Reporters Paul Kiel and Olga Pierce recently completed a five-part series on the government’s struggling foreclosure program, HAMP (Home Affordable Modification Program), the latest in ProPublica’s long-running coverage of the topic.
Kiel and Pierce join the podcast this week to provide an overview of their series as well as insight into a broken program intended to help homeowners, but never reinforced to do so.
“One thing that I think is worth pointing out is just that though there are reforms underway inside HAMP, for many people it is, in fact, too late,” said Pierce. “They didn’t get the help that they needed and were eligible for, in some cases, and asked for.”
Mike Webb: Hi, I'm Mike Webb and welcome to the ProPublica podcast. Way back when on those rare occasions when I was being an imperfect child, my mom would tell me, "If you don't stop doing that, I'm going to spank you." But mom loved me too much to ever actually spank me, so her warnings usually went unheeded. And so it seems a similar lesson applies for mortgage servicers who have only helped a small percentage of troubled homeowners, in part because no enforcement mechanism is in place to make them help more people. ProPublica reporters Paul Kiel and Olga Pierce just wrapped up a series that explains the "fumbling efforts" of the Obama administration's loan modification program.
The pair looked at the failed oversight of the program, how administration officials retreated from the president's campaign promises to help homeowners, as well as the dysfunctional machinery of the mortgage servicer industry. Another piece essentially served as a charticle or a graphic representation of the data we use to assess the problems, and the last report looked at some of the proposals in the works that might offer more help for people. Kiel and Pierce joined us in the storage closet studio to talk about their work. Welcome.
Paul Kiel: Thanks.
Mike: Paul, we've been keeping an eye on the loan mod program for two years now. What had you left uncovered that made you decide we needed to do this five‑part series?
Paul: Well, the idea was to give a sort of an overarching view in a way that we hadn't in our continuing coverage, which had been targeted at more specific problems or general problems without taking a step back and looking at the whole thing.
Mike: So now if you're a struggling homeowner and you apply for a loan modification, what's the chance that you actually get one?
Paul: Well, what we found in crunching our numbers, which is part of our vast series of charts that we put up this week, which people seem to have appreciated, was that it runs about a little better than one in five of people who have applied have ended up with a permanent modification through this federal program. It's a lot better if you count people who got a modification through their own servicer, which you get after you were rejected from the federal program. And those tend to be not quite as generous as the ones the government offers.
Mike: And did you find that a lot of people were still stuck in limbo getting the trial modifications, Olga?
Olga Pierce: Yeah a lot of people are not in mods and have not been foreclosed on, and so are still waiting to find out if they'll be able to stay in their homes or not. And it's a level of suffering that has been going on for a long for a lot of homeowners that we've heard from.
Mike: Let's break down the stories that you did for the lax oversight piece, was the administration under the impression that servicers would cooperate?
Paul: I think that there's some evidence to say, yeah, they definitely didn't think that things would go the way they've gone to put it that way. And it was always set up as a voluntary program. And I think there was the thinking that if you just set up the right incentive so that we give them a little bit of a government subsidy and so it's more attractive than to offer modification versus foreclosing someone, then through the magic of the market things will turn out the way we like them to turn out. And things haven't turned out that way.
Mike: Right. Well is it true that the Treasury Department really doesn't have the power to punish the servicers who were wrongfully denying homeowners help?
Paul: The way this worked out was Congress didn't give them legislation that said, "Hey go make a big program to help people get modification." So you have this big TARP program, and they use that, which is about hundred billion dollars of money to be the vehicle for this effort. And so the way they did it was, "Well, we have to get the banks to sign on to this, because we don't have a law that's going to allow us to force them to do anything." So it was always a voluntary program.
However, Treasury did make its own contracts. So they could have given themselves whatever power that they wanted to give. I mean whether banks would have agreed to sign up for a program that had clear consequences for them if they didn't follow through is another question.
Clearly, they haven't taken steps. Now that's been obvious quite a long time that banks were not complying with the rules of the program to give themselves that stick that they were lacking currently. And so what we pointed out in the piece is they had, they could definitely take those steps, and those are steps they haven't taken.
Mike: If there's a contract and you don't live up to the terms...
Paul: Yeah. Well then someone has to say, "Hey, you're not living up to the terms. I'm going to do something about it."
