Loan Modification Administration Hawks Bring Out the Big Guns

It is no secret that the Obama administration has a lot vested in the success of the Loan Modification Program, also called the Home Affordable Modification Program (H.A.M.P). In order to help the program along the government has provided a long list of incentives, bonuses and other methods in order to encourage lenders and banks to do their part in making the program work.

First it was financial incentives in the form of cash payments for every completed loan modification of up to $4,000 over three years. This didn’t have the result they hoped for so the administration started naming and shaming tactics where underperforming banks or lenders were published on a list of the worst loan modifiers in the industry while the better performing banks were prized with kudos and positive publicity for “helping troubled homeowners”.

Recently the government has also added to the prize generous capital risk-weightings for banks that perform well with their loan modification application to completion rates.

Those tactics didn’t really lift the program off the floor, of the 750,000 applicants that have entered the loan modification program three month trial only 31,000 have to date actually received a permanent modification to their loan.

This is why the administration started to show its meaner side. Banks and lenders that did not support the cause have been threatened with fines, increased government scrutiny and recently even lawsuits.

Blown Mortgage readers will remember the lawsuit Ohio Attorney General Richard Cordray filed against New York based Barclays Capital Real Estate, doing business as HomeEq Servicing.

The lawsuit details that HomeEq / Barclays has been accused of issuing unfair loan modification agreements and providing inadequate and incompetent customer service to Ohioans who were at risk to losing their homes to foreclosures. HomeEq is accused of forcing troubled homeowners to sign one sided agreements that were unfair and deceptive. Homeowners were required, for instance, to realease HomeEq of all liabilities (which you can’t really do), pay extra fees (not supposed to that either) and waive their own right to defense (not a very popular measure with the Attorney General).

In addition to this Barclays was accused of breaking Ohio’s Consumer Sales Practices Act (CSPA) through their unsatisfactory customer service by not returning calls or responding to enquiries.

The question is this the real reason Ohio Attorney General is suing Barclays. I would say no. If you read carefully the statement of Mr. Cordray it is clear that the main complaint is “unfair” and “indadequate” customer service with loan modifications. Cordray is further reported to say:

There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures,” Cordray said. “Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses.”

If you check the latest servicers loan modification performance lists you will quickly see that HomeEq was way down there with 657 trial loan modifications and zero completed permanent loan modifications.

It doesn’t take a leap of imagination to see that the Obama administration has decided to start suing underperforming servicers and has started with a British company that has recently entered the industry. Targeting a foreign company could be seen as a warning shot to big banks like JP Morgan and Wells Fargo that have a measly conversion rate of 3 to 4 percent on their loan modifications.