Loan Modification Process Improving at BOA and Other Servicers


So, after taking a glorious month off from covering the foreclosure crisis, I returned to some 30k unread emails  and began going through them as one would be instructed to eat an elephant… one Google news alert and homeowner email at a time.


Almost right away the news that Bank of America had not completed any principal reductions under the DOJ’s National Mortgage Settlement, or at least not completed many… not completed enough… something about a report published by Joseph A. Smith, the ex-banking commissioner from North Carolina who has been assigned to police the settlement.


It felt like homeowners were rushing up to me to trumpet the news with a giant collective “See, we knew it!”  It was almost as if people were happy about the news for being further evidence to fuel their righteous indignation.


The problem for me was that I knew that it couldn’t be true and I didn’t need to do any research to know that with certainty… I’d seen dozens of principal reductions from BOA, and many forgiving significant amounts since the settlement became effective on April 5th according to the report.  Smith’s first progress report was showing principal reductions completed under DOJ as of June 1, 2012.


My first thought was, why would Smith publish a report whose only meaningful certainty was  to scare even more homeowners away from paying attention to Bank of America’s borrower outreach efforts?  BOA and its peers were already having a hard time reaching borrowers, even when offering principal reductions.  Did we want to make a bad situation worse for those homeowners just now entering the crisis?


Because, as a matter of oversight, reporting on the progress by BOA or the others, as related to a three-year plan, on a monthly basis this early in the game seemed kind of pointless to me.  I mean, the loan modification process is a big long assembly line, right?  Telling me how many cars have been built on Thursday isn’t any sort of indication of how many are at various stages of the assembly process.


My second thought was that it had to be the date that was driving the dismal sounding outcome of the report.  How many principal reductions could any servicer possibly “complete” between mid-April and June 1st.  Not many, right?  Trial periods were still three months long as far as I knew.  How could other servicers be reporting dramatically different numbers when they had all started at the same time?


This report, titled “First Take: Titled Progress Report from the Monitor of the National Mortgage Settlement,” the very first issued by the national monitor, although I hadn’t read it, already seemed to play fast and lose with the data… or at least, I should say, something wasn’t right.


Smith’s own disclaimer, which appears in various versions throughout his report states: “Because the interim reports are self-reported, I make no representation as to their accuracy.”  Great… so why publish something you can’t even say is close to accurate?


I fired off an email to my contact at BOA, bank spokesperson Jumana Bauwens who I’ve come to know quite well, like a great deal, and trust.  She has always been very candid about BOA… she readily admits that they’ve made plenty of mistakes.  She also has jumped in to correct every single mistake I’ve ever brought to her attention.  In the subject line I typed: “No principal reductions?  WTF?”  My message simply read as follows, “How does this stuff happen?”


It was late in the day, so she called me the following morning.


According to BOA’s Bauwens…

The data in the report is through June 3rd, but as of August 21, BOA provided Smith with the following information:


  • Overall, the $7 billion in relief noted in the report has expanded to more than $11 billion.


  • “Completed” customer relief increased from nearly $5 billion to more than $8 billion.


  • With regard to first lien principal forgiveness, although the report reflected no customers in complete modifications and 5,000 customers in the trial process as of 6/30, to-date, nearly 4,000 customers have completed the process and we now have more than 16,000 customers in the trial process.


In addition, as far as assistance is concerned, Bank of America has said that it will be mailing out offers for principal reductions to more than 200,000 homeowners this Fall.


But, my point in writing about all of this is not the specific numbers or the early nature of the report’s timing… I honestly don’t know whether the numbers above are relatively good or relatively bad… it’s more the overall perspective on everything having to do with loan modifications that I find troubling and stories like the one about how BOA has not completed any principal reduction modifications under the settlement are emblematic of the growing problem.


It’s like I’m almost starting to think that the anti-foreclosure side of this fight would be saddened if things got better as far as loan modifications, whether part of the settlement or not, are concerned.


Because things are getting better, you know… BOA, Ocwen and other servicers are today much better at handling a loan modification than ever before in the past, and it seems highly likely that the trend will continue.  In fact, how could it not?


