Failures Cripple Obama Loan Modification Program

Executives of two of the nation’s largest banks, Chase and Bank of America, testified in Congress this morning that as many as 85 percent of delinquent mortgages are failing the Administration’s loan modification process because homeowners haven’t made trial payments or have failed to supply the necessary documentation to support their claims.

In the case of Chase, as few as two percent of eligible homeowners have received permanent reductions in their mortgage payments to help them stave off foreclosure.

“We are now working very hard to convert homeowners to permanent HAMP modifications, but we are facing challenges with borrowers completing documentation or making trial plan payments as agreed,” said Molly Sheehan Senior Vice President for Housing Policy, JPMorgan Chase. Chase has offer to modify 199,033 loans, 16,131 are approved for permanent modifications but only 4302, or two percent, have been permanently modified

Of every 100 Chase borrowers accepted for the program, only 15 will receive lowered monthly payments. 29 borrowers did not make all required payments under their trial plan, 20 borrowers did not submit all documents required for underwriting; 31 customers submitted all required documents but the documents do not meet HAMP underwriting standards which could be due to missing signatures or documents that are not current under the HAMP rules; and 20 borrowers completed all required documents and are eligible for underwriting.

Of the 20 borrowers who made all payments and correctly supplied documentation, four borrowers have been or likely will be denied a permanent HAMP loan modification, but may be qualified for other modification programs through Chase or the GSEs; 16 borrowers are or likely will be approved for a HAMP modification; and of those 16, 15 have or will likely receive a payment reduction, she said.

Documentation required for the program may include household income from several people, tax returns or tax transcripts from the IRS, credit reports, property valuations, divorce decrees, death certificates, and overtime or bonus information from employers.

Jack Shackett, credit loss mitigation strategies executive for Bank of America, said that 50,000 of the 65,000 Bank of America customers in the program have failed to provide documentation. The 15,000 who supplied correct documentation are experiencing a good conversion rate.

Shackett urged the government to find a way to accommodate borrowers who have their applications in by the program’s December 31 deadline but who have not yet signed the final modification document or who are still responding to questions about their applications.

“While there have been stories of servicers making it difficult for borrowers to submit the necessary documentation, one has to consider the flip side of the argument. Borrowers may claim servicers are making it difficult to obtain documentation when, in fact, they may just simply be hoping that the permanent modification will be approved without full documentation,” said Anthony Sanders, professor of real estate finance at George Mason University.