The nation’s three largest bank-owned loan servicers are doing such a poor job modifying mortgages for distressed homeowners that the federal government will stop paying them until they improve, according to a report released Thursday by the Treasury Department.
Bank of America, JP Morgan Chase and Wells Fargo all need to make “substantial improvements” before they can get paid again by the federal Home Affordable Modification Program, which helps people keep their homes by giving loan servicers incentives to lower their monthly payments.
The three behemoths, famous for their large consumer banking operations, also own some of the largest mortgage servicing companies. The Treasury found that all three did a poor job of basic tasks required to modify mortgages, including communicating with consumers, accurately determining homeowners’ incomes, and record keeping.
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When the program began in early 2009, “most servicers did not have the staff, procedures, or systems in place to respond to the volume of homeowners struggling to pay their mortgages, or to respond to the housing crisis generally. Very few mortgage modifications were even occurring,” according to the Treasury’s report. “While the servicers have improved their performance, they still have more progress to make.”
The companies responded negatively to the news. In comments emailed to reporters, Wells Fargo said it will formally dispute the Treasury report, which “paints an unfairly negative picture of our modification efforts.” Chase said it “respectfully disagrees.” Bank of America was least specific, saying that it is “committed to continually improving our processes to assist distressed homeowners.”
A fourth big servicer, Ocwen, also needs substantial improvement, the Treasury found. Its payments won’t be shut off, however, since the company’s poor performance was due largely to its acquisition of a large pool of mortgages during the first quarter.
The report looked at the 10 largest servicers, and none of them performed particularly well. The other six all need “moderate improvement,” the Treasury found, and most must do a better job of communicating with homeowners and calculating borrowers’ incomes.
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Image: Steven Damron, via Flickr