I’ve Seen More for Homeowners from Bank of America than Any Other Servicer By Far

Maybe it’s just because of their patriotic brand name, maybe it’s because of its acquisition of Countrywide, or maybe it’s just because of their size, but whatever it is, it sure has made Bank of America the most popular target at which to direct banker rage.  The latest declarations from ex-BOA employees involved in a class action lawsuit make the bank sound like it was encouraging employees to foreclose on homes almost like the Nazis clearing out the Warsaw Ghetto… quickly, efficiently and immune to the cries of the people being displaced.

Now, others are upset because Bank of America is selling or has sold servicing rights related to millions of loans, sometimes remaining as master servicer, other times not.  The accusation is that the bank is doing this to reduce its exposure to the National Mortgage Settlement, and that borrowers in the midst of the loan modification process, but not yet approved for a permanent modification, will have to start all over again with their new servicer in the event their loan’s servicing is among those being sold.

Although I don’t really know, I would think both things would have been factors in the bank’s decision to sell off some of its servicing rights to others… I’m sure decreasing overhead was also a plus… and I was also under the impression that various regulators have also pressured the bank to reduce its volume of loan servicing, so that probably had something to do with the decision to sell off some of its servicing rights as well.

Whatever else is on the Bank of America list of motivations for reducing the number of loans it services… part of me wants to say… so what?  What is the bank supposed to do… continue doing something that it’s losing money doing, that is harder than ever before… and that has huge liability attached… etc. etc. etc.  I reported several months ago that Bank of America had hired roughly 50,000 employees over the last few years to staff their loss mitigation department, and you know a ten-fold increase in staffing means reducing margins and that some restructuring is likely in order.

Mortgage servicers, over the last five years, have gone from being purely system driven, minimally staffed, processing companies that had very little interaction with borrowers… the servicer’s customer, after all, has always really been the investors who hire servicers to service their loans…. to needing tens of thousands of employees who talk to distressed and defaulting borrowers all day, every day.  When you look at a servicer’s business model a decade ago, and then what they’ve been transformed into today… you have to wonder how they can possibly be making money when overhead has to have increased significantly to support a business model so entirely changed.

And the answer is obviously that they can’t, which is why so many are selling off servicing rights to a new crop of previously unknown brand names called sub-servicers, including  Green Tree and Nationstar, among others.  On June 13th, One West Bank announced that it was selling its servicing rights to Ocwen for $2.53 billion, according to Reuters.  They aren’t doing that because servicing is incredibly profitable, right?

And according to ratings agency Fitch…

“The decision by many banks to reduce or exit sub-prime and distressed mortgage servicing in part reflects regulatory risks faced by these institutions in the migration to Basel III, where the maximum value of MSRs a bank can count toward Tier I capital is effectively 10%. As a consequence, banks approaching the thresholds will likely reduce their servicing assets to take into account the deduction from capital.”

Okay, so there are some accounting regulations that are changing that are also playing a role in the decisions to sell off servicing rights too.

I’m not surprised that the retail banks are selling their servicing rights to other non-bank servicers, I’m only surprised that it took this long before they all realized that servicing mortgages today is something like working hip-deep in manure all day, handling unstable explosives, with a bi-polar boss, on straight commission… in the middle of the Arizona desert… without sunscreen… you get the idea.  It’s a long way from being considered a wonderful line of work, that’s for sure.

At banks today, it must be like… the trading desk giveth and the servicer taketh away.  And not only is it no fun for no money, it also comes with a steady stream of accusations of mishandling borrowers and constant pressure to modify more loans and foreclose on less… unless we’re talking about investors who remain concerned that foreclosures in many areas don’t take longer than necessary in order to minimize their losses.

Even if you were the best out there… you’d be unlikely to win at this game.

I’ve been hearing from at least a dozen homeowners a day since 2009, and there’s no question that Bank of America was just like the other servicers in 2009… useless as far as loan modifications were concerned.  They all were.  At the end of 2009, if you recall, there were something close to a million trial modifications in force, and only a few thousand permanent ones.

