The banking industry has done very little to help troubled homeowners and in many instances they have really dropped the ball.
Charles Favor, a mortgage modification specialist with HLP Center said, "We've had people who met guidelines through and through. They fall right into the category of every criteria that's out there and the banks are just not helping people. They string them along through the loss-mitigation department and the attorneys don't even know they've foreclosed upon the house."
According to quarterly reports from Fannie Mae and Freddie the number of people who were helped by banks is minuscule compared to the number people who walked away or defaulted on their homes. Somewhere around 5% of U.S. households are delinquent on mortgage payments which implies that 3.5 million to 5 million households are now at risk of default or foreclosure, not including the millions who have already defaulted or have been foreclosed upon.
Finally it seems that big banks are now realizing that the mortgage crisis won't stop spreading until measures are taken to fix the problem. Banks have begun to provide better workout solutions than the ones that have been offered by the government. Also, banks are trying to be more flexible in order to put together modifications that will fit individual borrowers' needs, but has this progress come too little, too late?
The nation's four biggest mortgage servicers, Bank of America, Wells Fargo, Citigroup and JPMorgan Chase, have hired nearly 30,000 additional staff members in order to move borrowers through the system more efficiently. An alliance of financial firms that is reaching out to at-risk homeowners, called Hope Now, has stated that they have completed over 8 times as many successful workout solutions than those completed through the governments Home Affordable Modification Program.
Faith Schwartz, senior advisor for the group said, "The latest results continue to support the industry's unprecedented efforts to assist borrowers across the country using myriad foreclosure prevention programs."
Despite prodding from the Treasury Department, banks are not restructuring their troubled loans for the good of their customers. They by doing because it allows them to improve the credit quality of their loan books which helps them to avoid hefty write-downs and will help stop the loan crisis from spreading into more viable loans in other areas.
As an example, Wells Fargo structured a plan to assist its most troubled borrowers, and as a result, the bank was able to move close to $2 billion worth of loans back into "performing" status.
Furthermore, Bank of America, Wells Fargo and JPMorgan have each reported greater success outside of the Home Affordable Modification Program than working with it.
The federal program, Home Affordable Modification Program, was not structured to help all troubled borrowers; therefore banks have been making much more progress and there are a few reasons for this. One reason is is that banks are not trying to help all troubled homeowners because some of the homeowners financial situations are just too risky. Secondly, the banks also prefer to be successful without the federal government’s assistance.
Fewer than 390,000 eligible borrowers have used the Home Affordable Modification Program through this past June into which they received permanent modifications and have stayed there since. However, nearly 530,000 of those who received modifications have canceled them because they found better alternatives offered by the banks.
Bank of America has completed 665,000 mortgage modifications since January 2008 and of those numbers only 11% fell under the Home Affordable Modification Program. Bank of America has been processing so many modifications that it had difficulty uploading files to the government's computerized system which lead to apparent inaccuracies in the Treasury Department data.
Rebecca Mairone, an executive in Bank of America's mortgage division recently stated that "When a customer is found to be ineligible for HAMP or falls out of a trial modification, we consider an alternative home retention program, and if no viable solution is available, a dignified exit from homeownership. HAMP guidelines are quite specific with regard to the debt-to-income ratio, owner-occupancy, trial payment performance and other requirements."
The sad part to all this is is that it took the industry almost two years to embrace this new way of helping troubled homeowners. But now they're reaching out to troubled borrowers across the nation and are helping them to stay in their homes.