The price of noncompliance is not insignificant…


The five largest servicers that make up the settlement face penalties in years two and three of 125 percent to 140 percent of the shortfall in assistance targets.  According to the settlement agreement, they have to finish 75 percent of the program by the first deadline and then will get another 12 months to complete it.


In response, Jumana’s email to me added…


The agreement term is 36 months, yet within the first year, we believe we will reach or exceed all program targets under the agreement. To date we have extended more than $11 billion in relief to homeowners through the agreement programs. 


And BOA reports that it has committed about $43 billion to clean up defective mortgages and shoddy servicing since the start of 2007, and I’m told that the bank’s current run rate on such spending is about $2 billion a quarter.


The largest and longest running focus group in the history of the world…


You could consider it utter stupidity, or perhaps a fortuitous mistake, but when I started writing my Mandelman Matters blog in 2008, because I wanted homeowners to be able to reach out to me should they have questions, I provided my email address and even my phone number online.  Some of their stories ended up in written form on my column and ended up driving my “army of DOERS” to take action via email and phone campaigns targeting servicer senior management.  In all but one of these instances we were successful and homes were saved from foreclosure.


But, by mid-2009 I realized that what my blog really was becoming, from my perspective anyway, was the largest and longest running focus group ever held.  Throughout the last four years, by communicating with literally hundreds of homeowners at risk of foreclosure month after month, I’ve been able to accurately gauge when reports about HAMP and other loan modification programs were inaccurate or problematic, and I can always track when a certain servicer’s behavior becomes particularly accommodating or egregious.  I can also often tell when something someone tells me is an anomaly and when it’s part of a larger trend.


That’s why, very early in 2009, while the media was still in love with our new president and his HAMP housing rescue plan was still being presumed to be well-conceived and likely to succeed, I was writing that it wasn’t either of those things.  I had the ultimate front row seat to the mess that was only getting worse month after agonizing month.


In addition, starting just over a year ago, I began communicating with executives at a couple of the major servicers, asking for their side of the story that I’ve covered to the tune of 800 articles over four years.  I even visited a couple of servicers and went in with as open a mind as I could possibly have… and it was illuminating to say the least.



It’s a little bit like the Mexican American War, which is what our history books call the conflict that began in 1846 following the annexation of Texas… Mexico’s history books call it the U.S. Invasion of Mexico.  Perspective is always at least interesting to explore.


In the interest of keeping a long story short, and as one who keeps a calm head might assume, both sides of the loan modification debacle are right about various things, but overall I ultimately concluded that the failure of this country to mitigate the damage being caused by the flood of foreclosures has been a failure of government more than anything.  And before you disregard my position on this, I’d ask you to consider the 2012 presidential candidates, both continuing to travel about the country pretending that the foreclosure crisis doesn’t even exist… even when in states like Ohio, Nevada and Florida, states essentially destroyed by the ongoing crisis.


Treasury Secretary Tim Geithner made clear his position on the HAMP initiative a couple of years back when he described it as having created “foam for the runway” upon which the banks could land more safely.  And then Assistant Treasury Secretary Herb Allison went further when, faced with mounting evidence that HAMP was going to fall far short of expectations, claimed that it wasn’t supposed to help four million homeowners, but rather was only supposed to “offer to help” that number of borrowers at risk of foreclosure.


So, whom are you going to believe… Herb or your lying ears?


Forgetting the fact that an administration using the lives of American middle class homeowners as “foam” to cushion some metaphorical runway upon which the TBTF banks, already flush with trillions in taxpayer bailout cash, would be able to more safely land is unthinkably offensive, there should be no question that our efforts to prevent foreclosures have fallen far short of all expectations simply because our government found that outcome perfectly acceptable… as long as it helped the banks regain financial stability, let the people be used as foam.


Additionally, it has come to light that back in 2009, as the ill- and far too quickly conceived HAMP program was being rolled out, the nation’s largest mortgage servicers told those overseeing the program at Treasury in no uncertain terms that they were not ready to do what the program required.  Treasury’s response: In a phrase… So what and who cares?


