SIGTARP Schools Treasury on Repeated Failure to Protect Homeowners Instead of Servicers With TARP Money

Highlights from the Special Inspector General for TARP’s latest Report:

UPDATE ON UNIMPLEMENTED

RECOMMENDATIONS CONCERNING HAMP

TARP’s signature housing program, HAMP, has not provided enough sustainable

foreclosure relief given the unspent TARP funds that Treasury has set aside.

HAMP’s foreclosure relief is only sustainable if the homeowner does not fall out

of the permanent mortgage modification during the five year period, increasing the

risk of foreclosure.

As of June 30, 2014, only 958,549 homeowners were active in a HAMP

permanent modification. Treasury continues to extend the application period

for MHA programs such as HAMP, and did so again on June 26, 2014, further

extending MHA programs for another year, through December 31, 2016.

An extension of HAMP’s timeframe is not enough on its own to bring about

meaningful change, particularly as hundreds of thousands of homeowners who got

into HAMP, fell prematurely out of the program. Treasury must help homeowners

using TARP with the same effort it put toward bailing out banks, the auto

companies, and AIG. Hopefully, Treasury’s HAMP extension reflects a realization

that Treasury has not, in fact, provided sustainable foreclosure relief to enough

homeowners using TARP. With approximately $15.7 billion in TARP funds for

HAMP sitting unspent, Treasury has ample resources to help the tens of thousands

of homeowners still applying each month for a HAMP modified mortgage.

During the month of May 2014 alone, more than 87,000 struggling homeowners

continued to seek help through HAMP.

Treasury needs meaningful reform to HAMP to dramatically change the current

levels of HAMP assistance reaching homeowners. Treasury should constantly

explore ways to improve HAMP rather than relying on servicers to act differently

than they acted in the past. SIGTARP is committed to working with Treasury to

ensure the efficiency and effectiveness of TARP and to prevent fraud, waste, and

abuse of taxpayers’ dollars funding HAMP. Through SIGTARP’s investigations,

hotline, and otherwise, SIGTARP has learned about the difficulties homeowners

continue to experience while trying to get into HAMP, particularly based on alleged

misconduct by HAMP servicers, and has reported on these difficulties publicly on

several occasions. This quarter, SIGTARP reported on the results of a SIGTARP

criminal investigation, conducted with its law enforcement partners, and a nonprosecution

agreement with TARP recipient, SunTrust Banks, Inc., the parent of

SunTrust Mortgage, Inc., (collectively, “SunTrust”).

SIGTARP’s criminal investigation of SunTrust’s administration of its HAMP

program revealed that SunTrust made material misrepresentations and omissions

to homeowners in HAMP solicitations. SunTrust did not have adequate personnel,

infrastructure, or technological resources in place to process the paperwork,

render decisions, and communicate with and about homeowners, as represented

in 2009 and 2010. Because SunTrust’s HAMP program was under-resourced and

under-funded, month after month, a backlog of tens of thousands of homeowners

were left waiting to apply for HAMP, waiting for SunTrust to send a trial period

agreement, or waiting to hear whether they qualified for their much-needed

mortgage relief. For example, SunTrust put piles of unopened homeowners’ HAMP

applications and paperwork on an office floor until the floor buckled under the

sheer weight of the unopened HAMP applications. SunTrust lost documents and

paperwork. SunTrust mass-denied some homeowners for HAMP without reviewing

their HAMP applications. SunTrust lied to Treasury about the reasons for the

denials. Rather than rendering decisions on a permanent modification within the

three- to four-month trial period SunTrust represented, some homeowners were

stuck in limbo in extended trial modifications of two or more years. SunTrust

misreported current homeowners as delinquent to major credit bureaus. In

other instances, SunTrust denied HAMP modifications to eligible homeowners

and instead placed the homeowners in alternative, private modifications that

were less favorable. SunTrust improperly commenced foreclosure proceedings

on homeowners in active HAMP trial periods, and some of those homeowners

saw their homes listed by SunTrust for sale in local newspapers. As a result of

SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a

HAMP modification with SunTrust suffered serious financial harm. Homeowners

would have been exponentially better off having never applied for HAMP through

the bank in the first place.

SunTrust’s management of the program harmed the homeowners that HAMP

was designed specifically to assist. Real people lost their homes, and many others

faced financial ruin. SIGTARP and its law enforcement partners continue to root

out fraud related to TARP’s housing programs and will hold those responsible

accountable. These law enforcements efforts will hopefully deter future

misconduct and, where necessary, force institutions to change their culture.

