SIGTARP Report Says 70% Denied for HAMP Loan Modifications – What’s Going On Here?
I first read the the headline above right after last quarter’s SIGTARP Report to Congress was made public, back on July 30th. I remember reading it for the first time because it felt a bit like getting punched in the head…. complete with the little tweeting cartoon head-circling birdies.
I wanted to write about the report’s inconceivably outrageous findings at the time, but at that particular moment I was literally on my way out of town and there was no way I could digest the report’s 600-odd pages in a matter of hours or even days.
Besides, I didn’t have the foggiest idea what I would write in response.
I knew right away that I had to accept what the Special Inspector General for the TARP Funds (SIGTARP) was reporting as being factually correct… at least on some level. After all, SIGTARP’s reports have been no friend to Treasury for years now. And I knew that there was no way that SIGTARP was making up numbers. As systems go, 70 percent denial is not just failing… it’s failing catastrophically. It’s not the kind of outcome statistic that one can simply fudge.
I knew from the moment I read the news that many on the anti-foreclosure side would view the report’s findings as proof positive that banks aren’t modifying loans and further, as proof that banks don’t want to modify loans. And since I’ve written countless articles telling people to they should apply for loan modifications, I also knew that I’d be hearing from the “loan-mods-don’t-work” crowd in droves. “See, Mandelman… you’re wrong. Banks don’t modify loans. Read the report.”
I also knew that some would use it to support the argument that a homeowner should sue their servicer, since the report appears to say that applying for a loan modification is futile something like three-quarters of the time.
My problem with the report was that I’ve watched several hundred homeowners get their loans modified over the last year or two… pretty much in a row. One after the other. Yes, there were many that were denied once or even twice, but then they were approved on appeal and after getting some help with their numbers. Some were denied simply because their loan balance exceeded HAMP’s limit of $729,750, only to be subsequently approved for some in-house program.
The point is that I haven’t seen anywhere near 70 percent of homeowners denied, at least not so that they lost their homes to foreclosure. Not even anywhere close.
I’ve only seen two or three homeowners truly denied with finality… and each was in what I would describe as an extreme situation. For example, one homeowner I remember waited until within 48 hours of a sale date to start the process… and another one or two lost battles with Wells Fargo, a servicer notorious for not being willing to modify loans. Maybe there were one or two others who just didn’t have the income needed to qualify, but even that hasn’t happened for several years now.
All the rest were modified… if not the first time around, then the next… or maybe the time after that, but the fact is that I haven’t seen anything even remotely resembling a 70 percent denial rate for loan modifications since maybe 2010. And considering the number of homeowners who contact me while in the process of trying to get their loan modified, it’s impossible that I wouldn’t notice a 70 percent denial rate. Heck, I’d notice a 20 percent denial rate, if by denial we mean loses home to foreclosure or short sale as a result.
Still Painful After All These Years…
None of this is to say that the loan modification process is anywhere near what it should be, especially after almost seven years since inception. It’s still just completely miserable to endure and I’ve written about just how miserable on too many occasions to list here. (You can find my most recent writing on the topic either HERE or HERE.)
I also figured that some would say that I don’t see the high denial rate because I write a widely read blog that’s been very critical of the loan modification process and because I have a relationship with Bank of America and Ocwen, so they modify loans when I’m involved… and not so much when I’m not. But, that can’t be true either because I’ve seen plenty of loan modifications approved with which I had no involvement whatsoever.
And besides that, I’m not just talking about my personal experience here… I know lawyers, HUD counselors and others who’ve been involved in helping homeowners get their loans modified for years, and I couldn’t believe that any of them would agree that 70 percent get denied so that they lose homes to foreclosure.
For example, I asked an experienced HUD Counselor about the report and received the following response…
I would estimate the HAMP denial rate for my clients at < 2%. However, you should bear in mind that the housing counselors generally know when an application meets the parameters and pursue the viable mitigation options.
That does not mean that the same homeowner has not, or may not, pursue the HAMP option. Also, HAMP review is the first step for some applications that you know won’t meet the HAMP parameters, but do meet GSE proprietary parameters.
The report is not clear about duplicate applications that, once denied, received a HAMP modification (usually after assistance is received from an advocate). – If you ask the counseling agencies, you will likely find that most of our applicants have been denied when pursuing modification on their own. Also, I have received modifications for clients following appeals.
Finally, the SIGTARP conclusion that the top denial reasons are problematic and reveal the issues may be with the servicers is dead on. I believe that, if you talk with other counselors you will receive similar feedback.
What did Bank of America have to say about the SIGTARP report?
