Journalism in the Public Interest

New Data Shows Loan Mod Logjam Continues; Servicers Must Double-check Denials

Homeowners listen during a foreclosure prevention workshop held on Sept. 3, 2009 in Commerce City, Colo. (Photo by John Moore/Getty Images)
New data released Friday shows that the story for the government’s foreclosure prevention program remains the same: Mortgage servicers have delivered relatively few permanent modifications, and hundreds of thousands of borrowers in trial modifications have yet to receive a final answer after many months of waiting.

To illustrate the performance of the servicers in the program, we’ve created an interactive breakdown of the data. There, you can see how bad the logjam is at each one.

Last month, we reported that approximately 100,000 homeowners had been stuck in trials for longer than six months and some homeowners had been stuck in trial modifications for as long as 10 months. That hasn’t changed – in fact, the numbers continue to worsen.

According to a ProPublica analysis of the new data, approximately 150,000 homeowners have been in a trial for longer than six months. The trials are supposed to last only three months – time for the homeowners to turn in all their financial documentation and demonstrate an ability to make the lower monthly payments.

The extreme delays for some borrowers have two main causes, said Laurie Maggiano, the Treasury Department official in charge of shaping the program, speaking at a Mortgage Bankers Association conference last month. In cases where the servicer reported that the borrower had not turned in the requisite documents, the Treasury directed the servicer to extend the trial to obtain them. But she said in other cases, "the servicer just took their jolly old time."

A Treasury spokeswoman told ProPublica last month that servicers could face penalties for not resolving their backlogs. Asked whether penalties were forthcoming now, she attributed the continued backlog to a new Treasury requirement: Servicers must recheck homeowner denials based on the Net Present Value (NPV) calculation – the secret formula servicers use to determine whether mortgages qualify for the program.

"This process may require that some servicers take additional time to process trial modifications," she said, "but it ensures that eligible homeowners are not excluded."

So at least part of the backlog might be due to borrowers who have already been denied but have not been officially dropped from the program because the servicer is double-checking the basis for the denial.

 The NPV test is central to the program: It determines whether offering the homeowner a modification is likely to be more profitable to the investor (e.g., a bank or investors in a mortgage-backed security). If it is, then the servicer is contractually obligated to offer a modification. If it’s likely to be a money-losing move, then no modification is required. An NPV calculation is supposed to be run whenever a homeowner applies for the program.

As we’ve reported before, the formula has many inputs, most of which are protected from scrutiny. A mistake by a mortgage servicer can result in the denial of a modification. Speaking at the same MBA conference last month, Dane D’Alessandro, the Freddie Mac official in charge of ensuring that servicers use the NPV formula correctly, said such mistakes occur frequently.

So far, 90,136 homeowners have been dropped from the program – Treasury did not provide data for how many were because of a negative NPV result. In a statement Friday, Wells Fargo, one of the biggest servicers in the program, said that about half of the 108,000 homeowners who had made three trial payments through February would ultimately be denied, and that the NPV test was the second most common reason for denial. So far, Wells Fargo has reported fewer than 20,000 denials.

A total of 168,708 homeowners were in permanent modifications as of Feb. 28, up from 116,297 reported last month. That’s out of an estimated 3.4 million mortgages that may be eligible for the program, according to the Treasury’s latest data (PDF).

About 1.1 million homeowners have begun trials. The average homeowner in the program has been saving $518.88 each month, says Treasury.

See our detailed breakdown of the new numbers here.

Have you applied for a loan modification under the Obama administration’s Making Home Affordable program? Are you thinking about it? If so, we at ProPublica want to hear your story.

The whole problem with this government program is that it is looking at it from the point of view of the lender, not the homeowner. In most cases, the lender is going to make more money from a foreclosure, rather than a loan modification, but the lender is not going to lose anything by doing a modification.

There are people being hurt by the practices of lenders of allowing variable-rate loans that become unaffordable. It is time to consider the needs of homeowners, not just lenders. The program should have an income-needs basis, especially with so many people out of work.

There also does not seem to be any incentive for the lender to follow through on the loan modification.

This was my second denial. Chase denied me this time because they said I was less than 60 days behind in my payments…I was 6 months behind and got calls constantly saying that I was under threat of foreclosure, so I took some money out of my RETIREMENT account to try to catch it up, and wen asking for a status, they said my mod was under review. ONCE I made a payment late last month, that brought me to only being 2 months behind…and they denied me. I wonder if there is an organization I can speak with that has a louder voice than apparently I do…..

Whats worse is they also said that I had equity in my home that I can borrow against to refinance. Those geniuses can see that I have a home equity loan along with my first mortgage and I am tapped out of my equity. Meanwhile, the government has injected these banks with stimulus money to help the home owners, while they scheme a way into keeping it for themselves….unbelieveable…..

political atheist

March 22, 2010, 4:41 p.m.

this is our incompetent, bureaucratic government at its worst. Thank GOD they’re not in charge of something that means the difference between life and death… Oh, wait. Never mind.

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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