Mike: Politically, it seems like there were millions of homeowners who were eligible to be helped, and money had already been approved to help them. So why would President Obama walk back on his campaign pledges to help these people?
Olga: Well it's not entirely clear what happened. We did hear from several sources that there was a lot of sort of policy ambivalence inside the Obama administration. The strongest measure to help homeowners would have involved bankruptcy judges and letting modifications be done in bankruptcy courts.
Mike: The cramdown that you got...
Olga: Cramdown, right. It appears that many people in Obama's administration and many people in general felt that maybe that wasn't the best idea, that it might have ramifications for the banking industry, or if you listen to the more hysterical voices ramifications for the future of democracy. I think that's part of the reason that they ended up with a solution that wasn't the toughest solution. I don't think there was not a desire to help people. But I think there was also a concern about spending taxpayer dollars to help people who were seen as deserving. And not spending taxpayer dollars to help your irresponsible neighbor who has seven motorcycles and two SUVs, when you have responsibly been paying your mortgage all the years and saving your money in case you lost your job.
Mike: And so the politics weren't so clear cut.
Olga: Yeah. It was not clear to everyone, especially early on, that the people who needed help were people who were victims of circumstance and not people who had just made poor decisions.
Mike: OK. Now you wrote that the industry was dysfunctional, but it seems like they were really just protecting their bottom lines. And most people would say that that's the exact function of their business. So what's dysfunctional about that?
Paul: I mean you could argue that their dysfunction is very functional in the sense that it saves them money, but...
Mike: You mean in terms of actually helping homeowners?
Paul: Well, just in terms of... so the way they have been dysfunctional is that they have thrown inadequate resources at was is a gargantuan problem. And the dysfunction we were talking about is we interviewed people like 20-year-olds who were kind of thrown on the phones. And they're the ones in the front line. They haven't been trained adequately. They're dealing with these systems that are kind of a mess and kind of attached onto these really old, sometimes people were saying 1980s type mainframe, type computers, Microsoft DOS and all that kind of stuff. And so they're kind of set up to fail in a way.
And the homeowner, when they call into their bank, doesn't know that obviously. And so it's been dysfunction kind of all the way down the line from the 20-year-old answering your phone with inadequate training, to the documentation systems that they have, these fax systems, like it's who knows where it goes, it's scanned and sent to the wrong file.
And then as we've written up before, sometimes a dysfunction that leads to you’re talking to your bank and you are saying, you you're negotiating a loan modification, you send in your documentation. They told you that you should just wait. You're being reviewed. And then all of a sudden they foreclose on you, because one side of the bank it's not talking to the other side of the bank.
Mike: So it just seems like they didn't have the infrastructure in place to really deal with the way they set this up.
Paul: Right, they definitely didn't. And the Treasury Department has been very clear about that. This whole program is kind of set up to set up a streamlined system to allow them to speed things up, as opposed to someone applies for a modification, you have to look at their whole situation to decide how much they can afford or whatever. And this program gave the servicers what they called a "Mod in a Box" type thing, where you put these numbers in, and it'll spit out an answer: "This is affordable." It takes a lot of the thought process out of it, but they couldn't even handle that. They definitely didn't have the systems needed to do this back in 2008 and 2009. But what is even more striking is that we're two years since the program has launched and some of these same problems are still with us.
Mike: I know you guys collected a lot of data. Why did you decide to report that in charticle form, instead of doing a deeper analysis of it?
Olga: We did plenty of number crunching along the way with the data that we gathered. But I think, in general, here at ProPublica, what we find is that the numbers that are most interesting or useful to us aren't always the numbers that are most interesting and useful to everyone. And so, often, people take our numbers and do something with them that we hadn't thought of. We may not want to zoom in on the Missoula, Montana housing market, but somebody else might want to. And so, they can use the tools that we provide and do that.
Mike: And what was the most interesting finding?
Olga: I think one of the most interesting things that we found is that there is enormous variation in the performance of different servicers. If you buy the argument that the problem is just too big and the program is just too hard to execute, then it becomes hard to explain why some servicers have closed twice as many mods as other servicers. And I think that, if nothing else, is a pretty good rebuttal to that argument.
Mike: Correct me if I'm wrong. Did this one show which servicers were performing best and worst?
Paul: Yeah, we did a breakdown, which we thought homeowners, in particular, would find useful, because if you're at Citibank, your experience might be different from if you're at Bank of America, or whatever. So we're able to do a breakdown by each of the top eight servicers. That is, information that we think is more useful to people than overall type of information.
