Source: Julie Schmit, USA Today
The nation's largest mortgage loan servicers have done a poor job in modifying distressed home loans through the government's foreclosure prevention program and need "substantial improvement," the Obama administration said Thursday.
Based on a recent audit, Bank of America, Wells Fargo and JPMorgan Chase will lose government financial incentives — which reach at least $1,000 for a permanent loan modification — until they improve, the Treasury Department said. They received $24 million in such incentives last month.
None of the 10 largest servicers participating in the Making Home Affordable Program have done a good job, Treasury said. Ocwen Loan Servicing also needs substantial improvement and six others need "moderate improvement," the audits show.
The government's audits, which for the first time are linked to financial incentives, are intended to hold servicers more accountable for their participation in the federal program, which has led to 700,000 permanent loan modifications since its start in 2009. That's far fewer than first envisioned.
The audits checked performance areas such as how well servicers dealt with homeowners and evaluated them for modifications, which could include lower interest rates.
One concern is whether the servicers correctly assessed homeowner incomes, which determine eligibility and modification terms.
The government's auditor found that BofA, JPMorgan Chase and Wells Fargo all calculated incomes incorrectly on more than 22% of audited loans.
The mortgage servicers took issue with the government's reviews and said they don't reflect improvements.
"It paints an unfairly negative picture" of modification efforts at Wells Fargo, the company said in a statement. JPMorgan Chase also said it "disagrees" with the assessment, while BofA said that future reviews will confirm that company's progress. Wells Fargo, which is formally disputing the report, says its income calculation error rate is now down to 4.5% and that the audit's higher number stemmed in part from modifications done at a time when applicants weren't required to document their income.
If the quarterly audits uncover mistakes, servicers will recheck cases, the government says.
The new tactic may improve servicer performance, but won't alter the fact that Making Home Affordable is a voluntary program, so has been largely ineffective in addressing the foreclosure crisis, says Ira Rheingold, executive director of the National Association of Consumer Advocates.
"It's about time," the government took action to penalize bad servicer behavior, he says.