The first day of September was a rough day for companies that handle the day-to-day details of millions of American mortgages. First, the U.S. Treasury announced that two of the nation’s largest mortgage servicers are doing a poor job modifying loans for people who deserve it, and the government won’t pay the companies until they improve.
The same day, a third large mortgage servicer agreed to pay $53 million to consumers for unfair practices related to servicing and modifying mortgages.
“Our agreement sets a new higher standard for the residential mortgage servicing industry, whose troubling foreclosure and servicing practices we have been investigating along with other regulators across the country,” Benjamin M. Lawsky, superintendent of financial services for New York State, said in a press release announcing the state’s $53 million settlement against Goldman Sachs.
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In the Treasury decision, the agency singled out Chase and Bank of America, saying the mortgage servicing companies owned by the two megabanks did such a poor job rewriting mortgages under the federal Home Affordable Modification Program (HAMP) in the second quarter of 2011 that neither company will get paid.
“(W)e need to keep the pressure on servicers to effectively assist those homeowners who are still struggling and eligible for assistance,” Tim Massad, Treasury’s assistant secetary for financial security, said in a press release.
Both Chase and Bank of America need to make “substantial” improvements before they can start getting paid again by the federal government. Bank of America did a poor job calculating something as basic as homeowners’ incomes, and only a fair job of informing consumers and the federal government about its modification program, according to a report by the Treasury.
Chase performed even worse in those areas. It was the second straight quarter that the two banks failed to meet the program’s requirements.
The failing grade is somewhat ironic since Chase and Bank of America have been two of the most successful banks in the program in terms of writing permanent modifications, which in most cases means reducing the interest rates on mortgages to make the monthly payments more affordable. Together the two banks have issued 225,693 modifications, 38% of the total 675,447 approved under HAMP so far.
That in itself is a tiny fraction of the 4 million American homeowners the Obama administration initially claimed would be helped by the program. Back in December, the Congressional Oversight Panel described HAMP as an abject failure.
The second piece of bad news came in a settlement worked out between Goldman Sachs, the Federal Reserve and the New York State Department of Financial Services over allegations of deception and unfair practices in the Goldman’s mortgage servicing division, Litton Loan Servicing.
Litton was accused of filing forged documents to foreclose on homeowners, unfair practices that prevented qualified homeowners from obtaining mortgage modifications, and charging homeowners improper fees. Goldman is trying to sell the Litton decision to another company, but the federal and state regulators promised to fight the sale unless Goldman agreed to a list of demands.
The biggest part of the compromise: Goldman will set aside $53 million to repay homeowners hurt by the misdeeds. All New York residents whose loans are owned by Goldman and serviced by Litton, and who are more than 60 days delinquent, will get 25% of their principal written off, according to the state agency.
In addition, the agreement requires Litton to stop foreclosure proceedings against people whose documents were forged by robo-signers. People who lost their homes due to documents that were robo-signed will be repaid the value of their lost houses.
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Image: Bill Ward, via Flickr.com