ProPublica: Gov’t Has Spent Small Fraction of $50 Billion Pledged for Loan Mods

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Editor’s Comment: Why is it so difficult to get the fact that the government is expecting modifications from parties with no interest in the mortgage and no authority to modify, satisfy or otherwise do anything with it?

Gov’t Has Spent Small Fraction of $50 Billion Pledged for Loan Mods

by Paul Kiel
ProPublica, Nov. 11, 2010, 12:47 p.m.

.(Robyn Beck/AFP/Getty Images)

When the Obama administration launched its flagship foreclosure prevention program in early 2009, it pledged to spend up to $50 billion helping struggling homeowners. But the government has so far only spent a tiny fraction of that.

A recent Treasury Department report [1] summarizing TARP spending put the total at $600 million through October.

Although the Treasury Department posts the maximum amount that could go to each mortgage servicer on its website [2], it doesn’t report the details of the spending. So we filed a Freedom of Information request for the data, and can now show for the first time exactly how much money has gone to each servicer. (A Treasury Department spokeswoman said they’re considering regularly releasing the information going forward.)

The program, which uses TARP money, tries to prevent foreclosures by paying mortgages servicers incentives to make loan modifications. The largest payout, $79 million, has gone to JPMorgan Chase [3]. Next on the list is Bank of America with $45.1 million [4]. That’s a drop in the bucket for BofA, which reported [5] net servicing income of $780 million in the third quarter. (You can use our bailout tracker [6] to see how much money has gone to each mortgage servicer. The figures, which come from our FOIA request, only go through August.)

With the government’s program showing signs of slowing down [7], the small payout so far shows that Treasury won’t come close to using the full $50 billion, said Guy Cecala, publisher of Inside Mortgage Finance. “It’s a joke, because everyone’s asking ‘is [the program] really worth the $50 billion we’ve committed?’” he said. “We’ll never spend anywhere near that.”

There are two main reasons why so little money has been paid out. First, there have been few modifications done through the program [8]. The government only pays incentives for finalized modifications, not trials. For instance, even though $8.3 billion has been set aside for Bank of America [4], it won’t get that money unless it provides modifications.

Second, incentives are paid out over time. For instance, homeowners in the program receive a $1,000 reduction to their mortgage each year for five years if they stay current on the modified loan. The program is less than two years old, and few modifications were given during the first year.

Incentives are paid to three different groups: homeowners, investors, and banks and other companies who service the loans (The four biggest servicers of mortgages are also the U.S.’s largest banks: Bank of America [4], Wells Fargo [9], JPMorgan Chase [3], and Citigroup [10].) So far, the servicers have kept most of the money paid out: $231.5 million all told. Investors (lenders and mortgage-backed securities investors) and homeowners have received $129.2 million and $34.7 million, respectively. Our database breaks those amounts down for each servicer.

It’s hard to estimate just how much Treasury will ultimately use of the $50 billion. One reason is that a portion of the modifications will default [11], so all the incentives for each modification will not be paid out. Of modifications completed a year ago, about 21 percent have already defaulted, according to Treasury data [12].

If a homeowner keeps up payments on a modified mortgage for the full five years, it could cost the government in the range of $20,000 over five years, according to a ballpark estimate provided by the Treasury spokeswoman. But many homeowners in the program are expected to default on their mortgages well before that.

The government has set aside billions of dollars from the TARP for other, related programs – but it also remains to be seen how much of that money will be spent. The government pays incentives for other ways of avoiding foreclosure, like short sales [13], but those programs started relatively recently. It’s also allocated $7.6 billion to 18 different states (plus Washington, D.C.) [14] for local plans to avert foreclosure. Another $8.1 billion has been reserved for a plan to refinance homeowners in underwater mortgages [15] into Federal Housing Agency loans.

Separate from the TARP, Fannie Mae and Freddie Mac, both under government control [16], also participate in the loan modification program. Administration officials have said Fannie and Freddie could pay up to $25 billion in incentives to their servicers and homeowners, but it’s also doubtful that whole amount will be spent. As the TARP inspector general recently noted [17], they’ve only paid out $451 million through September.

2 Responses

  1. Here’s the headline:

    Bank of America Is in Deep Trouble, and There May Be Financial Disaster on the Horizon

    Ooohh, this sounds like we’re all in a lot of trouble here! Let’s read more:

    “The problem for anyone trying to analyze Bank of America’s $2.3 trillion balance sheet,” wrote Bloomberg columnist Jonathan Weil, “is that it’s largely impenetrable.” Nobody really knows the true values of the assets these companies are holding, which has been the case ever since the collapse. But according to Weil, some of BofA’s financial statements “are so delusional that they invite laughter.”

    I for one, being a victim of a Countrywide turned B of A mortgage and the onslaught…I’m not laughing.

    With investors valuing BofA at half the worth that the bank claims, it’s one titan of Wall Street that may be on the brink of collapse. But it’s not alone. “Everybody was doing this, this is not just something that Countrywide and Bank of America were doing,” legendary investor Jim Rogers told CNBC.

    This is where TPTB and the Too Big To Fail spin their web of deceit….

    And that “rotten stuff” will continue to be a drag on the brick-and-mortar economy until the mess gets cleaned up. Which, in turn, is a powerful argument for a second dip into the public trough.