Olga: One of the ironies of it all also is that Bank of America, which is the largest servicer, is the one that seems to be having the most problems executing HAMP. So if you want to stitch it up in one sort of poignant detail, I think that's a good one.
Mike: Now your last piece examined the potential reforms, and you noted the lack of enforcement mechanisms. But the thing that really struck me was that there are so many different agencies that are working on reforms, from the Treasury Department, to the State of Attorneys General, Federal Reserve, on and on. How could any of them ever come to some kind of coherent agreement on what needs to be done?
Paul: It will be interesting is the short answer. What happened was these problems have been with us for quite a while, and it wasn't at all apparent there was going to be meaningful action taken. But then, in the fall, all this stuff came out about the robo‑signing these foreclosures that were going forward with, essentially, false declarations that the paperwork had been checked out, and certain things that you needed to clear up before the court were wrong. And so, that kind of created an emergency, whereas, before it had just been a big problem. And so, that led to the 50 State Attorneys General launching this big investigation, all the federal bank regulators got on board. Federal agencies like the Federal Housing Administration got involved. And so, it became this massive investigation where they're all brooding around the servicers and finding problems. And it became a bigger thing than just about these foreclosure problems; it was about the modification process as well.
So you have a lot of moving parts for sure. What I wrote about in the piece last week gave an idea of the timelines. It seems like they're trying to come to some sort of agreement in the next couple months. They're settling these big claims, the foreclosure problems, which might lead to big changes in the process maybe as early as this summer, or being phased in over time.
Mike: And do you think the banks will acquiesce to some kind of enforcement system, paying fines?
Paul: Well the question here is they've broken laws in the way they foreclosed on people. So they would settle here in order to avoid the prospect of being sued by all 50 states and going to court, and ending up with whatever fines might result in that process. And on the other side, the Attorneys General are trying to come to some sort of meaningful resolution that they think will substantially improve the situation right now. And one big thing they're occupied with is maybe finding some way of forcing servicers and banks to invest in their modification operations in a way that they haven't, the way we reported about. Making it so that you have well‑trained people, that there are adequate people, that when you fall into difficulty, you get a letter from your bank that says: "Your officer is Joe Smith. Here is his number. Here is his email. He will deal with you through this whole process." They have a wishlist of stuff they want to happen.
Mike: Do you get a sense that the servicers are already fighting some of these proposals?
Paul: Yes. There's been kind of a general "whoa, hey" reaction, most specifically to this idea that the Attorneys General want them to consider writing down principle of people who are in trouble. And if there's been a lot of even public pushback from the banks arguing that: "Hey, if we start giving people breaks on their principle, then that will lead to moral hazard. Everybody will want a break on their mortgage principle, and then, people everybody will be defaulting." One irony of that being this is an argument coming from banks that exist because the government rescued them.
Olga: One thing that I think is worth pointing out is just that though there are reforms underway inside HAMP, for many people, it is, in fact, too late.
Mike: So, Olga, if they are able to make some of the reforms will it really make a difference for people?
Olga: For people going ahead, it sounds like it'll be a kinder, gentler experience. Unfortunately, most of the people who are eligible for HAMP have sort of moved through the process already. New applications to HAMP are dwindling. And many people have already left their homes, mailed their keys to the bank and have given up, or have been foreclosed on. And for many of those people it's too late. They didn't get the help that they needed and were eligible for, in some cases, and asked for.
Mike: Well, you guys have done a terrific job in reporting on this. Thanks a lot for joining us.
Mike: That was Paul Kiel and Olga Pierce. You can see the entire series, our chart of the performance of mortgage servicers, and all of our coverage at ProPublica.org/loanmods. And now for our Officials Say the Darndest Things Tumblr Quote of the Week. Here goes: "It's not that we don't want to help troubled borrowers. It's a moral hazard issue." Who said it? Bank of America executive, Terry Laughlin, on why the bank is opposed to reducing outstanding mortgage debt for struggling borrowers. Many people pointed out that the U.S. government's bailout of the banks, including Bank of America, also created a moral hazard by rescuing institutions that took on too much risk.
OK. That's it for this week's podcast. Thanks to Minhee Cho for producing it. For ProPublica, I'm Mike Webb. We'll see you next week.
Transcription by CastingWords