I remember quite clearly, Treasury Secretary Geithner making a statement at the very end of November that year that there would be 300,000 permanent modifications by the end of the year… just a month away… but when the year ended there were only some 30,000 modifications reported as permanent, and I remember thinking, “Hmmm… they can’t even seem to do it even when they want to do it… something is wrong with this system.”

In 2010, I’d say that very little changed or even started to change until after June of that year when the rules changed related to trial modifications and income verification was required before a trial modification could be granted.  After that things started to improve albeit very slowly.

Who really knows, maybe Bank of America got 10 percent better by that year’s end, it didn’t really matter because by then things were so bad that any small improvement would have seemed like rearranging deck chairs on the Titanic.  During 2011 Bank of America probably improved by another 10 percent, but again those sort of gains weren’t saying much coming off such inconceivable lows.  In 2011, although foreclosures did slow down significantly for various reasons, getting your loan modified remained a generally miserable process for everyone everywhere.

It wasn’t until late in 2011 and into 2012, with Bank of America having hired 50,000 new loss mitigation employees, that there started to be a noticeable difference… and I wasn’t the only one noticing.

Bank of America’s servicing company was finally getting better… maybe not what anyone would call great… certainly not award winning, by any means… but were they proving to be more willing to modify loans and offering better modified terms than Wells Fargo or Citi?  Oh, heck yes… no question about that.

That year, 2012, was also when BOA loan modifications could be said to take no more than four months to get modified, and almost never more than six… and it was also the year that I stopped hearing about the servicer losing paperwork repeatedly or failing to convert a temporary modification into a permanent one.  Those complaints about Bank of America that used to be the norm, today have become the fairly rare exception.

As to principal reductions from Bank of America… again, they have to be the clear leader in writing down loan balances as part of a loan modification.  I saw one Bank of America principal reduction for $900,000… the highest I’ve ever seen personally, but I’ve also seen one in the $800k range and one just over $700k… and literally countless dozens between $100,000 and $150,000.  And I’ve received dozens of letters from homeowners who have been helped by Bank of America, I don’t even know which servicer would be number two in this regard.

I would have to say that I hear from homeowners for whom Bank of America has reduced their principal three to one over Chase, who would be number two on the list, I’d imagine.  And I’m sure Wells Fargo has reduced principal as part of modifying loans somewhere to someone… but it’s a rarity, of that I have no question.

One homeowner that I contacted Bank of America about, a disabled vet, ended up with a fixed interest rate of one tenth of one percent for forty years.  And on more than one occasion, I saw the bank buy back loans from Freddie Mac, in order to write them down and allow the homeowners to keep their homes, even when the reason that their loan modification was declined was that they didn’t have enough income to maintain their loans.  And they did these things when no one but the homeowner and me were watching… without any motivation for positive press or anything like that.

I realize none of this could be considered scientific, but not only do I consistently speak or email with at least a dozen homeowners a day from all over the country, I also communicate regularly with lawyers who represent homeowners trying to get their loans modified and check in with numerous non-profit housing counselors on a monthly basis… to say nothing of the number of homeowners I meet when speaking at events as I travel around the country… and I’ve been doing all of this for almost five years.  So, I would have to guess that I have occasion to talk to as many distressed homeowners as anyone, certainly enough to be able to hypothesize as to trends related to the performance of servicers.

I know Wells Fargo is near the bottom at most everything, for example, and that Ocwen was doing quite a few principal reductions… at least they were before they became the acquirer of so many other servicing companies that I can’t even count them all without checking Google.  (Ocwen complaints have risen two or three fold, since last year, I’d say.)

And I think everyone closely involved agrees that all non-bank servicers are significantly worse to deal with for homeowners than their retail bank brand cousins… and that should come as no surprise.  If Bank of America can’t make servicing profitable these days, it’s a sure thing that some brand X company will figure out how to do it… by spending less and ultimately doing less.

