Service? What Service?

*Service? What Service?*
**By Lew Sichelman**

LewS***And so, it seems, the lambs have been led to slaughter once again. How can this happen? According to the Special Inspector General for the Troubled Asset Relief Program, it’s because servicers of formerly distressed borrowers aren’t paying enough attention.

****Of course, a lot of this rests on the shoulders of borrowers themselves. But that perhaps one in every four borrowers who have received permanent modifications to their mortgages under the Home Affordable Modification Program found themselves in deep doo-doo all over again is just one more black mark against the entire industry.

****According to SIGTARP, the Treasury Department has lost $814 million in TARP funds paid as incentives for permanent HAMP modifications. That’s roughly 18 percent of the $4.4 billion distributed under the program.

****But another surprising revelation in the report is how much of that $4.4 billion went to servicers. The report says $2.2 billion went to investors – not shocking because they have to be placated if they were going to lose money – and $770 million was paid in home owner incentives. But the rest – $1.5 billion – went to servicers.

****That sounds eerily similar to the class action suits turned out by legal mills in which the plaintiffs receive pennies but the lawyers “earn” millions. I’ve always wondered why servicers had to be paid extra to do the job they are supposed to do in the first place. Yet, under HAMP, they received twice as much as the owners they were supposed to help.

****The report goes on to single out three companies – Ocwen Loan Servicing, J.P. Morgan Chase Bank and Bank of America – as the worst offenders. More than half the TARP funds spent on loans that re-defaulted were serviced by these three outfits. But 91 percent of the total was on loans serviced by just 10 companies, including Wells Fargo Bank, GMAC Mortgage and CitiMortgage.

****Why all this is allowed to occur isn’t totally clear, but it’s mainly because Treasury doesn’t require servicers to ask homeowners why they re-default. However, anecdotal evidence collected by SIGTARP is once again damning – poor service.

****According to borrowers, the very companies which are paid extra to help owners are guilty of miscalculating their payments, messing up the transfer of mortgage ownership, losing paperwork, failing to honor the modification agreement and allowing foreclosure proceedings to proceed even while the loan is in the process of being modified. That last one, by the way, is now prohibited under HAMP guidelines.

****SIGTARP has recommended that servicers be required to develop and implement an early warning system to identify and reach out to borrowers who may be at risk of re-defaulting. By flagging owners who miss one or two payments, the special IG says, servicers can recommend counseling, assistance or other steps to move borrowers back onto the straight and narrow.

****Hey, this isn’t rocket science, or even 11th grade astrology. As SIGTARP points out, borrowers most likely to fail a second time around receive the least possible reduction in their mortgage payments and overall debt, are still underwater on their loans and have subprime credit scores at the time of their loan modifications as well as high overall debt burdens.

****Duh! Servicers should be watching these borrowers extra closely as a matter of course. And they shouldn’t have to be paid extra to do so. Isn’t it a familiar mortgage industry mantra that lenders also are losers when borrowers lose their homes to foreclosure? It’s time for those companies which make millions administering mortgages on behalf of the loans’ owners to back up that claim with something representing the handle for which they are known – service.

Lew Sichelman has been covering the housing and mortgage markets for more years then he cares to remember, starting as real estate editor at the long defunct Washington Daily News and Washington Star newspapers and finishing with a three-decade stint with National Mortgage News. His weekly column, The Housing Scene, is syndicated to newspapers throughout the country.