By Paul Kiel, Pro Publica
The Obama administration launched its main program to prevent foreclosures in the spring of 2009 with $50 billion and abundant promises. What the Home Affordable Modification Program, or HAMP, lacked u2014 and wouldn’t have for years u2014 was effective oversight of the big banks that were crucial to the program’s success.
Documents obtained by ProPublica shed new light on this failing in 2009 and 2010, when the foreclosure crisis was at its peak and six million American homeowners were in danger of losing their homes. HAMP required mortgage servicers to offer loan modifications to eligible homeowners so that their monthly payments would be lower. The servicers u2014 the largest of which were owned by the banks that had fueled the crisis in the first place u2014 were in charge of reviewing homeowner applications, but the government set the rules and was supposed to supervise their work.
But the documents show that the government did not complete a major audit of the two largest banks in the program, Bank of America and Wells Fargo, until over a year after the program launched.
Such audits were rare at the other large mortgage servicers throughout 2009 and 2010, according to the documents. During these years, when the government provided little oversight and administered no sanctions, servicers reviewed 2.7 million modification applications and denied two-thirds of them. Meanwhile, homeowners regularly complained they had been mistreated by servicers in the program.
The documents also show how the Treasury Department coddled servicers that weren’t complying with the program’s rules. Once a year, servicers are required to certify that they are complying with the program’s rules. But servicers define for themselves what it means to comply. A company that admits violating the rules is allowed to merely submit a cover letter with their certification stating the exceptions and how it would fix the problems.
For instance, on September 28, 2010, PNC Mortgage submitted its certification. Along with that certification, it disclosed five “instances of noncompliance” or “gaps,” as it called them, along with its plans to address the issues (“steps”).