SIGTARP is concerned that similar misconduct, negligence, or poor, shoddy

performance by servicers that does not rise to the level of violating the law, could

be preventing struggling homeowners eligible for HAMP from obtaining available

relief. SIGTARP spotlights one of those issues this quarter in a special report on

the more than 221,000 homeowners that have applied for HAMP but are still in

limbo, with no decision from their servicer.

To enact meaningful change in TARP’s housing programs, Treasury should first

start by implementing SIGTARP’s many ignored recommendations. Since 2009,

SIGTARP has made 50 recommendations to Treasury concerning improvements

to TARP’s housing programs and to prevent fraud, waste, and abuse of taxpayer

dollars used to support struggling homeowners. While Treasury has implemented

some of SIGTARP’s recommendations, 44 of those 50 recommendations (88%)

remain unimplemented. SIGTARP’s recommendations are based on concerns we

uncover in our investigations, audits, public hotline, and other oversight activities.

We cannot always share our findings with Treasury, for example, when we are

conducting a confidential criminal investigation. Any reasons Treasury has given for

not implementing SIGTARP’s recommendations are not good enough.

SIGTARP has issued a series of recommendations aimed at the process by

which a homeowner gets into HAMP. For example, SIGTARP has previously

recommended:

  • Treasury should establish benchmarks and goals for acceptable program

performance for all MHA servicers, including the length of time it takes for trial

modifications to be converted into permanent modifications, the conversion rate

for trial modifications into permanent modifications, the length of time it takes

to resolve escalated homeowner complaints, and the percentage of required

modification status reports that are missing.

Implementing this recommendation could have gone a long way to fix the

extended trial periods at SunTrust. Moreover, the concern extends beyond

SunTrust. Treasury’s HAMP data shows that thousands of homeowners across

multiple servicers are in trial periods of six months or more. This is not always the

homeowner’s fault. Benchmarks for acceptable performance brings accountability

if the servicer denies the homeowner permanent assistance after being in a lengthy

trial period. After such a lengthy trial period, the homeowner could owe a balloon

payment of the total amount difference between the mortgage payments and the

trial period payments. That required payment could be so large that it is impossible

to make, leaving the homeowner headed towards foreclosure. For example, the

latest data collected by Treasury from the 137 HAMP servicers with active trial

modifications indicates that the average monthly savings from homeowners in trial

periods lasting six months or longer was $472. If servicers deny that homeowner

permanent HAMP assistance at the end of the six month period, the average

homeowner would have to pay $2,835. Treasury’s data indicates that the payment

could be much higher. In one of several similar examples, a homeowner who is

saving $3,351 per month and has been in a trial modification since December

2011 could be required to pay back almost $100,000 if rejected from HAMP.

Worse yet, some homeowners were current on payments when they entered HAMP

trial modifications, but after being denied permanent modifications, were worse off

than if they had not applied at all.

 

SIGTARP’s recommendations are designed to help protect homeowners,

including the following recommendations that have not been implemented by

Treasury, to help additional homeowners get a permanent mortgage modification

from HAMP:

Treasury should publicly assess the top 10 MHA servicers’ program performance

against acceptable performance benchmarks in the areas of: the length of time

it takes for trial modifications to be converted into permanent modifications, the

conversion rate for trial modifications into permanent modifications, the length

of time it takes to resolve escalated homeowner complaints, and the percentage

of required modification status reports that are missing.

  • Treasury must ensure that all servicers participating in MHA comply with

program requirements by vigorously enforcing the terms of the servicer

participation agreements, including using all financial remedies such as

withholding, permanently reducing, and clawing back incentives for servicers

who fail to perform at an acceptable level. Treasury should be transparent and

make public all remedial actions taken against any servicer.

  • Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s

discount rate in HAMP’s net present value test.

  • Treasury should ensure that servicers use accurate information when evaluating

net present value test results for homeowners applying to HAMP and should

ensure that servicers maintain documentation of all net present value test

inputs. To the extent that a servicer does not follow Treasury’s guidelines on

input accuracy and documentation maintenance, Treasury should permanently

withhold incentives from that servicer.

  • Treasury should require servicers to improve their communication with

homeowners regarding denial of a HAMP modification so that homeowners can

move forward with other foreclosure alternatives in a timely and fully informed

  1. To the extent that a servicer does not follow Treasury’s guidelines on

these communications, Treasury should permanently withhold incentives from

that servicer.

