Loan Modification Progress Report Card

August 5^th, 2009

NEW YORK – The 1^st report card of the Obama administration’s foreclosure rescue plan shows of slow progress. The Treasury confirmed that only 9% of delinquent borrowers are currently placed in trial modifications so far. In other words, 235,247 loans were at least 2 months delinquent.

Although the plan experienced a turbulent launch, the Obama administration claims that they are on track in helping up to 4 million homeowners over the next 3 years. The government rescue plan was announced in February 2009 and the institutions that participated took in applications in April.

The report was released a week after a meeting was held with servicers at Washington D.C. The goal of the meeting was to speed up the program implementation and to address the tide of complaints from struggling borrowers. Government officials are demanding for 500,000 modifications to be underway by Nov. 1^st 2009.

With the release of the servicers’ progress reports, the administration will hold institutions responsible for their progress. The progress report will allow the public to see which institution is behind on implementing the plan.

Overall, institutions have provided modification offers to 406,542 struggling borrowers. This number represents about 15% of borrowers who are struggling or are behind with mortgage payments. The report shockingly revealed that they were a lot of uneven progress among the 38 servicers participating in the government rescue program.

Saxon Mortgage Services, a subsidiary of Morgan Stanley is in the lead or 1^st place having placed 25% of its delinquent loans in trial modifications. In 2^nd place was Aurora Loan Services, a subsidiary of Lehman Brothers Bank with 21% of its delinquent loans placed in trial modifications. Holding a tie in 3^rd place was GMAC Mortgage which is partly government owned and Chase Home Finance with respectively 20% of their delinquent loans placed in trial modifications.

JP Morgan Chase was 1^st place among the major banks with 20% of delinquent loans in trial modifications while Citigroup had 15%. Wells Fargo & Bank of America were both trailing behind with respectively 6% and 5%.

Servicers are aware that there is plenty room for improvement and revealed that they were also doing many modifications that were not part of the government initiative. Wells Fargo claims that it will get rid of its backlog in a time-frame of weeks. They blamed it on the time lag between the announcement of the initiative and the release of the guidelines. It had already begun modifying loans from Fannie Mae and Freddie Mac as of April but did not get to modify loans owned by private investors until late June.

To step up the pace, Wells Fargo will soon be able to deliver trial modification agreements to eligible borrowers within 48 hours. To deviate from previous practices, upon receiving initial applications, borrowers will be placed in a preliminary modification if they meet the basic eligibility requirements. Within the 3 month trial modification period, servicers will then gather additional information to determine whether the borrower qualifies for a permanent modification.

Mike Heid, co-president of Wells Fargo Home Mortgage said that this new strategy should address complaints that the bank was not responding to borrowers on time as they should. He admitted that customer service suffered for the first 7 months of 2009. Wells Fargo has increased an additional 4,000 employees in its loan workout division this year.

Tom Kelly, a spokesperson for Chase said that they have a lot more work to do and are currently pleased with its performance to date. It has another 150,000 applications to process and is currently training 950 new employees hired earlier this year. This brings its modification staff to total 3,500 people.

CitiMortgage, part of Citigroup has added 1,400 people to its modification team including the opening of a new call center in Tuscon consisting of 800 people in its loss mitigation department. Sanjiv Das who is head of CitiMortgage is confident that they will pick up speed in the next quarter.

Bank of America notes that it is responsible for 1 in 4 trial modifications offered under the Obama rescue plan. It has extended about 100,000 offers although only 28,000 trial modifications underway. Bank of America which acquired mortgage giant Countrywide Financial last year has by far the largest amount of eligible delinquent loans totaling nearly 800,000.

The Obama rescue plan has been criticized by borrowers as servicers were not responding to their calls and applications, losing paperwork or not making any decisions. Lenders and servicers have beefed up their departments with more trained employees and upgraded their computer systems to handle the tide of applications.

Treasury officials said that they were collaborating with servicers to improve the implementation of the program. Michael Barr, assistant Treasury secretary for financial institutions said that in addition to adding more staff and training, servicers must treat borrowers with respect including responding in a timely manner.

As the unemployment problem increased, 1.5 million people had fallen into foreclosure in the first half of 2009. This represented a 15% increase from 2008.

Financial institutions have the voluntary option of participating in the government program. Once they decide to participate, they must offer trial modifications to eligible borrowers. The current 38 participating servicers cover 85% of mortgages.

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