Then there’s the National Mortgage Settlement terms that some are saying Bank of America is trying to get out of by getting out of the servicing of the loans altogether.  I’m not sure having to comply with the new servicing standards established by the settlement, and also required by California’s Homeowner Bill of Rights, is driving the bank’s sale of servicing rights because it’s not like they are selling all of their servicing off to someone else… Bank of America will still have a whole lot of loans it services after the recent sales, so, the bank will still have to comply with the settlement’s standards.

And although I don’t know this for sure, I can’t imagine selling servicing rights in any way alters Bank of America’s monetary obligations related to the national settlement with the federal government and 49 state attorneys general.  I’m going to have to check that with a couple of sources, but I’ll be surprised if one thing has anything to do with the other as far as the dollars are concerned.

I personally, having seen Bank of America’s loan modification process improve over the years, truly believe that the bank sold some percentage of servicing rights at least primarily to make its servicing operations better… easier to manage… more cost-effective… stuff like that.  I’m serious… I’m sure that’s a large part of what is driving the bank to reduce its servicing footprint.  It shouldn’t be hard to imagine… isn’t that what we all would do were we making decisions at Bank of America after the last few years.

And lest you think that I’m alone in my appraisal of Bank of America’s improvement of late, lot’s of others on the front line that deal with distressed homeowners every day have said the same thing I’m saying about the bank’s ability to modify loans as compared with the others.

On October 15, 2012, public radio station WFAE/90.7 reporter, Julie Rose, had attended a conference of non-profit housing counselors and as she said, “I frankly expected to hear a lot of criticism aimed at Bank of America.”  According to her article…

But what I heard from Sheryl Merritt of Consumer Education Services in Raleigh was that Bank of America ” is trying to be proactive, trying to make it easier for counselors and agencies to provide the documentation through one system.”

“Proactive?” “Making it easier for counselors?” And Merritt wasn’t the only housing counselor who talked like that about Bank of America.

“One of the things that Bank of America did do that has helped our agency is they set up a hotline essentially for our housing counselors, so we do have more direct access than we did early on in the mortgage crisis,” said Celeste Collins of On Track Financial Education and Counseling in Asheville.

I left that conference still skeptical, so I phoned some other housing counselors around the state to ask which mortgage servicer they think is doing the best job.

“I think Bank of America probably is – probably the one that’s stepped forward the most,” answered Steve Obendorf at Consumer Credit Counseling Services of Gaston County.

Bruce Hamlett at CommunityLink in Charlotte agrees.

“I think also that – look back over the last 12, 24 months – I mean it seems like every week there’s been another disparaging article come out on Bank of America, so I think they have worked the hardest to try to clean up their image,” added Hamlett.

Whatever the bank’s motivation, Hamlett says he’s actually relieved these days when a client comes to him with a mortgage from BofA.  “I think, ‘Okay, phew!'” says Hamlett. “As long as the client works with us and gives us everything we need from them to put together a full package, I know we can get it submitted and pushed through the pipeline fairly quickly.”

There’s no more faxing and “We never got it” claims from the bank, thanks to a web portal Bank of America set up for submitting loan documents. And when I ask about other improvements, Hamlett points to this guy Bank of America’s Customer Assistance Center in a nondescript two-story office building in Northeast Charlotte.

“We have three underwriters and seven specialists here who actually work with customers directly to help them avoid foreclosure and save their homes,” explains Audie Cashion, who manages the Customer Assistance Center.

At the Customer Assistance Center, you can meet with someone face-to-face about your pending foreclosure. And that same person will be the only person you deal with during the process. No more bouncing from one department to the next.

Bank of America has another of these centers in Raleigh and dozens more in hard hit housing markets across the country.  Since 2008, Bank of America has increased staffing ten-fold to help distressed borrowers.

And asked why so many complaints still mention Bank of America…

CommunityLink’s Bruce Hamlett says it’s a numbers thing: Bank of America has, far and away, the most troubled mortgages on its books.

“Bank of America is Snow White and the rest of them are the Seven Dwarves when it comes to volume,” says Hamlett. “They probably had the biggest mess to clean up.”

