BofA Blames Investors for Lack of Loan Modifications, But Evidence Points Elsewhere
Update 4pm: We've updated this headline to better reflect the story.
In prepared Congressional testimony coming today, Bank of America’s top mortgage official, Barbara Desoer, says it’s Wall Street investors, not the bank, that are making it hard to help homeowners. “Bank of America is constrained by our duties to investors,” she says. “Many investors limit Bank of America’s discretion to take certain actions.”
Desoer’s testimony echoes what homeowners have long heard, that investors are frequently denying them help from federal program created to foster loan modifications. But as ProPublica has reported, that's simply not the case. Investors rarely have a say in loan modifications or block such modifications.
Banks and other companies service mortgages on behalf of investors who bought bundles of loans sold on Wall Street. Bank of America and others say that the contracts they sign with investors frequently limit their ability to make modifications. But a recent study looked at the contracts covering subprime deals from 2006—at the height of the boom—and found that only 8 percent actually prohibited modifications.
The contracts sometimes had some limitations on modifications, like saying the servicer couldn’t extend the term of the loan, but almost two-thirds of the contracts explicitly gave servicers the authority to make modifications, particularly for homeowners who had defaulted or would likely default soon. The rest of the contracts did not address modifications. (Here are some tips for digging up the contracts yourself.)
Though they point fingers in public, servicers almost never blame investors in their monthly reports on the modification program, according to data Treasury gave to the Congressional Oversight Panel.
Today the Association of Mortgage Investors released a statement saying, mortgage investors “share many of the frustrations that homeowners and state Attorneys General are experiencing when dealing with mortgage servicers.”
“This is one of those rare alliances where investors and borrowers are on the same page,” according to Laurie Goodman, senior managing director at Amherst Securities, a brokerage firm that specializes in mortgage securities. She says investors have “zero vote” in determining individual loan modifications and, instead of foreclosures, prefer sustainable modifications that lower homeowners’ total debt.
Our story focused on Arthur and Alberta Bailey, a couple trying to prevent foreclosure on their home near New Orleans. Litton, the subsidiary of Goldman Sachs that serviced their loan, told the Bailey’s that investors didn’t allow any modifications. But Litton’s contract with investors had no clear language banning modifications, and data Litton provided to investors showed that over 115 other mortgages from the same investment pool had already been modified.
We first looked at this issue last summer, soon after the Obama administration launched its loan modification efforts. We flagged the complex web of interests as a potential problem. You can listen to that story, which was co-produced with Marketplace, to learn more.
Banks and the government have fallen short in helping homeowners in danger of foreclosure.
The Story So Far
Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.
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