While the Obama Administration has trumpeted the successes of the mortgage modification programs, many troubled Iowa homeowners are turning to alternatives offered by banks to modify their loans. Banks have faced challenges with HAMP, such as difficulties with government computer systems, and as a result, have developed their own programs.
The banking industry has taken a great deal of time to help troubled homeowners and done a poor job by some accounts.
“We’ve had people who met guidelines through and through,” says Charles Favor, a mortgage modification specialist with HLP Center. “They fall right into the category of every criteria that’s out there and the banks are just not helping people. They string them along through the loss-mitigation department and the attorneys don’t even know they’ve foreclosed upon the house.”
Additionally, the number of people assisted by banks pales in comparison to the number who defaulted or walked away from their homes. Though difficult to gauge the precise number of homeowners who fall into the category of “troubled,” somewhere between 3% and 5% of U.S. households are delinquent on mortgage payments, according to quarterly reports from major banks, Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB). That implies 3.4 million to 5.2 million households are now at risk of default or foreclosure, on top of the millions who have already faced the same fate.
Big banks are realizing the mortgage delima won’t stop spreading throughout their loan books until barrier walls are erected. They’ve started providing better workout solutions than those offered by the federal government, because banks have more flexibility to tailor modifications to individual borrowers’ needs.
But has this progress come too late?
Despite initial unpreparedness, the country’s four largest mortgage servicers — Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C) — have now added nearly 30,000 staffers to push borrowers through the pipeline more quickly. Hope Now, an alliance of financial firms that reaches out to at-risk homeowners, says the industry has completed 8.2 times as many successful workouts using their own solutions as those completed through the Home Affordable Modification Program.
But of course, this restructuring doesn’t come from the goodness of their bank-hearts. Aside from prodding from the Treasury Department, workouts also allow the banks to improve the credit quality of their loan books, avoid hefty write-downs and stop the crisis from bleeding into more viable loans in surrounding areas.
Wells Fargo structured a plan to assist its most troubled borrowers, those who were part of Wachovia’s “Pick-A-Pay” program. Partly as a result, the bank was able to move $1.8 billion worth of loans in that portfolio back to “performing” status last quarter. Mike Heid, the co-president of Wells Fargo Home Mortgage who structured the program, says that “having a full range of options to address different customer circumstances is crucial to helping all of the borrowers who truly need assistance.”
But even the Pick-A-Pay plan comes with strings attached-
Wells Fargo is letting those underwater borrowers with financial difficulties ignore principal and pay “interest only” for six-to-10 years. At that point, the bank believes the economy will have improved enough to restructure the loans into more profitable ventures. Right now, the plan allows Wells to publish sunnier loan statistics and avoid higher mortgage-related costs.
Wells Fargo, Bank of America and JPMorgan each report greater success outside of the Home Affordable Modification Program than within it. Perhaps unsurprisingly, the most aggressive champion of the program among large, money-center banks has been Citigroup, the only one in which the U.S. government still holds a large ownership stake. Even so, Citi has pushed less than 30% of those eligible through to permanent modifications.
Banks have been making more progress outside of the government-sanctioned box for a few reasons. The federal program wasn’t structured to help all troubled borrowers. Banks don’t necessarily want to help all of them, either, viewing some financial situations as too precarious. They’d also prefer to tout successes without federal assistance, if they can avoid it.
Through June, fewer than 390,000 eligible borrowers have moved through the Home Affordable Modification Program into permanent modifications and stayed there. Meanwhile, nearly 530,000 of those who received modifications have canceled them. Overwhelmingly, defectors have turned to alternatives offered by banks.
For instance, Bank of America has completed 665,000 mortgage modifications since January 2008 — just 11% of which have fallen under the Home Affordable Modification Program. In May, Bank of America had difficulty even uploading files to the government’s computerized system, leading to apparent inaccuracies in the Treasury Department data.
The picture is far from a perfect one though– it took the industry roughly two years to accept a new philosophy about the mortgage market, in which losses aren’t heaped solely upon homeowners. But now they’re now reaching out to troubled borrowers with a new pitch: Helping them stay in homes.
“The president is coming out with how great this was and how this plan has been successful,” says Favor, the mortgage-modification specialist, “and the bottom line is, it’s getting worse. The whole plan has kind of backfired.”
-David Baker
http://SayHalo.com