Just put borrowers in trial modifications, was Treasury’s answer to the servicers’ stated lack of systems, personnel and infrastructure… and we’ll sort it out later… like over coffee perhaps.  When, at the end of 2009, it became clear that roughly a million trial modifications had yielded a literal handful of permanent modifications, the bloom was already a long way off the rose colored glasses through which the Obama Administration was viewing HAMP.


As 2010 began, even the most ebullient cheerleaders of the Obama Administration knew or certainly should have known that, in the lyrical terms of Meredith Wilson, there was trouble brewing in River City, and the capital ‘H’ stood for HAMP.


There have been a plethora of theories put forth as to why effective loan modification programs have been as illusive as cold fusion, and most highlight conflicts in the financial incentives that have been built into programs to-date, but it’s 2012 and that line of thinking is just not satisfying anymore, certainly not alone.


So, while there’s no question that mortgage servicers cannot escape their share of the blame for how borrowers have been treated, there are a few points worthy of consideration before we let our government off the hook the deserve.

1. Hello, is this the party to whom I am speaking? 

My wife and I bought our home right around 22 years ago in 1990, and the number of times we’ve found it necessary to contact our mortgage servicer as of 2008 was… ZERO… as in never even considered it.  And were I to have found it necessary to contact my mortgage’s servicer in past years, I’d imagine it would have been because I lost a payment book, or something like that… the sort of thing that I would have been happy to rectify by talking to a machine.

Although I’d never claim to be representative of all American homeowners in that regard, I’d say it’s safe to assume that mortgage servicing operations were not designed to hear from and respond to borrowers several times a day over months and years requesting that the terms of their loans be modified from their original.

And had I written a business plan for entering the mortgage servicing business, let’s say in any year before 2007 or 2008, it’s impossible for me to imagine that I would have found it reasonable to include a contingency plan for increasing my company’s staffing levels from 3,500 to 50,000 over two years, as has been the case at Bank of America.

2. Press ‘4’ if your payments are too high.  Press ‘5’ to lower your balance.

Until 2007, loan modifications were essentially unicorns… they didn’t really exist.  So, it shouldn’t be all that difficult to imagine that we don’t have a trained segment of our labor force with expertise or experience handling loan modifications.

BOA has hired 50,000 people to support the bank’s ability to grant loan modifications over the last two years, but I have to believe that the number that came to the job trained and ready to hit the ground running was… well, I don’t know… how about twelve… fifty-seven?  Two-hundred and forty-six?  Not all that many, how about we leave it at that?

And how many managers do you need to add 50,000 employees?  Again, I’m no expert here, but I’d venture to guess the answer is “hundreds.”  And as I was an employer for some 20 years, I’m familiar with the concept that you have to hire five to get one, which makes the whole idea of hiring 50,000 people for a job they’ve never heard of before, daunting for any size organization, BOA included.

And, as an ancillary point, I would also envision that the computer systems in place at mortgage servicers, prior to the foreclosure crisis that began in 2007, didn’t have a big red button labeled “Modify Terms of Loan.”

3. Ch-ch-ch-ch Changes…

During 2009 and 2010, the Treasury Department made substantive changes to the HAMP qualifications literally dozens of times, in many cases on a monthly basis.  Contrast that type of fluidity with BOA mortgage servicing, an organization capable of changing almost NOTHING on a monthly basis.  Given a full year at BOA you might be able to introduce a new dental plan, but you better get a move on it, if you get what I’m saying here.

Determining whether a loan was eligible for a HAMP modification, just as one example, was dizzying in terms of its complexity in some areas… and ambiguity in others.  HAMP required that borrowers must “face economic hardship and a danger of imminent default.” But, at the same time, the program’s guidelines lacked any specific requirement that a loan had to be delinquent or under water to be eligible.

I’m sorry, but could you be more vague about this?  After all, I’ve only got 50,000 to train over here, and a turnover rate that rivals a fast food joint in a bad part of town.

