TARP Watchdog Report Calls Out Loan Servicers and Treasury for Massive HAMP Failures

The SIGTARP’s latest report to Congress issued July 29, 2015 chastises Treasury for its failure to question and punish loan servicers for their dismal HAMP numbers.  Servicers who participate in HAMP are paid incentives, and are “required to offer HAMP modifications to all eligible homeowners.” Servicers “must follow the HAMP rules” and “Treasury has an oversight responsibility to ensure that servicers follow Treasury’s HAMP Rules.”  But they do not.

A staggering 7 out of 10 homeowners have been rejected for HAMP modifications.  Mortgage servicers have denied four million homeowner applications for HAMP assistance.  “JP Morgan Chase and Bank of America, historically the two largest HAMP servicers, and Citi each turned down 80% or more of homeowners who applied for HAMP; Ocwen, the current largest HAMP servicer, turned down more than 70% of  homeowners who applied for HAMP.”  See SIGTARP Report, Section 3. And this is only after Treasury began requiring servicers to report some of their metrics post-2009.

“In Treasury’s first [second look] June 2011 servicer assessment, 5 of the top 10 servicers (Bank of America, Cit, JPMorgan Chase, Ocwen and OneWest Bank) ranked poorly in Treasury’s second look.” Id.

Treasury continues to find servicers wrongfully denying homeowners.  “In two quarters in 2014 Treasury found second look problems at Ocwen, Wells Fargo, and Citi.”  In addition, Treasury “found problems recently in the fourth quarter of 2014 at Select Portfolio Servicing, and at Nationstar Mortgage, LLC in the first quarter of 2015.” Treasury’s findings “make clear that even after more than five years of HAMP, top HAMP servicers are still mistreating homeowners by not following HAMP Rules designed to protect homeowners.” Id. (emphasis added)

Predictably, the self-reporting loan servicers lay the blame on homeowners but SIGTARP easily dispels the pretext.

The main three reasons self-reported to Treasury by the loan servicers are (1) failure to send documentation; (2) failure to accept trial payment plans or loan modifications; or (3) eligibility failure based on income.  But all three of these reasons can also be caused by servicer misconduct, as has been widely reported.

As noted by SIGTARP, the Consumer Financial Protection Bureau, and Treasury’s own limited investigations, as well as homeowner-filed complaints, “Persistent problems and errors in the application and income calculation process have hisorically plagued homeowners seeking HAMP assistance, and continue to do so.  As a result, eligible homeowners may have been, and may continue to be, denied a chance to get into HAMP through no fault of their own.”

As for the “failure of documentation,” SIGTARP reports that the “incomplete documentation” is often attritubutable to loan servicers losing paperwork and requiring resubmission, servicer delays, and servicers ignoring requests for clarification or assistance.  SIGTARP cites the “egregious examples” of the SunTrust Mortgage prosecution by the Department of Justice in July 2014 and of the CFPB findings that “Ocwen, the largest HAMP servicer, provided false and misleading information to homeowners about the status of their loss modification review, failed to respond to homeowner requests for loan modification information and assistance, and failed to honor modifications in process of loans obtained from other servicers.”

SIGTARP also questions the servicer claims of homeowner failures to accept modified loans, pointing out the role of significant servicer backlogs such as Citibank’s 14-month backlog, and Bank of America and Select Portfolio Services, LLC’s signficant application backlogs of 5 months each.

SIGTARP urges Treasury to see the HAMP denials through the “known history of servicer misconduct,” to look beyond the servicer reporting, and “hold servicers accountable for extensive delays, lost paperwork, and errors in calculating key eligibility factors such as income, rather than let those and other servicer problems seep into the servicers’ decisions on homeowners’ HAMP applications.”

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2 thoughts on “TARP Watchdog Report Calls Out Loan Servicers and Treasury for Massive HAMP Failures

  1. My CW loan became a BofA loan and is now serviced by Residential Credit Solutions (RCS).

    I finally took the bull by the horns when it was a bit too late, after the second loan mod consultant had given up and foreclosure looms. I dove into HAMP guidelines and NPV inputs and found that RCS was using the wrong figure to determine the maximum acceptable forbearance amount.

    They HAMP guidelines (v 4.5) are clear: RCS was supposed to add the borrower’s arrears to the unpaid principle balance, and take a percentage of that to come up with a dollar figure for the maximum allowable forbearance (amount to be tacked onto the loan as a balloon payment.):

    “6.6.1 Principal Forbearance Limits under HAMP Tier 1
    With respect to both “positive” and “negative” NPV results, under HAMP Tier 1, servicers are not
    required to forbear more than the greater of (i) 30 percent of the UPB of the mortgage loan (after
    any capitalization under Step 1 of the HAMP Tier 1 standard modification waterfall”

    Here’s where they go wrong, using simple round numbers:

    If a borrower owed 500K and now has an arrears of 200K, the allowable forbearance amount, per HAMP guidelines, would be 30% of (500K + 200K). That would be 30% of 700K, or $210K

    But, in my case, they didn’t tack the arrears onto the unpaid balance before taking 30%. They took 30% of 500K, and got $150K as the allowable forbearance. On that basis they denied my application. There’s a $60K gap there. (Those are not my actual numbers.)

    If they did it wrong for me, they are probably doing it wrong for all applicants. It would be easy for a borrower to miss it, because both the original unpaid balance, and the one with the arrears tacked on, are called “the unpaid balance” or UPB in the guidelines.

    If there’s anyone able to collect NPV inputs from a lot of RCS “customers,” it would be worthwhile to do so and look for this mistake.

    RCS didn’t try extending the term to the HAMP-specified 480 months, either. They didn’t extend it at all. They claimed in their rejection letter that they had done all the tiers of the HAMP “waterfall,” but they had not.

    RCS disclosed all this in a response to my CFPB complaint. I saw what they had done and challenged their response with the information above. CFPB doesn’t seem to care, and RCS isn’t obligated to respond to my response.

    I sent the same information to RCS’s “escalation” fax number three weeks ago, and haven’t heard back.

    Like

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