I do realize that many homeowners find it next to impossible to get approved for a loan modification on their own the first or even second or third time around, which echoes the sentiment expressed by the HUD Counselor above, but I also know that eventually most find the help they need and their loans do get modified… at least in the vast majority of cases.
To confirm this, I contacted a senior executive at Bank of America and asked for a response to what the SIGTARP had reported to congress in late July, so that I could include it in this article. Here’s what I received from Bank of America the following day…
When a loan transfers to a new servicer, Treasury’s system transfers certain data, but not all data, with the loan to the new servicer. In this case, Treasury’s reporting excludes from Bank of America’s record 140,000 HAMP applications that were fully processed by the bank prior to the loans being transferred to other servicers; however, denials associated with those applications are still attributed to Bank of America.
Absent this under-reporting of applications, the bank’s rate of HAMP approvals improves from SIGTARP’s 20% figure to an actual approval rate of 32% (319,000 of more than 1 million applications), slightly better than the industry average reported by SIGTARP. The following statements reflect this adjusted data.
We ensure qualified customers receive the most beneficial modification solution possible, which is evidenced by the more than 1.4 million mortgage modifications we’ve completed, leading the industry. We completed about 300,000 of these modifications within the specific guidelines of the HAMP programs, then provided alternative modifications or other solutions that helped two out of three customers who were declined for HAMP avoid foreclosure in the long run.
The success of the bank’s work with customers considered for HAMP cannot be measured by HAMP approvals alone. While two-thirds of the reviewed applications could not qualify for a modification under the explicit guidelines of the government programs, in the end, 83% of more than one million customers whose HAMP applications were reviewed by Bank of America — five out of six — avoided foreclosure through either a modification or another solution.
(As a note: the 17% that ended up foreclosing includes borrowers who were approved for a HAMP mod and fell out of the program (4%), as well as those declined for HAMP (13%). So among the declined customers, 7 of 8 did not end up foreclosing.)
Okay, so the picture was becoming clearer…
The SIGTARP Report to Congress was accurate, I’m quite sure, but it doesn’t tell the entire story. And the way I feel about the report is the same way I feel about the statistic about women and their odds of getting breast cancer that’s often published and that says: 1 out of 9 Women Will Get Breast Cancer, or something very close.
It’s not true. In fact, if you’re 30 years old today, the chances of you being diagnosed with breast cancer over the next 10 years is 0.44 percent… 4.07 percent over the next 30 years. But, even though the one in nine statistic is wrong, the way I look at it is that if it causes more women to get regular mammograms… then it’s doing a good thing, so who cares if it’s statistically incorrect?
Well, the real story here is that the loan modification process, although MUCH better than in past years, is still pretty awful and by any measure remains extremely difficult for homeowners trying to navigate it alone, which results in denial rates that are FAR TOO HIGH by any reasonable standard.
Nothing should fail 70 percent of the time, especially not after seven years of practice. It’s unconscionable that it be allowed to go on as is. Clearly, the loan modification process needs to be revamped and repaired, or it is likely to be with us not just for years, but for decades.
SIGTARP’s Report to Congress, although very good and undeniably thorough is still 600+ pages long, and I can’t help but wonder how many in Congress will read it… without pressure by constituents. It is also incomplete, and therefore may not lead to creating optimal solutions to the problems it presents.
So, the way I see it… the next step is yours and mine… right now we all need to attach a copy of the SIGTARP Report to emails that we send to our elected representatives. (Click the blue type and you’ll find your copy ready to attach.) If you want to, you can also forward this article along with it. It’s easy and only takes a minute or two, but I feel certain that if we don’t being it to the foreground… no one else will.
What follows are a few quotes that I found particularly offensive from the report, but of course, I can’t summarize 600+ offensive pages in a couple of offensive soundbites.
And please try to remember that as you read what’s said by SIGTARP below, that this isn’t a diet plan that failed to deliver on some promise of weight loss. It’s not a car that failed to get the miles per gallon advertised. When this process fails… people’s homes are on the line.
It’s clear that at least hundreds of thousands of homeowners have already lost homes that shouldn’t have, and that shouldn’t be allowed to happen even once in this country, should it?
For years, homeowners have faced barriers getting into HAMP – they still do.
Treasury’s findings make clear that even after more than five years of HAMP, top HAMP servicers are still mistreating homeowners by not following HAMP rules designed to protect homeowners.
SunTrust employees piled so many unopened Federal Express packages from homeowners containing their HAMP supporting documents into one room that eventually the floor buckled.
Treasury can make HAMP and HHF more effective.