Julie Rose ended her article with the sentence, “And they have the most at stake if they don’t,” which I also imagine is true and I’m sure that fact doesn’t go unnoticed in the bank’s board room.

This past year, Bank of America has been reporting losses from its servicing operations of roughly a billion a quarter, by the way.  Who could possibly want to maintain the status quo under such circumstances?  I mean, you’d have to change something so you could at least hope for a better year, right?

But, never mind the logic in that sort of thinking… this is Bank of America we’re talking about and everyone knows that anything they do is bad and evil… and corrupt… and ineffective… it doesn’t matter what it is.  I’m not kidding when I tell you that I recently heard someone say something disparaging about Bank of America’s giving away several million dollars to various charities.  It wasn’t the charities themselves or the amounts donated that bothered this individual, it was that they only gave away the money as a PR stunt, or in an effort to look good… both very good and common reasons for charitable giving by large corporations, by the way.

My point is… what can anyone possibly do about Bank of America and others deciding to reduce or eliminate their servicing volume?  Are we suggesting that the bank should somehow be forced to continue maintaining lines of business that become unprofitable or excessively risky for whatever reason?  I know I wouldn’t like that were I the CEO or a shareholder, for that matter.  Bank of America has a fiduciary responsibility to its shareholders to do what is in their best interests, and if selling servicing rights fits into that category, then that’s precisely what the bank will do, regardless of anything else.

And I’m sure there are lots of reasons behind a bank deciding to sell off billions of dollars in anything, regulator pressure not being the least of it I’m sure.  So… what are we to do about that?

Will the other retail banking giants come to terms with the realities of mortgage servicing today… I’d say that you can bet on that reality coming to pass soon enough.  And yes… homeowners will hate it.  They’ll have to restart their loan modification applications and their new servicer won’t be as good as Bank of America had become… there likely won’t be a single point of contact… I won’t be surprised to see a return to dual tracking… faster foreclosures overall.  It’s going to make things go from bad to worse, I don’t see any other potential outcome.

But all of that will just be the tip of tomorrow’s iceberg, compared with the debt buyers that are lining up to buy tens of billions worth of non-performing loans at a discount to the market value of the property so they can get the people out and the home back on the market as fast as possible.  Oh yeah… homeowners are going to absolutely love that emerging reality as well.  Maybe the impact of the sale of these loans won’t make headlines until next year, but it will soon enough… and it won’t be good for homeowners, everyone I’ve spoken to about it agrees with that sentiment for sure.

Debt buyers won’t be buying non-performing loans in order to modify them.  They’ll be looking to turn the properties as quickly as they can at a profit… period.  And what will we do then… try to stop investors from selling off bad debt… their non-performing loans?  Just imagine how ineffective that sort of message will be… like public opinion is going to say that investors should be forced to keep bad debt on their books?  Yeah right…. like that might happen.

It makes about as much sense as trying to force banks to keep servicing loans when doing so isn’t profitable or comes along with too much risk.  Besides, if the bank isn’t very good at servicing today anyway, why should we care if they continue doing it?

The reason is that they… like Bank of America… are significantly better than the alternative.  Sometimes the dog you know is better than the one you don’t.  So, we should be careful what we wish for… or we may find that we’ve gone from frying pan to fire and we won’t have Bank of America to kick around anymore.

Over the last five years, I’ve written as many negative articles about Bank of America as anyone else, and back then I certainly felt they deserved it, but so did the rest of the servicers.  Today, Bank of America still gets the lion’s share of the criticism over it’s servicing of loans, but today they don’t deserve it, or certainly deserve it much less as compared with the others in the industry.

To be clear, the loan modification process is still not what it should be for homeowners… and I wish it was better everywhere, Bank of America included.

But that being said… for whatever it’s worth… as far as I’m concerned, and based on what I’ve seen, the fact is that if I needed my loan modified to save my home from foreclosure and I could choose my servicer… as bad as the loan modification process remains at times… it might not make me popular, but it’s the truth… I’d choose Bank of America over the rest hands down.

And I know a lot of people who would agree.

Mandelman out.