ProPublica Eye on Bailout

Chase Denied Loan Mods for Now Forbidden Reason—Homeowners in Limbo

On the Saturday before Thanksgiving, Lesa Herron of Santa Rosa, Calif., opened a letter from Chase Home Finance (PDF). She’d been denied a permanent modification under the federal government’s loan-mod program, Chase said, because “Your hardship is not of a permanent nature.” No other reason was given.

For Herron, that was hard to understand. She was working two jobs and her mortgage payment still amounted to more than half of her income. She’d fallen two payments behind. If her money troubles were only temporary, it was news to her.

We at ProPublica reported last month that mortgage servicers are often not following the Treasury Department’s rules for the program and provided three examples. One involved another homeowner who, like Herron, had been denied a modification because his hardship was not “permanent.”

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Logjam Continues for Loan Mods; Big Banks Fare Poorly, Data Show

The Treasury unveiled (PDF) new data last Friday showing the progress of its major foreclosure prevention program. Treasury officials touted the new data as evidence that pressure on mortgage servicers to improve performance was working, but the numbers continue to show real problems. And though there is a wide disparity in performance among the participating servicers, the four largest all continue to lag.

First, a look at the overall numbers: 66,465 homeowners had received permanent modifications as of Dec. 31. That’s up from 31,382 reported last month. On a conference call with reporters Friday, Treasury official Phyllis Caldwell called that a “significant acceleration of the rate at which borrowers are being approved.” That may be, but it’s still well below where it should be if the program were working properly.

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Homeowners Say Banks Not Following Rules for Loan Modifications

Nathan Reynolds is something of an expert on the government’s foreclosure prevention program. A mortgage broker who’s worked in the Chicago area since 1998, he’s seen both his business and his home’s value plummet in the past few years. After receiving his own trial loan modification from JPMorgan Chase, he’s helped others apply for modifications through the program on his own time.

But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income.

That’s not a legitimate reason for a loan servicer to deny someone’s modification, according to the Treasury Department’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.

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With Bank Money Returning, Bailout Burden Shifts Toward Housing

The year ended with three of the biggest bailout recipients – Bank of America, Wells Fargo and Citigroup – together returning more than $90 billion to the Treasury Department. But it also ended with a Christmas Eve announcement from the Treasury that it could spend a virtually unlimited amount of money bailing out Fannie Mae and Freddie Mac. So while the Treasury is winding down its programs to support the nation’s banks, it will continue to spend big to prop up the housing market.

As of the end of December, the bailout total outstanding fell to $337.5 billion, a decrease of $84 billion since our last monthly update. We continue to track the totals on our frequently updated bailout database*, which tracks both the TARP and the bailout of Fannie Mae and Freddie Mac.

Meanwhile, the losses booked from the bailouts did not grow in December, staying around $9 billion. Treasury did, however, release its updated estimate for ultimate losses from the TARP: $61.1 billion. We’ll continue to track the losses as they’re realized.

And revenue continued to grow, reaching $20.6 billion. More about that below.

With the recent repayments by the banks, Fannie and Freddie together account for about one-third of the amount still outstanding, about $111 billion (the rest is due to the TARP). That proportion will only go up as the Treasury continues to pour in more money, and as other banks continue to refund their bailout money. Treasury made its last investment through its main bank investment program on Dec. 30.

When the government took over Fannie and Freddie in September 2008, Treasury Secretary Hank Paulson capped aid at $200 billion ($100 billion for each). But soon after he took over, Paulson’s successor, Tim Geithner, raised the cap to $400 billion total. December’s action to remove that cap doesn’t necessarily mean that the Treasury envisions spending more than $400 billion, but as stated in its announcement, the move “should leave no uncertainty about the Treasury’s commitment to support these firms.”

So how much will supporting Fannie and Freddie ultimately cost taxpayers? At this point, it’s anybody’s guess. The Treasury’s December analysis of the TARP’s likely long-term cost didn’t include a forecast for Fannie and Freddie. The administration has said for months that it plans to divulge its long-term plan for the companies this February, so maybe we’ll find out more then.

This year will also see the Treasury finally begin to spend big on its foreclosure prevention program. We’ve been closely following the program and have noted its devastating delays for homeowners and its lack of both transparency and effective oversight. It’s been nearly a year since President Barack Obama announced the program, but only a very small portion of the $50 billion in TARP funds set aside for it – $2.3 million as of the end of October – was actually spent in 2009 because of its slow progress. That figures to change in 2010 if the major mortgage servicers can finally move a significant percentage of homeowners into permanent modifications (a big if). Fannie and Freddie are also participating in that program and are responsible for paying out incentives to mortgage servicers and borrowers for loans they guarantee or own. Their costs from the program could rise to $25 billion.

Now for the revenue side of the ledger.

The TARP has two main sources of revenue: quarterly dividend or interest payments and stock warrant redemptions. The Treasury is obligated to use TARP revenue to pay down the national debt.

So far, bailout recipients have paid $16.6 billion in dividends and interest, an amount that includes the $4.3 billion in dividends paid by Fannie and Freddie and special one-time fees charged to two TARP recipients.

The Treasury has also collected $4 billion in exchange for its warrants. The stock warrants, which give the U.S. the right to buy equity in the companies at a set price, came as a condition of the investments. When companies refund the Treasury’s money, the warrants are either sold back to the company or auctioned off.

Altogether, the Treasury has collected $20.6 billion in revenue from the TARP and the Fannie and Freddie bailouts.

So that’s our monthly sobering assessment of the likelihood of recouping the bailout funds: $337.5 billion out the door, at least $9 billion that almost surely won’t be coming back, and $20.6 billion in revenue to serve as a buffer against losses.

*A technical note: While we do our best to keep our bailout database comprehensive and accurate, the government has not released the data for each participant – specifically in the case of the toxic asset program. In those cases, our database shows a lower amount than has actually been spent, because Treasury has not yet disclosed how much was paid to each recipient. However, Treasury has released the aggregate amount invested and lent via the program so far, and we show that amount. We’ve used it to compute the totals in this post.

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Loan Mod Program Delays Even Worse for Those Struggling Not to Fall Behind

Since last spring, when President Barack Obama announced his administration’s plan to prevent foreclosures, there’s been a crush of homeowners seeking help from mortgage servicers. Confusion and delays have plagued the entire program, but the problems have been particularly acute for homeowners seeking a modification before they begin falling behind on their mortgage payments.

Some homeowners, like Regan Sciesinski of Florida, have been waiting as long as nine months with no relief. The Sciesinskis seem to be a prime candidate for a modification through the program. His wife, Stacy, was found to have breast cancer in late 2007, and in the past year, a combination of medical costs and reduced income have made their mortgage payments unaffordable for the couple, who have three children. Their home, in a suburb of Tampa, has also dropped about 25 percent in value since they bought it in 2006. Like millions of other homeowners, they’re underwater, stuck with mortgages worth more than the property.

Sciesinski says he first submitted his information to his servicer, Chase Home Finance, in March. He’s still waiting. Sciesinski says he and his wife have drained their retirement savings and accepted help from other family members to stay current. “We take our obligation seriously,” he says, but now they’re facing default and need the modification “because having to move would completely devastate us.”

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