Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories

Last Friday Treasury revealed the latest data on HAMP, the Administration’s major foreclosure prevention program. The data has been sold as evidence of the significant progress made from pressuring mortgage servicers. Are loan modifications finally becoming the solution for the mortgage crisis as the Government has always claimed?

Let’s have a look at the figures.

Around 900,000 homeowners have entered the program with a trial loan modification. 66,465 homeowners have received permanent modifications as of December 31^st. That’s where the good news lies, November’s figures for permanent loan modifications were half that, at 31,382. This progress is being reported by Treasury as a “significant acceleration of the rate at which borrowers are being approved”. Hard to argue with that when the numbers doubled in a month, but is it enough?

Let’s have a closer look at the figures and the program as a whole.

The program is designed to allow homeowners to enter a three month trial loan modification, during which they are supposed to provide lenders with all the documentation required for a permanent modification. However trials are stretching for much longer. Servicers blame homeowners being slow at handing in paperwork; homeowners blame servicer of losing paperwork and making mistakes. Treasury’s response to this mess has been to allow for longer trial periods, up to 5 months. However mortgage servicers have kept homeowners in what is being called “trial purgatory” for up to nine months.

This seems to be one of the big issues the HAMP program faces, a complete gridlock of loan modification trials. Have a look at these figures:

In October Treasury reported that 487,081 trial modifications had been started. Three months later not even 24% of those trial modifications had been resolved one way or the other. Let’s put this another way 76% of the current trial loan modifications are in limbo. Treasury has pointed out that 46,000 homeowners have been approved for a permanent loan modification but are yet to sign the paperwork that will make it final. Even if this were true it would still mean that 66% are still waiting for a verdict on their loan modification.

Consumers are blaming big banks for creating this loan modification limbo and the figures seem to support that claim. The big four banks, Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo represent more than 60% of the 3.4 million mortgages eligible for the HAMP program. The best of the bunch Wells Fargo has only completed 13% of its eligible loan modifications. The rest are doing much worse. Bank of America the largest mortgage provider by far is performing the worst, converting only 3% of their 1 million eligible mortgages into permanent modifications.

No matter how Band of America tries to window decorate these figures advertising they have surpassed the 200,000 trial modifications barrier, this is all rather pathetic. We are not even saying they should convert more trials into permanent loan modifications but at least put homeowners out of their misery and tell them what the outcome is, one way or another.