Journalism in the Public Interest

Excerpt: At Goldman Sachs Servicer, ‘Total Disaster’

An employee at a mortgage servicer that was owned by Goldman describes the internal chaos that harmed thousands of homeowners and undermined the government’s flagship foreclosure prevention program.

Chris Wyatt, a former employee of Litton Loan Servicing, then a Goldman Sachs subsidiary, tells what it was like at the company during the first, crucial years of the government's loan modification program. (Chris Curry for ProPublica)

Yesterday, we published "The Great American Foreclosure Story," our latest Kindle Single. The narrative gives readers a comprehensive look at the foreclosure crisis. Part of that story is the government's inadequate response, particularly its Home Affordable Modification Program, HAMP. In the excerpt below, Chris Wyatt, a former employee of Litton Loan Servicing, then a Goldman Sachs subsidiary, tells what it was like at the company during the program's first, crucial years.

In 2009, during the first few months of its participation in the program, Litton put tens of thousands of homeowners into trial modifications. That was easy, because nothing had to be documented. Under the agreements, if the borrower made the lowered payments for the three-month trial period, they'd receive permanent modifications.

The hard part was for Litton to collect the borrowers' papers and crunch the numbers to verify the terms of the permanent modifications. That, he says, "turned out to be a total disaster."

Wyatt led Litton's "Executive Response Team," which was charged with handling customer complaints. Litton employees, overwhelmed and undertrained, frequently made basic errors when calculating a homeowner's income, he says. HAMP guidelines often weren't followed, because Litton was "way understaffed" and couldn't keep up, he recalls. But the worst part was the way Litton dealt with homeowners' documents, he says.

When homeowners faxed their documents, they didn't go to Litton, Wyatt says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.

In a process internally referred to as a "denial sweep," Litton's computers would automatically generate denial letters for every homeowner who, according to Litton's records, hadn't sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.

In general, Wyatt recalls, Litton was much more careful about granting modifications than denying them. Yes, HAMP gave financial incentives for each modification Litton and other servicers made, but modifications also meant closer scrutiny from the program's auditors.

As of the end of 2010, fewer than 12 percent of the borrowers who'd applied for a HAMP modification with Litton were granted one. The vast majority of those denials, Wyatt says, were not legitimate. Goldman Sachs' emphasis on maximizing profits rather than preventing foreclosures is typical of the servicing industry, he says, particularly the larger banks.

"They could have addressed the crisis way earlier. Had companies changed their philosophy and said, 'You know what? We're not going to beef up our collections staff; we're going to beef up our loss mitigation staff.' Had they done that and come up with loan modification scenarios that were reasonable and put people into more affordable payments early on, we wouldn't be where we are now."

A spokesman for Goldman Sachs said the company disagreed with Wyatt's account but offered no specifics.

You can read "The Great American Foreclosure Story" in its entirety here.

I don’t understand the dancing around the central issue:  This is fraud.  They set rigged the system so that people would be unable to file, then punished them for not filing.  They documented this (as illustrated by the article) to a point where malfeasance and premeditation is proven beyond a shadow of a doubt.

And yet, told from Litton’s perspective uncritically, the sense is that we’re supposed to see this as the poor little robber barons trying to deal with a bad situation, when they’re accessories and possible conspirators.

Johns comment is completely on target!

John, you are forgetting that we are talking about the financial industry here. At some point they will probably pay a few percent of their profits to some government agency as penalty. That will be the end of it and everybody who is viewed as important (this excludes the taxpayer) will be happy. There will never be a prosecution.

Did someone mention auditors?

John and Bekki have it right.  The loss of documents was a system feature not a bug.  Servicers profited from penalites, late fees, and usury—- by design.  I cannot believe Wyatt doesn’t know that.  Lost paperwork, right; this is more whocouldanode CYA BS.

This was decoded recently on Naked Capitalism following a fraudclosure case Wells Fargo lost recently, where the judge awarded $3 million in punitive damages for just one loan.  The judge found that these “errors” were consistent in ALL loans, not a few exceptions or even most, but ALL loans.  Enterprising attorneys should smell blood in the water here for obscene class-action contingency fees.

Max, until we make it clear to our “representatives” that we’re capable of understanding the scam and we’re watching, they’ll continue to assume that it’s not something we should worry our pretty little collective heads about.  That means being clear on where things are wrong, rather than handwaving about “fairness” and “ethics,” which neither politicians nor businessmen have in their vocabularies.

I’m not calling for the DoJ to prosecute, because they’ve already shown they’re thoroughly incapable of distinguishing legal from illegal behavior.  I am, however, suggesting that we make it clear that we see what’s going on and are capable of understanding the “complex financial instruments” and “complicated regulations” that they usually use to scare us away.

Put the discussion in terms they understand (and get it right, of course), so that it can’t be easily dismissed as the lunatic fringe or the ignorant masses, and they need to either move or show their loyalties.

I think our representatives have already where their loyalties are. It’s to the people who donate the most and give them the best jobs afterwards. It seems the people at SEC just work there to get hired by Wall Street for big money a few years later on. Listen to the last episode of This American Life. There are no advocates for the common good. If you don’t have the big bucks nobody will listen to you.

Ah, but Max, make them admit it.  Don’t allow them the excuse that we don’t understand the issues.  Don’t allow them the excuse that there’s some higher purpose to deal with.  Don’t allow them the excuse that their detractors are emotionally or educationally stunted.

That was the big failing of the Occupy movement.  I appreciate that people mobilized in any non-violent form, but the message was too easily heard as “the world is unfair and we should blame people with money or get handouts.”  It wasn’t the message, but that’s what the clearest parts sounded like, making it easy for cops and politicians to declare them irrelevant children.

This article is part of an ongoing investigation:
Foreclosure Crisis

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.

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