In Financial Regulation Bill, Increased Transparency for Loan Mod Program

The formula for testing homeowners’ eligibility for a mortgage modification will not be a secret anymore. The Treasury Department will now have to post the details online.

by Paul Kiel and Karen Weise
ProPublica, July 21, 2010, 1:07 p.m.

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Rep. Doris Matsui, D-Calif., proposed increased reporting requirements for the loan mod program. (Getty Images file photo)

Buried in the massive financial regulation overhaul that President Barack Obama signed today, two provisions force the Treasury Department to increase the transparency of its loan modification program.

One measure takes aim at the secret formula the government developed to test homeowners’ eligibility for a modification. Treasury will now have to post its details online. The other measure requires that the government divulge far more data from the program.

Consumer advocates have long criticized the lack of transparency in the program and the loan modification process. That lack of transparency is particularly critical, they say, because the banks and other companies that service mortgages frequently make errors. As we’ve reported, in the worst cases those mistakes lead to foreclosure.

Many homeowners are wrongly denied modifications “because of the lack of transparency in the program,” said Alys Cohen, an attorney with the National Consumer Law Center. The new measures will help homeowners and advocates challenge errors by mortgage servicers, she said.

At the center of the loan modification program is a complicated — and until now, secret — formula called a “net present value” (NPV) calculation. The formula, which was developed by the Treasury Department and other government agencies, determines whether modifying a homeowner’s loan under the program is likely to be more profitable than a foreclosure. The servicer is required to run the formula for each homeowner who applies for a modification.

“A homeowner’s fate hinges on the NPV score, so the American Dream is literally at stake here,” said Rep. Mike Quigley, D-Ill., who sponsored the amendment to add the measure to the bill.

Servicers often run the formula incorrectly. Fifteen of the largest 20 servicers in the program have not followed “various aspects” of its rules concerning the formula, according to the Government Accountability Office.

Problems with servicers’ use of the formula have added to the serious delays that homeowners have experienced. Earlier this year, Treasury began requiring that servicers recheck denials based on the formula.

As we detailed last year, consumer advocates have criticized the Treasury for keeping the formula secret. The new rule requires the Treasury to open up its black box. Treasury must publish the “methodology and computer model” on the Internet, according to the new law.

Along with divulging the formula, the Treasury must provide a public “net present value” calculator so homeowners can run their own test to see if they qualify for a loan modification.

For homeowners who are denied based on the formula, the law also requires that servicers provide them with certain figures used in the calculation, such as the borrowers’ income, so they can make sure the information is correct.

Rep. Quigley said that, based on a recent meeting with Treasury officials, he is hopeful the new measures could be in place by the end of the summer.

The bill also beefs up the reporting requirements for the program. For the first time, the Treasury Department will be required to release individual data on homeowners involved in the program. Currently, servicers report around 150 different variables (PDF) for each homeowner, ranging from the credit score to the property valuation, but Treasury releases only a fraction of the information in its monthly reports.

Now, Treasury will be required to release this information, minus the parts it withholds to protect homeowner privacy. ProPublica has been waiting for over a year to get this data, which we requested under the Freedom of Information Act. Advocates and researchers have also been pressing for it, saying it’s necessary for independent review of the program, including a fair-lending analysis.

“By the time we get this data, which we have been asking for since the inception of the program, the program is already going to be set in stone,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending. Gordon said the data will nonetheless be useful for a “historical” evaluation of the program and for policy makers looking to develop future foreclosure-relief efforts. (Disclosure: The center receives funding from the Sandler Foundation, the principal funder of ProPublica.)

Also, servicers will be required to submit monthly reports to Treasury detailing the number of modification applications they receive, process, approve and deny.

This month, Treasury began reporting the fate of the 539,000 homeowners who'd been rejected by the eight largest servicers, but the bill requires it to collect and share more information about applications to the program, such as how many homeowners have applied and are waiting for an answer.

Rep. Doris Matsui, D-Calif., proposed the reporting requirements as an amendment to the House bill. She said her constituency in Sacramento has been struggling with foreclosures. “The Making Home Affordable Program holds the potential to greatly reduce these figures, but without accountability, the lenders have failed to do so,” Matsui told ProPublica.

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7 comments

Diana

July 21, 2010, 7:11 p.m.

