Penalties Levied Against Non-Compliant Loan Servicers


The Departments of Housing and Urban
Development and Treasury issued their joint Housing Scorecard for May on
Thursday. The big news is that the Administration is finally moving to penalize servicers who have
consistently failed to meet the goals of the Making Home Affordable Program, which is designed to help
homeowners who have fallen behind on their loan payments.

The Scorecard contains results of new
Servicers’ Assessments, which summarize performance for the 10 largest loan servicers.  The assessments rely on information from
reviews conducted during the first quarter of 2010 on three categories of
program implementation:  identifying and
contacting homeowners, homeowner evaluation and assistance, and program
reporting, management, and governance. 

While all
ten servicers are in need of improvements, four
were identified as needing “substantial improvements”;
Bank of America,  J.P. Morgan Chase Bank,
 Ocwen Loan Servicing, LLC; and Wells
Fargo Bank.  Program administrators found
that there were extenuating circumstances leading to the negative results in
the assessment of Ocwen Loan Servicing (they acquired another servicing portfolio during the testing period), however Bank of America,  J.P. Morgan Chase and Wells
Fargo will have
financial incentives withheld for this quarter and payments will continue to be withheld until specified improvements
are made.   

To be clear, new fines are not being imposed. Incentive payments are simply being withheld. Servicers receive payments from Treasury  for every successful permanent modification they complete under the Home Affordable Modification Program as well for each short sale/deed-in-lieu they complete (pursuant to the Home Affordable Foreclosure Alternative Program). The three companies were reported to have
received $24 million in incentive payments last month
. New incentive payments will be withheld.  In certain cases though, particularly where there is a failure to correct identified problems within a reasonable time, Treasury may also permanently reduce the financial incentives paid out to servicers.

Six servicers were identified as
needing moderate improvement and no financial penalties were assessed.  Those servicers are:  American Home Mortgage Servicing, Inc.;
CitiMortgage, Inc; GMAC Mortgage, LLC; Litton Loan Servicing LP; OneWest Bank,
and Select Portfolio Servicing.  Treasury
said those servicers that fail to improve in the areas identified will be
subject to servicer incentive withholding in the future.

 “While we continue to get tens of thousands of
new homeowners into mortgage modifications each month, we need servicers to
step up their performance to meet the needs of those still struggling,” said
acting Treasury Assistant Secretary for Financial Stability Tim Massad. “These
assessments set a new benchmark by providing an unprecedented level of
disclosure around servicer performance and will serve to keep the pressure on
servicers to more effectively assist struggling families.”

The HAMP report for May indicated
that 20,000 more homeowners entered into a trial modification during the month
and 29,000 converted from trial to permanent status.  Since the program began 1,588,000 borrowers
have entered the program and 699,000 have converted to permanent status. Below is a chart illustrating the conversion rate of individual loan servicers.

It is
clear that many of the problems that existed with HAMP early on have
eased.  Seventy percent of trial
modifications started since June 2010 have been made permanent and the average
length of a trial modification beginning after that that date is 3.5 months.  Trial modifications started before that date
required an average of 5.2 months before converting to permanent status.  In May 2010 the number of borrowers who had
been in the “three month” trial modification period for six months or more
stood at over 190,000.  Today that number
has fallen to under 25,000. Below is a chart illustrating the time it takes individual servicers to convert a trial modification to a permanent modification.


Apart from
the HAMP report, the Housing Scorecard is primarily a recap of information
compiled from other sources and generally covered previously by Mortgage News Daily.  This includes Census Bureau reports on
construction permitting and housing starts, National Association of Realtors®
data on sales of existing houses, RealtyTrac foreclosure statistics and the
SP/Case-Shiller Housing Price Index.

New to
this month’s report is a Housing Scorecard Regional Spotlight which, in this
edition highlights recovery conditions in Phoenix, Arizona, one of the cities
hardest hit by the housing downturn. 
According to Assistant HUD Secretary Raphael Bostic, the administration’s
programs have assisted over 100,000 families avoid foreclosure in Phoenix.  Foreclosures still dominate the market in the
city where sales of distressed homes currently represent 56 percent of all
existing sales compared to a national figure of 35 percent.

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