  • To ensure that homeowners in HAMP get sustainable relief from foreclosure,

Treasury should research and analyze whether and to what extent the conduct

of HAMP mortgage servicers may contribute to homeowners redefaulting

on HAMP permanent mortgage modifications. To provide transparency and

accountability, Treasury should publish its conclusions and determinations.

  • Treasury should publicly assess and report quarterly on the status of the ten

largest HAMP servicers in meeting Treasury’s benchmark for an acceptable

homeowner redefault rate on HAMP permanent mortgage modifications,

indicate why any servicer fell short of the benchmark, require the servicer to

make changes to reduce the number of homeowners who redefault in HAMP,

and use enforcement remedies including withholding, permanently reducing, or

clawing back incentive payments for any servicer that fails to comply in a timely

  1. manner.
  • In order to protect against the possibility that the extension and expansion of

HAMP will lead to an increase in mortgage modification fraud: (a) Treasury

should require that servicers provide the SIGTARP/CFPB/Treasury Joint Task

Force Consumer Fraud Alert to all HAMP-eligible borrowers as part of their

monthly mortgage statement until the expiration of the application period for

HAMP Tier 1 and 2; and (b) Treasury should undertake a sustained public

service campaign as soon as possible both to reach additional borrowers who

could potentially be helped by HAMP Tier 2 and to arm the public with

complete, accurate information about the program to avoid confusion and delay,

and to prevent fraud and abuse.

  • Given the expected increase in the volume of HAMP applications due to the

implementation of HAMP Tier 2, Treasury should convene a summit of key

stakeholders to discuss program implementation and servicer ramp-up and

performance requirements so that the program roll-out is efficient and effective.

SIGTARP made recommendations designed to curb the growing number of

homeowners who fall out of a HAMP permanent modification prematurely. If the

current trend continues, large percentages of homeowners will continue to fall out

of HAMP permanent mortgage modifications and Treasury will have missed an

opportunity to use TARP to provide sustainable relief to as many homeowners as

possible. For example, SIGTARP recommended:

  • Treasury should conduct in-depth research and analysis to determine the

causes of redefaults of HAMP permanent mortgage modifications and the

characteristics of loans or the homeowner that may be more at risk for redefault.

Treasury should require servicers to submit any additional information that

Treasury needs to conduct this research and analysis. Treasury should make the

results of this analysis public and issue findings based on this analysis, so that

others can examine, build on, and learn from this research.

Although Treasury has agreed to implement this important recommendation,

the results of Treasury’s ongoing efforts remain unclear and unknown. Meanwhile,

homeowners continue to redefault from HAMP. Since SIGTARP made that

recommendation in April 2013, more than 85,890 homeowners have redefaulted

out of HAMP.

For similar reasons, to address the alarming rate of redefaults, SIGTARP made

the following recommendations, which remain unimplemented:

  • As a result of the findings of Treasury’s research and analysis into the causes

of HAMP redefaults, and characteristics of redefaults, Treasury should modify

aspects of HAMP and the other TARP housing programs in ways to reduce the

number of redefaults.

  • Treasury should require servicers to develop and use an “early warning system”

to identify and reach out to homeowners that may be at risk of redefaulting

on a HAMP mortgage modification, including providing or recommending

counseling and other assistance and directing them to other TARP housing

  • In the letter Treasury already requires servicers to send to homeowners who

have redefaulted on a HAMP modification about possible options to foreclosure,

Treasury should require the servicers to include other available alternative

assistance options under TARP such as the Hardest Hit Fund and HAMP Tier\2, so that homeowners can move forward with other alternatives, if appropriate,

in a timely and fully informed manner. To the extent that a servicer does not

follow Treasury’s rules in this area, Treasury should permanently withhold

incentives from that servicer.

  • Treasury should increase the amount of the annual incentive payment paid to

each homeowner who remains in HAMP. Treasury should require the mortgage

servicer to apply the annual incentive payment earned by the homeowner to

reduce the amount of money that the homeowner must pay to the servicer

for the next month’s mortgage payment (or monthly payments if the incentive

exceeds the monthly mortgage payment), rather than to reduce the outstanding

principal balance of the mortgage.

SIGTARP looks forward to continuing its work with Treasury on implementing

SIGTARP’s recommendations, especially these crucial recommendations

concerning TARP’s housing programs, to ensure homeowners obtain the affordable

and sustainable relief Treasury intended.

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