HAMP will continue until 2023.
Based on Treasury’s data through April 30, 2015, CitiMortgage, Inc. (“Citi”) has denied 340,439 out of 391,418 (87%) applications it received, roughly 9 out of every 10 homeowners that applied.
Treasury can still spend over $21 billion towards TARP’s housing programs, an amount larger than most Government programs;
- Treasury can improve TARP’s housing programs to make them more effective;
- Information gained through SIGTARP audits and investigations highlights deficiencies and areas for improvement in TARP’s housing programs; and
- Congress did not authorize TARP as first proposed, but instead required that Treasury provide foreclosure relief programs for homeowners. SIGTARP’s audit and other reporting ensure that TARP is not just a bailout of the largest institutions.
ONLY 30% OF HOMEOWNERS WHO APPLIED FOR HAMP GOT IN, 70% WERE TURNED DOWN BY THEIR SERVICER
At the start of TARP, our nation was in a foreclosure crisis. More than two million homeowners had foreclosures commenced against them in 2008. TARP is not supposed to be just a bailout of the largest financial firms, but was always supposed to include a bailout of homeowners at risk of foreclosure. Congress rejected Treasury’s initial proposal that TARP just be a bailout of some of the largest financial firms. Instead, in recognition of the foreclosure crisis, Congress made foreclosure mitigation an express part of the law authorizing TARP. Among other things, preserving homeownership is an explicit purpose of that law, and “the need to help families keep their homes” is one of the considerations that the Secretary of Treasury is required by law to consider in exercising his authorities under TARP.
As SIGTARP reported in its March 25, 2010, audit report, a working group of officials from Treasury, the Department of Housing and Urban Development, and the White House developed the outlines of a mortgage modification program that was intended to “have a scale that can have a real impact on turning the housing problems around in this country.”
In February 2009, the Administration announced its signature TARP housing program known as the Home Affordable Modification Program (“HAMP”) to “enable as many as 3 to 4 million at-risk homeowners to modify the terms of their mortgage to avoid foreclosure.”
Treasury designed HAMP to encourage mortgage servicers, on a voluntary basis, to modify eligible mortgages so that the monthly payments of homeowners who are in default or at imminent risk of default will be reduced to affordable, sustainable levels. To encourage participation, Treasury pays incentives using TARP funds. HAMP was initially a $75 billion program: $50 billion to be funded by TARP funds for Treasury’s part of HAMP (to modify mortgages not owned by the Government–sponsored enterprises Fannie Mae and Freddie Mac), plus $25 billion for GSE-owned mortgages.
Although this allocation was reduced to $29.8, approximately $18.5 billion in TARP funds remains unspent and available for HAMP as of June 30, 2015.
Although participation in HAMP is voluntary, servicers who agree to participate are required to offer HAMP modifications to all eligible homeowners. The actual execution of HAMP lies in large part with participating mortgage servicers, whose employees are responsible for reviewing homeowner HAMP applications and deciding whether a homeowner gets into HAMP or not. A servicer must follow the HAMP rules in making its decision, and Treasury has an oversight responsibility to ensure that servicers follow Treasury’s HAMP rules.
Three questions from Page 100…
- Is homeowner participation in HAMP low because not enough homeowners applied for HAMP?
- Did Treasury set the HAMP eligibility requirements too strictly to make a difference in helping most of the homeowners at risk of foreclosure?
• Have mortgage servicers participating in HAMP wrongfully denied homeowners who should have gotten into the program?
According to Treasury’s official HAMP database, nearly 5.7 million homeowners applied for HAMP (both the GSE version and TARP version) since December 1, 2009, when Treasury began requiring servicers to report on the outcomes of all HAMP application decisions. Overall, therefore, the problem does not appear to be that not enough homeowners are applying for HAMP, but that not enough homeowners are getting into HAMP. Treasury has reported extensively about the homeowners who received help from HAMP, but very little about homeowners who applied for HAMP and were turned down.
According to Treasury’s official HAMP database, of the 5.7 million homeowners who applied for HAMP between December 2009 and April 2015, servicers turned down 4 million. That means that, according to Treasury’s HAMP database, servicers turned down more than 7 out of every 10 homeowners (72%) who applied for HAMP.
The problem may be far worse than that. In a separate survey, participating servicers report that they have denied far more than 4 million homeowners for HAMP. In those surveys, HAMP servicers report denying 5.8 million homeowners for the HAMP program, an additional 1.8 million not captured in the HAMP database during the height of the foreclosure crisis.
Treasury has stated that they do not validate the survey results.
