August 18, 2022

Bucks: Critic of Mortgage Modification Program

The Treasury Department announced penalties on Thursday against three of the nation’s largest banks for what it said was poor performance in the government’s main foreclosure prevention program.

The penalties, against Wells Fargo, Bank of America and JPMorgan Chase, are part of a new scorecard for mortgage servicers in the program, known as the Home Affordable Modification Program, or HAMP. (More details are available in the Treasury Department’s release and scorecard.) A fourth mortgage servicer, Ocwen Financial, was also deemed subpar but not penalized.

The program is intended to provide incentives to mortgage servicers and investors to make it more financially advantageous to modify a troubled mortgage, rather than foreclose on it. But since the program began, it has fallen far short of expectations, in part because mortgage servicers have done a poor job of processing applications from homeowners.

On Friday, Katherine M. Porter, a University of Iowa law professor and frequent critic of HAMP, described the penalties as “an important move by Treasury.” In an e-mail, she said that “the withholding of financial incentives is even more important in terms of sending a message.”

But Professor Porter argued that the fundamental problems with HAMP remain. She complained that the assessments were buried in their report and that the Treasury Department did not disclose much of what went into its analysis. And, she asked, “Why did it take more than two full years to produce this information?”

She continued: “This information does nothing to help consumers — at least not in any direct way. Homeowners cannot choose their mortgage servicing, and lawsuits (outside of bankruptcy) to impose liability on servicers for mistreatment of consumers have largely floundered, in part because the servicers argue they have no contractual duty to the homeowners — only to the trusts or banks that pay them. One feels for the homeowner who has lost their home after months of struggling with BoA, JPMorgan, Wells or Ocwen and failing to get a loan modification, at least in part due to that company’s failings. It is cold comfort to a former homeowner to see their mortgage companies’ name on this list.”

Do you think the Treasury’s action will persuade the banks to act more aggressively in making mortgage modifications? Share your thoughts below.

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