4. The Secret NPV Formula

HAMP’s NPV calculation was over 60 pages in length when I saw it for the first time, and I’m not a calculus devotee, so all I can say is that it was one long and complicated formula that changed often and quickly.  I wasn’t supposed to see it, it was another part of Tim “Transparency” Geithner’s commitment to transparency and he was refusing to release it.

He said it was referring to it as proprietary formula, and parts of it remain that same way today, even though Dodd-Frank financial reform states clearly that he is to release it publicly for all the good that would do.  The software for calculating NPV wasn’t quite done when Treasury launched HAMP… and Geithner was not going to wait.

Sheila Bair, who was still in charge at the FDIC, had her own NPV calculation that she had used to modify loans when she had taken over at IndyMac.  It wasn’t nearly as complicated and was used by filling in answers on a spreadsheet.  She suggested HAMP use that spreadsheet until the rules-based engine software was ready.

And thus the world’s largest and least understood bottleneck was born.  For the next two years servicers like BOA tried to unwind, make sense of, and ultimately repair what Treasury had launched into an assured disaster.  And it finally can be said that it’s getting significantly better inside servicers than ever before as far as loan modifications are concerned.

Homeowners, unfortunately, have not improved or are significantly worse… and who could blame them.  They’ve been tortured, lied to, and flat-out abandoned by their government, and shunned by our society not yet at risk of foreclosure.  The amazing thing is that nothing has blown up yet.

5. Lord knows I love my homeowners, but let’s be honest about who “we” really are.

Homeowners at risk of losing their home to foreclosure during the worst financial and economic downturn since the 1930s are scared, less than knowledgeable, emotional, and by definition, under the stress and feeling the shame that often comes with a significant financial hardship.

Now precede that with the pleasure of watching our government bailout mega-banks with taxpayer trillions while inferring that those who just lost their job are somehow “irresponsible borrowers,” as if they should have seen coming what the Chairman of the Federal Reserve still seems to barely understand, and what you’ve got is a customer on the phone who is either screaming or crying.

President Obama described a housing rescue plan called “Making Home Affordable,” that has never existed.  His speech introducing the program guaranteed mismatched expectations and varying degrees of dissatisfaction for all involved, and following that speech, delivered in late February of 2009, the next time we heard the president even mention HAMP was three years later.

But, one thing isn’t worth debating… homeowners in many, many, many instances are not capable of doing what’s necessary to get their loan modified… they need expert, caring meaningful help and very often legal advice.

6. The worst of times, the worst of times.

During the fall of 2008, the largest financial institutions on the planet found themselves at the brink of insolvency almost overnight.  Bank of America had recently acquired both Countrywide and Merrill Lynch, two organizations with enough toxic crap to swamp any management team for quite some time.

I could be wrong, but it might just be that BOA’s new CEO at that time, Brian Moynihan, had more to concern himself with than reaching out to borrowers who weren’t making their mortgage payments.  Not sure… just thinking out loud over here.

7. Does anyone know if we’re allowed to modify this loan?

In addition, as most have learned the hard way, mortgage servicing is involves the use of 500-page contracts known as “Pooling & Servicing Agreements” that define the responsibilities of a servicer to the investors who have invested in the mortgage backed securities that funded the actual loans.  The sort of agreements that, prior to 2007, no one outside the mortgage servicing industry had ever heard of and I’m guessing few insiders looked at with any frequency.

Can the loan be modified?  I’d imagine there weren’t that many banking executives willing to bet the farm one way or the other answering that in 2009.  And in banking, when in doubt… the answer is always no.  Wall Street investment bankers may include some famous and infamous risk takers, but let’s not forget, they are not the same executives running a servicing operation where payments are received and made by a giant an intentionally inflexible enterprise computer system with little to offer the unprecedented need for loan terms to be modified.

