxthePenguin says:

      Oh, the horror of the “Big Banks” from executing the contract that the “homeowners” signed when they borrowed thousands upon thousands of dollars from them that said if they did not make the payments on their mortgage, the bank would sell their house to cover the note. How dare they follow a contract!

      • AngryK9 says:

        I suppose all of that robo-signing that’s been going on for the last 4 years is just a bank executing it’s contract as well, eh?

        How about the banks forclosing on homes that they do not even own?

        How about the banks forclosing on homes that were not even behind on the mortgage?

        All just following their contract, right?

        *Thumbs up*

        • TuxthePenguin says:

          He didn’t complain about any of that – he’s just upset that banks would rather take the home than work on a modification. Please, where in the mortgage document is that stated?

          There’s a difference between the contract/theory and the process/practical. The contract and theory are fine – its just that our big soulless banks don’t have two brains to rub together to get the practice to work.

          • who? says:

            So, being stupid and inefficient is a good enough excuse for the banks not doing their job properly, but if an individual homeowner doesn’t manage to be perfect at predicting the future economy, future home prices, future job prospects, etc, then, well, they deserve whatever they get? Classy.

            • TuxthePenguin says:

              That’s the contract. If you think you can build a better business model, by all means start your own mortgage lending firm and give it a go.

              Your basic aim is that banks should be understanding that things happen and be willing to bend rather than just break. I’m sure they could – guess what that would mean: higher interest rates.

              Simple thought problem – a non-profit offers mortgages and sends a rebate at the end of each year to the borrows that consists of their “profits” of the year after covering all their costs (basically – truly non-profit). They decide to be “human” and allow people who fall on hard times, with the appropriate paperwork, to skip up to six-months of payments on their mortgages. Well, that means there will be less income coming into the company. There might be a chance that they can’t cover their costs – their program might be too generous. So those borrowers go from getting that nice annual bonus to nothing. Even worse, this non-profit has to charge new borrowers higher interest rates to cover their costs.

              That’s how things work. I’d much rather simple say that you must put 20% down and have the payment take up no more than 30% of your takehome pay. That would radically lower foreclosures.

              • who? says:

                The part you missed is that the federal govt has provided a program to help out homeowners who’ve been affected by this mess. But the banks are just too darn incompetent to follow the law and actually help the people they’ve screwed, so they don’t help, they just drive more people into foreclosure. Why aren’t there any consequences for the bank when they don’t follow the laws of the land? There seem to be plenty of consequences for the homeowners?

                • Jevia says:

                  Incompetency, or simply not enough “grunt” employees to do the work, to ensure more money is available for bonuses for the higher up executives.

                • RvLeshrac says:

                  Republicans blocked every single attempt that was made to make banks and the Fed responsible for tracking TARP. They also blocked every single attempt made to institute penalties for failure to comply with the loan modification acts.

                  Then they immediately complained that there was no TARP oversight, and that the loan modification “Doesn’t work.”

      • lanman04 says:

        Where in that contract did it state taxpayers would bail out mortgage lenders when their loan repayments went south?

        • lyontaymer30 says:

          It’s not in the contract because it has nothing to do with that. If the company decides to do that and ignore the contact, fine. But if they don’t then that’s what it is. People here want to get the priviledges of the bank and forget that they’re not an institution. Why do institutions get breaks? Because they generate millions to billions of dollars to the economy. Because they employ anywhere from hundreds to thousands of people. If you could create/maintain 1,000 jobs you’d get a break too. Can you generate millions of dollars? Can you create/maintain 1,000 jobs?

          • Peggee has pearls and will clutch them when cashiers ask "YOU GOT A WIC CHECK MA'AM?" says:

            …You do realize that it’s because of the banks that our unemployment is almost double what it was in 2007? Banks may generate money for the economy and provide jobs, but they’ve done more to cripple the economy than help it.

          • RvLeshrac says:

            Give me a billion dollars, and I’ll be happy to generate and maintain a thousand jobs.

      • Blueskylaw says:

        “How dare they follow a contract!”

        The banks received hundreds of billions of dollars from the government (taxpayer) to bail their asses out. One of the conditions was that they would use some of the money to help the millions of homeowners who were affected by the banks bad/illegal actions. Instead of using that money to help homeowners (which they agreed to do), they gave themselves bonuses, bought up other banks and became even bigger, bought government bonds with money borrowed from the taxpayer at 0% and collected the dividends while the country suffered and instead of even doing nothing (which would have been better), they ACCELERATED the process of people losing their homes through illegal tactics such as not following contracts (with the government) and robo-signing.