In this report, using data from the official HAMP database, SIGTARP details why servicers rejected so many people for HAMP—or, more accurately, what reason servicers gave Treasury for rejecting so many people for HAMP—and how these reasons raise concerns given known misconduct and errors by servicers. Additionally, SIGTARP reports on which of the largest mortgage servicers denied the highest number of homeowners for HAMP and which denied the largest percentage of homeowners applying for HAMP. SIGTARP also reports on how homeowners applying for HAMP fared state-by-state.
Detailed knowledge about homeowners who were not successful in getting the affordable mortgage assistance they sought from HAMP is essential to Treasury’s oversight. It is Treasury’s responsibility to ensure that HAMP servicers are complying with HAMP’s rules and not wrongfully denying homeowners for HAMP. It is also Treasury’s responsibility to ensure that the rules it has created for HAMP are the correct ones. SIGTARP found that the denial codes from which Treasury requires servicers to choose do not give a clear picture of why homeowners were denied. This is an area that Treasury should assess further given the 18 months that homeowners have left to apply for HAMP.
Midway through the program, Treasury “course corrected” HAMP when faced with high numbers of homeowners falling out of HAMP trial modifications. It is time for Treasury to do a similar course correct for homeowners who have been denied entry into the program altogether, particularly where servicer misconduct contributed to the outcome.
HAMP servicers denied 1.2 million homeowners’ HAMP applications through the end of 2010, the first full year Treasury required servicers to report this data. By comparison, there were 2.9 million foreclosure filings that year.13 By the end of 2011, the number of homeowners to whom servicers denied HAMP assistance had nearly doubled, to over 2 million. Nearly 1 million additional homeowners were denied participation in the program in 2012. Through April 2015, more than 4 million homeowners saw their HAMP applications denied—roughly three out of four homeowners who applied. As shown in Figure 3.1, the rate at which servicers have denied homeowners’ HAMP applications has remained high throughout the life of the program.
Of the 1.7 million homeowners who started HAMP trial modifications since the program began tracking the outcomes of all applications, 384,530 (23%) fell out of the program during the trial period. Of the 1,257,259 homeowners who made it past the trial period and into a permanent HAMP mortgage modification, 333,977 (27%) subsequently fell out of the program (which Treasury refers to as a redefault).
Effective December 1, 2009, Treasury made the decision to require that HAMP servicers report to Treasury’s official HAMP database on every person denied for HAMP and the reason why the servicer denied the homeowner admittance into the program. Under HAMP, a homeowner’s mortgage servicer reviews the homeowner’s application and supporting documents and determines whether the person gets into HAMP or not. Requiring reporting on HAMP application denials is one way that Treasury gathers information to conduct oversight over HAMP servicers.
As high as the 4 million homeowners denied for HAMP is, that number may substantially understate the actual number of homeowners whose HAMP applications were turned down for HAMP.
Although the official HAMP database shows nearly 4 million homeowners denied for HAMP by servicers, Treasury’s “HAMP Application Activity by Servicer” report, as of April 2015, shows that those HAMP servicers surveyed by Treasury separately report having denied almost 5.8 million applications—or approximately 1.8 million more homeowner denials than Treasury’s official HAMP database.
Some of this difference may reflect homeowners who were denied by servicers in the several months in 2009 before they were required to report denials to Treasury. According to Treasury’s April 2015 survey, Citi reported denying a total of 388,127 homeowners (47,688 more than reflected in Treasury’s official HAMP database), JP Morgan reported denying a total of 1,312,346 homeowners (359,933 more), Bank of America reported denying a total of 842,135 homeowners (156,771 more), and Ocwen reported denying a total of 979,348 homeowners (230,934 more).
OVER THE LAST FOUR YEARS, TREASURY HAS FOUND PROBLEMS WITH THE SEVEN LARGEST HAMP SERVICERS’ HANDLING OF HOMEOWNERS’ HAMP APPLICATIONS AT VARIOUS STAGES— INCLUDING PROBLEMS AT FIVE OF THEM IN 2014 ALONE
It is Treasury’s responsibility to ensure that mortgage servicers participating in HAMP treat homeowners fairly and do not wrongfully deny homeowners who should have gotten into the program. Treasury conducts oversight by enacting HAMP guidelines governing the HAMP approval process, and by having its compliance agent, a division of Freddie Mac, visit each of the largest servicers each quarter to spot check between 400 and 600 loan files to evaluate whether the servicers are following HAMP guidelines.