8. Collections –

A mature industry with long-established infrastructure that won’t be easy to change, or change over night… but that must change its perspective on delinquent borrowers to one that recognizes the truths of the matter:

  • There are no “irresponsible borrowers,” with which to be concerned when designing foreclosure prevention programs.  Please inform Rick Santelli that if we do find that any of these mythical risk-taking deadbeats with remodeled kitchens are taking advantage of new programs that are otherwise saving our economy along the way, we can simply have them killed or imprisoned at that time.
  • The future behavior of strategic defaulters can only be addressed by reducing the damage being wrought by foreclosures on our society.  And regardless of what Experian reports or believes, today’s strategic defaulters as defined by FHFA only exist in numbers that are insignificant and their plans going forward won’t be modified by ignoring foreclosures and allowing housing markets to worsen.
  • The greatest moral hazard we face is that of allowing the threat of moral hazard… or Rick Santelli… to cause our nation of almost 350,000,000 people… the world’s only superpower and largest economy on the globe… to remain in a state of paralysis and inaction having lost the ability to govern ourselves.
  • Banks and mortgage servicers aren’t in this business alone… there are thousands of firms that bring ancillary and direct support to the servicing and foreclosure processes.  The incentives under which they operate were not likely designed for unprecedented changes in the industry… and their best practices may not be “best” for anyone anymore.

9. Like snowflakes, no two loan modifications are alike.

Even our own federal government represents a plurality of viewpoints and it appears that the potential for conflict outnumbers the potential for compromise.  The GSEs, Fannie & Freddie, FHA, VA and infinite flavors of private securitizations and investors are all operating by their own standards and with their own independent marching orders. We are a democratic chorus without a hymnbook that must concern itself with legislation and litigation at both state and federal levels.  What we have in greatest abundance are competing demands.

10. It’s not over and it’s not fixing itself. 

Debilitating life events are one of the constants of human existence.  Illness, injury, divorce, job or income loss can act alone or together to derail best laid plans at any moment for anyone.  The difference today and going forward is that when these life events strike us while we owe more than our homes are worth we can’t borrow… we can’t sell… we can only add foreclosure to our list of problems.  Each time that happens, property values fall, and someone else finds out that what being “underwater” means is being at risk of foreclosure.



Obviously, I could go on and on but I’m hoping my point is becoming clearer:

Modifying loans at this scale wasn’t something mortgage servicers were capable of doing in 2008.  They told us that.  We said… do it anyway.  That was a terrible idea, and it’s our government that’s responsible for the parade of failed programs intended to slow foreclosures, at least for “responsible homeowners,” whomever they might be.


Financial institutions are publicly traded, for profit corporations.  They are not responsible to the taxpayers… they are responsible to their shareholders.  They were not elected to do what’s in the best interests of our society.  They have but one purpose: profit.


Banks got bailed out by the taxpayers?  Well, sort of I guess.  If you want to phrase it that way.  But, I personally didn’t offer them a dime.  It’s like saying “we won World War II.”  I guess we did, but not me personally.  I didn’t have anything to do with putting a man on the moon either.


The banks took the financial assistance offered them by our government.  Yeah, so what?  What would you have had them do, refuse it?  I’m sorry, but for the record, in the event our government ever offers me a $25 billion loan under such favorable terms… I’m taking it too.  Hate me… go ahead.


How does any of that relate to whether Mr. & Mrs. Rubinsky of South Giggles, Georgia should be granted a loan modification by BOA as their loan’s mortgage servicer?


But the banks caused the financial crisis…


Which banks?  I don’t think mortgage servicers broke the global securitization market.  I’ve met quite a few servicing executives and what they know about securitizing pools of loans you could put in a thimble.  A few dozen guys at Goldman might be evil manipulators of global finance, but the guy looking at your account at BOA’s servicing only knows that you haven’t made a payment in two years, you sent in your W-2s instead of your tax returns, and it’s next to impossible to get you to answer your phone.


Look at the mess that’s been created here because of our inability to address the foreclosure crisis, and the worse the situation gets, or the longer it goes on, the less we spend.  Our homes were a big part of our retirement plan.  When you allow $10 trillion in accumulated wealth to evaporate, you’ll find us far more frugal… go figure.