        • TuxthePenguin says:

          “The banks received hundreds of billions of dollars from the government (taxpayer) to bail their asses out”

          Its well known that not all of them needed to be bailed out, but we didn’t want to name them because by simple process of elimination we’d know the weak banks. Bank runs are bad things and it kind of defeats the purpose of a bailout. So what about those banks that were forced to take it?

          And for how long are we going to use this excuse? I’d much rather put huge restrictions of what it takes to get a mortgage (20% down, the payment being no more than 30% of your take home pay for starters) than continue this crazy moral hazard we so seem to love.

          • who? says:

            We’ll use this “excuse” until the big banks and the little homeowners are treated equally, instead of the banks getting a pass on everything, and the homeowners getting screwed.

      • Mr. Bill says:

        All the people that bought homes paid for an appraiser to make sure the home was worth what they were paying, paid for a credit check to make sure they had the ability to pay for it and a banker to look everything over making sure it was a good loan. They all LIED to make more money. A lot of people should be in prison for fraud. Most of the former home owners are victims of a crime.
        P.S My home is paid for and mortgage free.

    • TheMansfieldMauler says:

      That’s such a naive view of bank operations and what their business goals are that it’s almost not worth responding.

      Banks don’t want to own properties. Period. Upkeep is expensive. The have to pay utilities. They have to pay HOA dues. They have to pay lawn companies. They have to have the property insured (self-insurance most likely, but the money goes to another division). They have to pay property taxes. They have to pay realtors when they sell.

      Banks aren’t like tote-the-note car operations that actually want to repossess and resell an asset. They would much rather have the loan payment stream and the mortgage asset than have to deal with a property.

      • vliam says:

        They would much rather have the loan payment stream and the mortgage asset than have to deal with a human.


        The authors add that some of the banks “may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans.

        • TuxthePenguin says:

          And the problem there is? You signed a contract. If you want to change that contract, there SHOULD be something in it for the other party. You don’t get to refinance without paying something (or rolling it into the loan).

          Turn the tables – would you like for the bank to be able to change the terms of the loan without compensating the borrower? What if the bank got into financial trouble and decided that it needed to change the interest rates on their mortgages? Shouldn’t the borrowers (in this bizarre world) be compensated for this change that impacts them?

          • RvLeshrac says:

            Are you dense?

            The benefit for the bank is that THEY GET THE REST OF THE MORTGAGE BACK.

            When a bank takes a foreclosed home and sells it, they often get barely half the value of the mortgage.

            Modification doesn’t change the amount owed, it simply alters the payment terms. Since most of these homeowners were sold bullshit instead of mortgages, their payments have doubled or tripled. The modification simply brings the payment back down.

        • TheMansfieldMauler says:

          I’m not saying that their failure to deal with this issue is excusable, but you have found a much more plausible reason than “banks want to own residences”, that being business process and the failure of management to do what was necessary to modify and restructure that business process.

          Someone was unwilling to make a decision or commit to a change, so they kept the status quo. And I’m sure they were well paid to do that.

      • Bladerunner says:

        They don’t pay HOA dues(the dues must be paid before the house is sold, but most HOA servicers will not bother trying to threaten the big banks, and will just wait till title is transferred…which means undoubtedly they pick it up somewhere in the sale price of the house), and generally utilities are a truly negligible cost. You are correct that they don’t, per se, prefer to own the houses; the fact is that they obviously just don’t care one way or another.

      • sd65 says:

        It’s even more naive than that. HAMP is a program for mortgage servicers–not the investors who hold the mortgage. Only 11% of the mortgages in the study were actually held by the bank that serviced them. So the company doing the foreclosure wouldn’t own the property anyway.

    • Stanwell says:

      Seriously? Banks would rather foreclose on upside down mortgage loans (which is most of them, lately) and lose money selling the property for less than the amount owed, instead of modifying the loan and still making a profit?

  2. Sarek says:

    So why does it appear that the banks would rather foreclose and be stuck with all these properties that they then neglect rather than renegotiate the loans so that more people can continue paying their mortgages?

    • TuxthePenguin says:

      I agree – its often short-sighted for banks to foreclosure when its obvious the housing market isn’t that great. But you also have to remember one thing.

      They cannot continue paying their mortgages. These homeowners are getting a NEW mortgage that they might be able to pay. There is a tremendous cost of going through the paperwork to refinance. But I don’t see where these people are having to pay for those costs…

      • lanman04 says:

        There is a tremendous cost of going through the paperwork to refinance.
        Like what? A fucking Title Search? A hard credit inquiry? Oh no, a whole $50! And a Title Search isn’t even necessary because you already own the damn house?

