Early foreclosure reviews show faulty modifications a focus
The first batch of requests mortgage servicers received as part of the foreclosure look-back reviews shows a majority of borrowers are seeking claims on alleged faulty modifications.
Under consent orders signed in April, independent consultants for the 14 largest mortgage servicers will review up to 4.3 million loans for potential problems and remediation. Borrowers who received a foreclosure filing between 2009 and the end of 2010 have until July to request a review.
Of the more than 121,000 requests received back so far, 87% of the borrowers cited modification issues, said Morris Morgan, deputy comptroller for large bank supervision at the Office of the Comptroller of the Currency, at a House subcommittee hearing Monday.
Borrowers often cite multiple problems. Morgan told lawmakers that 62% of the borrowers claimed the recorded mortgage balance was miscalculated. And 47% cited improper fees and payment processing errors.
Under the consent orders there are 22 possible scenarios in which a borrower could receive remediation (found on page 17 here). According to the 12th option laid out by the OCC, a borrower is considered to have undergone financial injury if, "a borrower was denied a modification in contravention of the terms of the governing modification program or the servicer's stated policy covering modifications."
The top 10 servicers in the Home Affordable Modification Program denied nearly 1.9 million borrowers for a trial plan as of Dec. 31, according to Treasury Department data. But last year, JPMorgan Chase (JPM) and Bank of America (BAC) were found to be needing significant improvements to how they were evaluating borrowers under HAMP.
According to the Treasury reviews, income calculation was a major problem. In the second quarter review, more than 20% of the Chase income calculations for borrowers did not match the program calculator. The threshold for compliance was 5%.
But in March, when the Treasury released its fourth-quarter review, both BofA and Chase were considered improved, and more than $170 million in subsidies were given back to the servicers.
Servicers testifying before the committee said they had already implemented many new standards under the consent orders and that many of the foreclosures completed were long vacated. BofA National Mortgage Outreach Executive Sheila Sellers said more than 675,000 borrowers have a single point of contact.
"Of the foreclosure sales we completed in the fourth quarter, nearly 40% were already vacant," Sellers said.
Still, the consent order reviews could end up costing these firms in the end, according to Morgan. The OCC and the Federal Reserve will oversee the reviews. Suzanne Killian, senior associate director of consumer and community affairs at the Fed, pledged borrowers would be compensated.
"Where financial injury is found, the servicers must compensate the injured borrowers pursuant to a remediation plan that is acceptable to the Federal Reserve," Killian said.