With consumer spending certainly the lion’s share of this country’s GDP, there’s no chance of us experiencing any real economic recovery by continuing to erode the purchasing power of this country’s consumers.  Businesses won’t expand because people aren’t spending.  It doesn’t matter if you reduce their taxes, or lower interest rates… those things are NOT the problem, so “fixing” them is a lot like looking for your keys where the light shines brightest.


And none of this bodes well for Bank of America, an institution that recently made the top 20 most hated corporations in the country, or something very close.  You want to hate the corporation… okay fine, but I think we need to work together to right what’s wrong here, don’t you?


Besides, I was one of the most outspoken critics of the servicers as a result of how they treated homeowners at risk of foreclosure starting in 2009, but they’re getting better because they want to get better, and have to get better.  They’re not “winning” any prizes here either.


And, BOA’s CEO wasn’t even around until after the meltdown, so I don’t think we can blame him for everything that’s ever gone wrong at BOA.  I also don’t think that whatever Goldman Sachs did or didn’t do with credit default swaps has much relevance to me getting my loan modified by next Thursday.  By piling on unrelated issues we create a mess that can’t be dealt with and just gives people a headache.


Also, I just want to say that when my daughter recently turned 16 years of age, my wife and I were positively thrilled to be able to buy her a brand new Jetta TDI, and Bank of America was really wonderful that day.  We put ten grand down that we had been saving for the purchase and BOA was there with the rest, and at a very low interest rate to boot.  Hate BOA?  I’m not sure how to answer that.


The National Mortgage Settlement was folly, once again our government’s ineptitude and willingness to engage in backroom deals remains legendary.  The amount of money, whatever number of billions, is not going to help enough people to stop foreclosures, so we’re still in our race to the bottom and if we want to see change it’s our elected officials that need to be changed.  Because the ones we have now, in large part, clearly need to go.  That will take time and we have millions of homeowners who won’t wait.


According to PBS NEWS HOUR just yesterday, “The number of homes in July that received an initial notice of default, the first step in a foreclosure, was up 6 percent from a year ago, and nearly 60,000 homes are being repossessed by lenders each month.”


So, let’s by all means monitor the settlement… make sure its terms are adhered to by the servicers… and let’s absolutely enforce the new servicing standards that will make the loan modification process more fair.  But, let’s be accurate about what’s going on.  We don’t need this situation made worse by misinformation and sensationalistic crap.


Getting your loan modified at Bank of America is MUCH better than it was a year ago and that’s good news that will continue to move some families out of harm’s way.  I know that to be the case because I see the problems solved one homeowner at a time.  I’d like to see more concentration on that sort of thing than passing around links to, “A million loan modifications fell out of HAMP,” or “BOA hasn’t done principal reductions under settlement as of June 1st.”



And yet, I couldn’t count on two hands, the number of emails I received upon returning from my vacation, alarmed that the report was showing BOA to have completed no principal reductions under the National Mortgage Settlement.  People were ready to go get the baby so they could throw it out with its bath water.


Please… make no mistake about this, I’m not suggesting we give free passes to any of the parties involved, but if we throw in the towel on the idea of modifying loans, we are sure to experience millions of foreclosures that we could have prevented by remaining reasonable, fair and accurate.


There’s been a lot that has gone terribly wrong, and some of it doesn’t seem fixable without a time machine.  But, to a family that’s potentially losing their home today, the big picture really doesn’t matter, nor does what happened to someone else in 2010.


Let’s make sure that we provide information that’s current and therefore accurate, and that means telling people that the loan modification process is much better than ever before, at BOA and other servicers too.  I’m sorry if that disappoints you, but you’ll get over it, and don’t worry… looking ahead there’s lots more that’s likely to go very badly for a lot of folks.


Life’s not always fair.  But let’s keep trying to make it incrementally better anyway because as I’ve always said, if you string enough temporary solutions together… before you know it… you have a permanent solution.


And when something better comes along… well, we’ll do that too.


Mandelman out.



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