        And I bet the cost of a refi to a lender is a hell of a lot less than being stuck with a shitty property that no one will buy. Think of all the interest payments the lender would forfeit. Sure, less interest would be gained from the refi, but it’s a not better than NOTHING/

    • Blueskylaw says:

      Before the crash, banks made money in the paperwork. They would charge several thousand dollars for “processing” paperwork and whatever other money they could squeeze out of you for the loan (points) before selling the loan to Wall Street and getting it off their books.

      When you have a mortgage, you are generally required to have mortgage insurance that will cover the paperwork costs and difference of what the house is sold for and what you owe the bank in case of a default by the homeowner. During the process of default, the banks levy fees and charges which they know you can’t pay. They may even tell you not to pay your mortgage for a few months in order to be eligible for a loan modification (complete lies since they will not modify your loan). When they foreclose on your house, they will bill the mortgage insurance company thousands to even hundreds of thousands of dollars in depreciated home value, extremely inflated penalty charges that they levied in addition to the usual thousands of dollars for paperwork fees again.

      In essence, if they modify your loan, they lose money not only by the mere process of doing it but also in the end result of reducing your mortgage principal, interest rate, or both. If they foreclose on your home, they stand to make another small fortune on everyone they do.

  3. BMR777 says:

    What we need is a law where once a borrower has paid 50% of their mortgage, things change as the homeowner now has a majority stake in the mortgage, instead of the bank. So, once someone reaches this 50% threshold then it becomes harder for the bank to foreclose on the house, the banks must allow for loan modifications in certain cases, etc. This is only fair as once the borrower pays back more than 50% of the mortgage they now have a bigger investment in the property than the bank does.

    • Upthewazzu says:

      Not to mention that once a homeowner has 50% of the principle they have also paid off about 65%-75% of the interest due on the loan based on the amortization schedule.

  4. YouDidWhatNow? says:

    This is why we should have let them fail.

    Or, more directly, the government *should* have used the funds they gave them to fund this silly little game of Candyland to instead pay off the underwater portion of beleaguered homeowners’ mortgages.

    That would have been infinitely more sensible.

    • TuxthePenguin says:

      Not let them fail… but any of those that needed to be bailed out should have been, and then the government should have sold off any assets to the highest bidder and shut the failure down. Orderly fail rather than spectacular.

      And then that fees up that money to help everyone, not just those who can no longer pay their mortgages. Moral hazards are bad things.

      • SoCalGNX says:

        Moral hazards? Living in an area with a steady 15% unemployment rate or other factors is somehow a “moral hazard”? Morals have nothing to do with this situation.

        • TuxthePenguin says:

          Do you know what a moral hazard is? Its when you reward bad behavior. And sure, not even time is an example of it, but more often than not we saw the debt/housing bubble get out of hand.

          In fact, if you’re living in a place with 15% unemployment – move. Pick up and move. North Dakota desperately needs people – their unemployment rate is extremely low. In fact, even if those people did everything right regarding their house, you could argue that helping them with their mortgage is a moral hazard and stifles the economy by allowing resources to be mal-distributed.

          • LadyTL says:

            You can’t move for free. How are you supposed to move without a job to get the money to move?

          • RvLeshrac says:

            Now you’ve proven you’re fucking scum. Telling people who have no money to “pick up and move” is the worst kind of Objectivist bullshit.

  5. SoCalGNX says:

    Wells Fargo would rather collect the PMI and then resell a home than work with the homeowner. It doubles their money so why bother helping people?

  6. RobinB says:

    “The Treasury Department runs HAMP and responded to the new report and any criticism of its oversight of big banks by saying the program has resulted in “one of the most comprehensive compliance reviews of mortgage servicing operations in the country. Servicers in the Making Home Affordable Program are subject to an unprecedented level of compliance oversight”

    There’s your problem– banks can’t afford to deal with the costs of “unprecedented compliance oversight.”

  7. oldwiz65 says:

    Only 800,000? I would have expected a lot more. The banks don’t really care about customers, so why should they bother trying to help? It’s far easier to just foreclose.

    It’s amazing what the big banks get away with, foreclosing on property they don’t own, breaking into houses they don’t own and stealing the contents, and refusing to fix it. They should start tossing some bank executives in jail for burglary.

  8. Harry Greek says:

    Welcome to Mitt Romney’s America!

  9. dana scully says:

    s*#% happens