Readers of FT Alphaville will know that the US government is hell-bent on making its Home Affordable Modification Plan, aimed at making loan modifications to help keep US homeowners in their houses, a success.
Financial incentives in the form of fees for each permanently-modified mortgage have been in place since the programme began, but added to the mix in recent months were the kudos of being seen to be helping homeowners, plus some generous capital risk-weightings for banks. On the `stick side’ of the equation you’ve got the general shame, and the threat of fines and increased government scrutiny.
Now you also have lawsuits.
From DSNews.com (emphasis FT Alphaville’s):
In an announcement Wednesday, Ohio Attorney General Richard Cordray said he has filed a lawsuit against New York-based Barclays Capital Real Estate, doing business as HomEq Servicing.
HomEq, a participant in the federal Home Affordable Modification Program (HAMP), has been accused of issuing unfair loan modification agreements and providing inadequate, incompetent customer service to Ohioans who were at risk of losing their homes to foreclosures. According to the lawsuit, Ohio homeowners in need of loan modifications through HomEq were forced to enter into one-sided agreements. These allegedly unfair and deceptive agreements released HomEq of all liabilities and required borrowers to pay additional fees and waive their right to defense.
In addition, HomeEq was accused of violating Ohio’s Consumer Sales Practices Act (CSPA) through incompetent and inefficient customer service. According to the lawsuit, HomEq failed to return customer calls or respond to repeated inquiries, lost borrowers’ document, and neglected to offer timely and affordable loss mitigation options to its customers.
Now, the lawsuit specifies “unfair” agreements and “inadequate” customer service, all of which the company strenuously denies, but the below quote from the Ohio Attorney General suggests there’s something else going on here; HomEq is simply not doing enough to make Hamp loan modifications (our emphasis):
“There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures,” Cordray said. “Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses.”
A quick glance at the Treasury’s December Hamp report shows that HomEq was one of the worst-performing servicers in terms of converting trial loan modifications into permanent ones, with 657 active trial mods and a whopping zero converted into permanent status.
That’s a pretty dismal performance, but bear in mind that some `bigger’ servicers, JP Morgan and Wells Fargo for instance, have a conversion rate of between just 3 and 4 per cent.
Related links:
FT Alphaville’s Hamp coverage
New rules poised to speed up foreclosure rescues – eCreditDaily