Few troubled mortgages being modified permanently

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Federal data released Thursday showed just how poorly banks are doing at turning the growing number of temporary loan modifications into permanent ones under the Obama administration’s effort to curtail foreclosures.

Only 31,382 of more than 700,000 mortgage modifications under the federal program had been made permanent by the end of November.

The numbers reinforced the bleak picture that Treasury Department officials painted last week when they said the number of permanent reductions was low. They unveiled new measures, including the threat of fines, to push mortgage servicers to improve their performance.


The new data about the Home Affordable Modification Program also shows that Southern California has accounted for nearly 11% of the total mortgages whose payments have been lowered.

The Los Angeles-Orange County region accounted for 5.9% of all the temporary and permanent modifications, behind only the New York area’s 6%. The Inland Empire was fifth on the list of most active metropolitan areas, with 4.8%.

“As this report illustrates, struggling homeowners across the country continue to receive immediate relief in the form of reduced monthly payments and a second chance to stay in their homes,” said Phyllis Caldwell, head of the Treasury Department’s Homeownership Preservation Office.

“Our focus now is on working with servicers, borrowers and organizations to get as many of those eligible homeowners as possible into permanent modifications,” she said.

The administration wants to modify as many as 4 million mortgages over three years, but it has had trouble getting mortgage servicers to convert the temporarily reduced payments to permanent ones.

The Treasury Department reported an increase in active trial and permanent modifications through the program to 728,408 as of Nov. 30, compared with 650,994 at the end of October. The program has shown steady growth since the summer, when administration officials pressed banks and other mortgage servicers to do more.


But the vast majority of that growth has been in three-month trial modifications. Many homeowners have complained that bureaucratic runarounds and lost paperwork by their mortgage servicers have thwarted attempts to get the lower payments made permanent.

Bank of America Corp. led mortgage servicers with 158,562 trial modifications, but only 98 of those had been made permanent. Another major servicer, CitiMortgage Inc., a unit of giant Citigroup Inc., had converted just 271 of its 103,478 trial modifications into permanent ones.

Bank of America noted that it led all servicers in trial modifications, which the bank said shows its “commitment to this important program and to our distressed customers who are seeking solutions to sustain homeownership.”

The bank said it hopes to take the lead in permanent modifications and expects its “momentum in converting customers to permanent modifications would really take root in December.” Bank of America is focusing on 50,000 customers who have completed their three-month trial but have not submitted all the required documents for a permanent modification.

GMAC Mortgage Inc. had the most permanent modifications, 7,111 out of 28,275. Another large lender, JPMorgan Chase & Co., had 4,302 permanent modifications out of a total of 143,027 trials started.

JPMorgan said it had approved 16,131 trial modifications for conversion to permanent ones under the program, but said it has been “a struggle” to convert many customers. About 51% of those who have completed the three-month trial period have not provided the necessary documents, which include proof of income.


“We have hired thousands of employees and expanded our outreach, and we have begun to see some improvement in results,” said Charlie Scharf, head of retail financial services for the company, which has about 10.3 million loans.

Nevertheless, members of a House committee this week slammed mortgage servicers for not doing more to help avoid foreclosures and threatened to take tougher action, such as allowing judges to reduce the amount of principal owed on a mortgage during bankruptcy.

“I don’t buy the White House’s latest attempt to prod servicers into doing loan modifications,” said Rep. Maxine Waters (D-Los Angeles). “I don’t think the jawboning and the trying to embarrass these servicers into doing the right thing works.”

The administration plans to spend $27.1 billion from the Troubled Asset Relief Program on the modification effort. Mortgage servicers receive as much as $3,000 for each permanently modified mortgage.

In triggering an extension of TARP this week, Treasury Secretary Timothy F. Geithner said that easing the number of mortgage foreclosures is one of only three areas in which it plans to spend the funds next year as it winds down the bailout program.

The other areas are improving securitization markets for consumer and small-business loans and providing capital to community banks to help lending to small businesses.