Treasury Says Big Bank Mortgage Modifications Need ‘Substantial Improvement’

The Obama administration said on Thursday that the nation’s largest mortgage loan servicers need “substantial improvement” in working with a government foreclosure prevention program. According to the administration, big banks have done a poor job of modifying distressed home loans at a time when borrowers need the help the most.

Big Banks Audited by Government

A recent audit conducted by the Treasury Department found that big banks like Bank of America, Wells Fargo and JPMorgan Chase are not doing a good job of participating in the Making Home Affordable Program. In fact, these banks were said to have calculated incomes incorrectly on more than 22 percent of audits–something that can affect a homeowner’s ability to qualify for modification.

Overall, the government found that none of the 10 largest servicers have done a good job of helping borrowers in need with loan modifications.

The audits–which checked performance areas such as how well servicers dealt with homeowners and also evaluated them for modifications overall–were conducted in order to hold servicers more accountable for their participation in the federal program.

The audits found that the companies had done much less than expected to help troubled homeowners. Since the program started in 2009, banks have made 700,000 permanent loan modifications. This is far fewer than the 7-9 million borrowers the program intended to help.

Bank Financial Incentives to Be Placed on Hold

One major component of banks’ participation in the program is their ability to receive financial incentives if they do a good job of providing modifications. According to the Treasury, the banks will not be able to have access to the incentives until they improve their modification strategies.

The incentives for each bank equal $1,000 or more for each permanent modification they make. According to the government, banks received $24 million in such incentives just last month.

The mortgage servicers have complained that the government’s reviews don’t reflect improvements they’ve made with the program, stating that the audits unfairly paint a negative picture of modification efforts.

Wells Fargo, in particular, is formally disputing the report, claiming its income calculation error rate is now down to 4.5 percent because, at the time of the government’s audit, the modifications did not require applicants to document their income.

The government says that while the servicers have the right to recheck their numbers for accuracy, they will still need to make changes to improve their modification services before receiving incentives.