Treasury is accountable to the American taxpayers who fund TARP for measuring HAMP’s success. After conducting an audit, in March 2010 SIGTARP issued a report recommending that Treasury unambiguously and prominently disclose its goals and estimates of how many homeowners will actually be helped through HAMP permanent modifications.
Additionally, SIGTARP recommended at that time that, beyond measuring modifications, Treasury develop other performance metrics to measure the implementation and success of HAMP over time. For example, SIGTARP recommended that Treasury set and publicly report against goals for servicer processing times, modifications as a proportion of a servicer’s loans in default, modifications as a proportion of foreclosures generally, rates of how many homeowners fall out of the program prior to permanent modification, and redefault rates.
Since Treasury’s first public servicer assessment was published in June 2011, Treasury has found problems with some of the largest HAMP servicers in a critical metric defined by Treasury as “second-look.” During the “second look” review, Treasury’s compliance agent reviews loans not in a permanent modification to assess the timeliness and accuracy of the servicer’s homeowner outreach and eligibility review in order to verify that the homeowner was properly considered, denied, or deemed ineligible for receiving a permanent modification.
In that first June 2011 servicer assessment, 5 of the top 10 servicers (Bank of America, Citi, JP Morgan Chase, Ocwen, and One West Bank) ranked poorly in Treasury’s second look. Treasury has since continued to find second look problems, including that top HAMP servicers wrongfully denied homeowners who may have gotten into HAMP. Although there was some improvement in 2012, in two quarters in 2014 Treasury found second look problems at Ocwen, Wells Fargo, and Citi. In the second quarter of 2014, Treasury found in its second look that Citi needed “substantial” improvement, as Treasury disagreed with Citi’s denial determinations 15.2% of the time in its review. Treasury’s second look review also found problems recently in the fourth quarter of 2014 at Select Portfolio Servicing, and at Nationstar Mortgage, LLC in the first quarter of 2015.
Citi has had one of the worst records of non-compliance with Treasury’s HAMP application review guidance, failing to meet Treasury’s benchmarks in 9 out of 17 reviews, including 7 of the last 8.
As reported by SIGTARP, by the Consumer Finance Protection Bureau, by Treasury in its reviews of the top HAMP servicers, and by homeowners who have filed complaints with Treasury, there are many problems with servicers themselves that can affect each of these three denial reasons. Persistent problems and errors in the application and income calculation process (servicers calculate a homeowner’s income) have historically plagued homeowners seeking HAMP assistance, and continue to do so.
As a result, eligible homeowners may have been, and may continue to be, denied a chance to get into HAMP through no fault of their own.
MY LAST WORDS… for now.
I understand that we’re only talking about HAMP here… that there are numerous in-house modification programs and that millions of in-house loan modifications have been granted. I also understand that the SIGTARP Report doesn’t take many things into account, like what happens to loans that are transferred to sub-servicers while in the modification process… and I do understand that, while it may be true that something like 70 percent of homeowners are denied for HAMP at least once, that DOES NOT MEAN that 70 percent of applicants are losing homes to foreclosure as a result.
Okay… but with all of that and more being acknowledged, it’s still a process and system that is in dire need of attention by people who recognize the need to make it better. The status quo is harmful to everyone… individual homeowners, mortgage servicers and investors… local communities, states and our national economy as a whole. There should be no question about any of this at this late date, for it has been, after all… seven years since we learned the acronym, HAMP for the first time.
Why does Fannie Mae need its own version of HAMP? Why does FHA need their own version, as well? Why is it almost impossible for a homeowner to calculate their own income? How can anyone be okay with a process that FAILS 70 percent of the time?
We need to demand answers, and this coming year being an election year is the perfect time to be asking questions. Because if we don’t ask the questions… whose job will it be to ask them, much less to provide any answers?
I’ll keep trying my best to help. And you can reach me at: email@example.com.
If you need help getting your loan modified, I want to know what’s going on. If you’ve been denied over and over again… I want to know what’s happening. If you have any insight into what SIGTARP has reported, I want to know what your thoughts are so I can publish what makes sense to publish. And if you’re seeing success or improvement, I want to know about that as well.
Look, I want to throw in the towel all the time… just give up and pretend it’s not happening, but if the SIGTARP thinks the topic worthy of a 600-page report, then I have to think it’s worth my time to try to help get the message out… and help who I can.
So, don’t put it off… click here to get A COPY OF THE SIGTARP REPORT so you can send it along to your elected representative in Congress today. Ask your representative if he or she has read it… tell them you think it’s important that he or she does read it.
Tell your representative that if they expect your vote in 2016, then you expect something more than to be ignored on this matter.
That’s all I’ve got… for now.