Thank you for such a great story. I know it takes a lot of research getting this information. Did you know Aurora Loan Services LLC is selling off its loans like crazy? 42,000 to IBM processing and a bunch to some other huge company. Selling to 3 major companies. Are they going BK?

Anne

July 22, 2010, 1:43 a.m.

I agree with Diana. I am impressed by the amount of CONTINUING work you do on the issue of transparency and loan modification status. It seems that loan modification is “yesterdays news” in many regards however Pro Publica has continued to push for information and published some very moving first-hand accounts of people who are desperate and some who have lost their homes already, some of them because the banks did not properly calculate the figures for modification and/or foreclosure.

Such an ongoing effort is certainly commendable. I have discussed Pro Publica’s work with several acquaintances and family. You deserve a lot of credit for your tireless work.

Richard Francisco

July 22, 2010, 11:29 a.m.

I dont think this will create real transparancy. If anything, it is creates more loan mod hoops to jump through for us homeowers. The only think we can do is unite as one and fight these servicers Mr. Kiel. These stories help, but there is a forum online at this site called Loansafe that exposes the BS that we are all going through. We have to make our voices heard and unite. From leaving comments on these blogs to joining social media campaigns.

Anne Robertson

July 22, 2010, 11:53 a.m.

I agree this action on the part of the government (I don’t call it our/my government anymore) could eventually lead nowhere. The reason I say that is because right now there are sanctions in-place for lenders who stall on modifications. I myself have been in a “trial” for 6 months. That is not only troubling but also annoying as I don’t believe for one second the story that they are “swamped” with modifications to process. In fact it actually makes me angry because lord knows when their bailouts came through they didn’t go through any of the grief they are putting others through.

But the point of my earlier comment was just to acknowledge ProPublic, Paul Kiel and anyone else who has helped keep this from fading totally away. I think most of the media has long-ceased to address it. Its not going anywhere and its just boring, at least to the media. There isn’t enough “sizzle” to make it attractive. Everyone/the public is tired of hearing about it. Plus I do believe for those of the public who don’t have personal knowledge about it, I think the perception by a considerable segment of the population is that those seeking modifications are just irresponsible people who try to buy a home outside their budget which I do not believe for a second. I know in my case before this financial crisis (which was avoidable) I had about $40,000 equity in my house and now I would be doing well to break even. So a lot of the media just ignore it and I commend the efforts here to keep it from totally fading. The fact that it is so subject to neglect on the part of the government just makes it that much more amazing (and appreciated) that Paul and the others refuse to let it fade away to nothing.

Thanks again to those who are trying to help.

Anne Robertson

July 22, 2010, 11:57 a.m.

I did want to correct the above statement from ProPublic to ProPublica, my mistake in typing. But also, I did want to personally mention Karen Weise whose name I see is also to be included in those still working on this less than glamerous effort. Thanks again.

Claude O MCormick

July 24, 2010, 3:29 p.m.

I need some infro, Or please send cash. I have a loan with BOA first united then countrywide then bank of america. Have been here for ten years. whet into foreclosure june 7th 2010 no one bid on house sold back to bank. Want 173.500 want me to move by july 24th, hey? thats today. Have some help from a legal aid lawer in N.C. that was a week ago. I need money bad.they went up on payments to 1500 a month? Please crywithme. Thank you Claude.Have paypal account and a phone (336) 374-6544

Joe

July 24, 2010, 4:35 p.m.

I wish I could say any of this will help the fact is the rich get richer and the working class stiff gets screwed. 2 years I tried to get my loan modified. Only to be told they never got my paperwork. I then spoke to who I thought was my Saviour she said she found all my paperwork and would fast track my modification. 2 days later I was foreclosed on. I even involved my state reps office who diligently worked on helping me only to be told they never found my paperwork. Well they did find it they lied to me and the state reps office. what a joke so in 90 days October 31st my wife,me and our 2 year old premature child are homeless. Thank you Congress Thank you Sovereign Bank this nation has become a money hungry back stabbing joke. God bless America we need it. This is far from what our forefathers had in mind I am sure. Shame on you President Obama I,m glad the banks bought and paid for the Presidency

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This article is part of an ongoing investigation:

Foreclosure Crisis: Banks and Government Fail Homeowners

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.