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Report: Treasury, Freddie Mac Flubbed HAMP Oversight
Paul Kiel of ProPublica has published a seriousrncritique of the Treasury Department’s early oversight of the Home AffordablernModification Program (HAMP) that probably won’t surprise anyone who hasrnfollowed the troubled path of that program. rn HAMP, established in 2009, was anrneffort to stem the rapidly rising flood of foreclosures. It required mortgage servicers to offer loanrnmodifications to eligible homeowners in order to lower their monthly paymentsrnand, theoretically, stay in their homes. The program was given a budget of $50rnbillion and a goal to modify three to four million mortgages; to date $4rnbillion has been spent and 1.1 million loans modified. </p
Some servicers are independent companiesrnbut the largest are owned by the largest banks including Wells Fargo, CitiMortgage,rnChase, and Bank of America. Their rolernwas to review homeowner applications and negotiate the modifications underrngovernment rules and supervision.</p
Working with heavily redacted documents</bobtained through multiple Freedom of Information Act (FOIA) requests thatrnTreasury did its best to avoid, Kiel paints a picture of a well intentionrnprogram run by federal employees who appear to have been either scared to deathrnor in the thrall of the big banks they needed to actually run the program.</p
Documents obtained by Kiel show that therngovernment did not complete a major audit of at least two of the largestrnservicers, Bank of America and Wells Fargo, until over a year and that auditsrnat other servicers were rare in the first two years after the programrnbegan. During these two years thernservicers reviewed 2.7 million applications for modifications and deniedrntwo-thirds of them while homeowner complaints about mistreatment mounted. </p
Kiel goesrninto great detail about his quest to obtain relevant documents for his story. His original FOIA requests were denied andrneven after an appeal many documents were withheld; in some cases documents ofrnservicers who never objected to their release.</p
Kiel says, “The documents also showrnhow the Treasury Department coddled servicers that weren’t complying with thernprogram’s rules. Once a year, servicers are required to certify that they arerncomplying with the program’s rules. But servicers define for themselves what itrnmeans to comply. A company that admits violating the rules is allowed to merelyrnsubmit a cover letter with their certification stating the exceptions and howrnit would fix the problems.”</p
One cover letter, published with thernarticle, is so heavily redacted it is reduced to little more than the insidernaddress, a paragraph addressing the reason for the letter and a signaturernblock; the exceptions and solutions are totally blacked out. </p
The actual oversight of HAMP wasrncontracted to Freddie Mac which formed a compliance group nicknamed MHA-C. Its first reviews of servicers were rejectedrnby Treasury as inadequate because they were “inconsistent and incomplete” and itsrnstaff was “unqualified.” </p
Kiel says that Treasury didn’trndispute the fact that no major audits of the biggest banks were completed untilrnwell after HAMP’s launch but claimed they had begun “unprecedented reviews ofrnservicer compliance with program directives within the first months of programrnimplementation.” A single servicer (GMAC) voluntarily provided Kiel copies of itsrnaudits and he says the reports show how cursory those earlier reviews could be.rn “In December 2009, MHA-C reviewed arnsample of files, but when it reported its findings to GMAC, it told thernservicer that the report was “being provided for informative purposes only, andrnno response is required from you at this time.” GMAC was not the subject of arnmajor audit until the following July and was never penalized.</p
The two biggest servicers, Bank ofrnAmerica and Wells Fargo did not receive complete audits until more than a yearrnafter the HAMP program began by which time they had already denied over 400,000rnmodifications. Even where a big bank received earlier audits there was onlyrninfrequent oversight. JPMorgan Chase,rnthe third largest servicer received a major audit within HAMP’s first year, butrnthrough 2009 and 2010, it only responded to two major audits and CitiMortgage</breceived three. When audits werernconducted, the files reviewed were often months old. Once the audits were finished and deliveredrnto the servicers, servicers had a month to respond with their plans to addressrnproblems. </p
The robo-signing scandal that brokernin September 2010 drew a lot of attention to mortgage servicer failings; thatrnsame month tfhe servicers submitted their first annual certifications tornTreasury that they were complying with HAMP rules. Kiel says the certifications were toothless;rnit was up to the servicer to decide whether it was in “material compliance,”rnaccording to the certification form. Further, Treasury guidance as to what was “material”rnread, “This evaluation of materiality may or may not be quantifiable inrnmonetary terms and should include, but is not limited to, consideration of thernnature and frequency of noncompliance as well as qualitative considerations,rnincluding the impact on Program goals and objectives.”</p
Kiel says if the servicer found thatrnit was, by its own definition, noncompliant, it was required to list thernproblems and its “action plan” in a separate “cover letter” to be sent with therncertification filing. But that was it. There was no penalty. Kiel has been unable to obtain cover lettersrnfrom the five largest servicers but of those he did obtain severalrnservicers claimed they had no problems to report.</p
GMAC was among those who were “unaware”rnof problems but Kiel says there are reasons to question that statement. Twornmonths earlier, a MHA-C audit found, among other problems, that GMAC hadrnmiscalculated homeowner income in more than 80 percent of audited cases. That same month GMAC became the firstrnservicer to admit to robo-signing. , </p
Treasury told Kiel that therncertifications were “only one part of a more comprehensive process” thatrnincluded its audits, and that they did not rely solely on servicers tornself-identify and report their weaknesses. Servicers were allowed to definernmateriality for themselves in the certifications because, she said, a “‘onernsize fits all’ approach would not have been practical.”</p
It was only in the wake of thernrobo-signing scandal that Treasury decided to take punitive action againstrnservicers breaking HAMP’s rules. In June 2011 it began withholding programrnsubsidies to the three largest servicers until the banks showed “substantialrnimprovement.” Wells Fargo quickly complied but Bank of America and JPMorganrnChase subsidies were only restored as part of the February 2012, $25 billionrnnational servicer settlement. </p
When Kiel asked servicers to commentrnon HAMP oversight the three largest servicers referenced Treasury’s most recentrnassessments that showed all three required only “moderate improvement.” </p
A Treasury Department spokeswomanrnsaid HAMP has brought “an unprecedented level of transparency” to the mortgagernservicing industry and servicers are “subject to an unprecedented level ofrncompliance oversight.”</p
Kiel says consumer advocates callrnthat damning by faint praise. He quotesrnDiana Thompson of the National Consumer Law Center; “The reason that the levelrnof transparency and accountability is ‘unprecedented’ is because no one hasrnever held servicers to account. Just because you have something where beforernthere was nothing, that doesn’t mean that something works or is effective. ”
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About the Author
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Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
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