    Oh really? Please explain exactly why? That rotten crap that Wall street created is a drag on my contracting business, and your dry cleaning business, and Billy Bob’s lawn care biz? Which in turn, according to this piece of crap journalism is a reason for another bailout….PAHLEEEZE!

    Much of that toxic paper remains on their books — somewhere. The assets are still impossible to price and now several Wall Street titans appear to be approaching a tipping point, poised to once again to extort a mountain of cash from our Treasury by claiming to be too big — and interconnected — to crash and burn as the principles of the free market would otherwise dictate.

    Oh…thank you for explaining why and how they’re going to once again be able to walk into the taxpayer’s vault. And even though this article does explain many of the facets of the crimes perped upon humanity, it still resorts to simpleton reductions such as this:

    If the worst-case scenario should come to pass, with the banks hit by thousands of lawsuits, unable to foreclose on properties in default and with investors running for the hills, expect to hear calls for TARP II. It’d be a very heavy political lift, but given Congress’s fealty to Wall Street it could plausibly be passed.

    Do you see how this main stream press article, that appears to be quite reasonable and fair minded, suddenly excuses the unthinkable? It suddenly green-lights an act that I would consider to be purely treasonous in any way, shape or form.

    To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk-taking. Ownership cannot be a one-sided bet.

    At the expense of taxpayers exactly why? Or How?

    Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.

    Oh holy hell. This is the same thing as…we know we did a million acts of fraud, but they were technical, and we’ve removed them from the courts and replaced them with more recent documents purchased from a more secure mill. We’re feeling much better now, really!

    More importantly, this is the kind of soft sell that makes average folks think…well, maybe the banks are actually trying….maybe they’ve learned a lesson.

    The only lesson these banks need to learn is how to become unhinged, how to implode, how to display their senior executives during the walks from the banking headquarters to the squad cars. I love the thought of a $5000 suit coat covering the face of a former Cwhatever. Instead of CEO, CFO, COO, it will be CAUGHT. Good ridance! Die Wall street. Die!

  2. California foreclosure aid fund swells, but banks hesitate

    The state’s Keep Your Home plan has grown to $2 billion from $700 million. However, mortgage servicers haven’t officially agreed to participate in the principal reduction part of the program.

    By Alejandro Lazo and E. Scott Reckard, Los Angeles Times

    November 10, 2010

    Federal funding for a California plan that helps borrowers facing foreclosure has snowballed to $2 billion, enough to potentially help more than 100,000 homeowners.

    But the program lacks formal agreements with the nation’s largest banks and investors, and their cooperation is needed to make the proposed effort broadly successful.

    Out of the three major mortgage servicers — Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — only Bank of America has told the state that it will participate in a central part of its Keep Your Home program that would reduce the principal balance of certain troubled mortgages, and even BofA has yet to sign an agreement. Fannie Mae and Freddie Mac have declined to participate in the principal reduction part of the plan.

    The Keep Your Home program, which uses federal funds reserved for the 2008 rescue of the financial system, is intended for low- and moderate-income people who own only one property. To qualify in Los Angeles County, a family of four couldn’t earn more than $75,600. The maximum benefit for any household participating in the program is $50,000.

    The biggest part of the plan gives $875 million in temporary financial help to homeowners who have seen their paychecks cut or have lost their jobs. The program would provide as much as $3,000 a month for six months to cover home payments, including principal, interest, insurance and homeowner association dues.

    Another piece would provide as much as $15,000 to help homeowners get current on their mortgages, and another would provide assistance to move for those people who can’t afford to remain in their homes. Most of the big banks and Fannie and Freddie have signaled that they’re willing to participate with these parts of the plan.

    But the most controversial part of the program, and the one most difficult for banks and investors to sign on to, dedicates $790 million to principal reduction. This would write down the value of an estimated 25,135 “underwater” mortgages, which are loans in which homeowners owe more on their properties than what they are worth.

    The California plan — as well as programs created by Nevada and Arizona — would pay lenders $1 for every dollar of mortgage debt forgiven. Experts say reducing principal on such underwater loans would go far to reducing foreclosures in the three states because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.

    But the financial industry has been reluctant to participate in government-administered programs that would require them to reduce the amount that borrowers owe them.

    “If you can’t do the principal write-down, you are limited in what you can do,” said Dan Immergluck, an associate professor at the Georgia Institute of Technology, who studied the different state plans developed with the federal bailout money.

    “It is one thing for them to agree not to write down principal when they are being asked to foot the whole bill,” he said, “but when the states are agreeing to match this 50-50, it seems rather ridiculous of the servicers and the investors not to agree to this.”

    Diane Richardson, director of legislation for the state’s housing finance agency, which created the California plan, said she expects other lenders to follow Bank of America’s lead once the program is underway.

    “Once the program gets going, and other lenders see how successful it is, I think others will come aboard,” she said. The Keep Your Home program was slated to begin Nov. 1, but the launch was pushed back until early next year because the effort grew in complexity and size from when it was announced in February.

    Originally, five states in which home values had dropped more than 20% since 2006 were selected to receive $1.5 billion from the Treasury Department’s Troubled Asset Relief Program. The program grew to cover states with high unemployment, which included California, and more federal money was added. California was initially slated to receive $700 million when the Treasury approved the state’s plan in July. Then even more money was added, resulting in a $7.6-billion program involving 18 states and the District of Columbia.

    California, which accounts for 21% of the nation’s foreclosure activity, is the largest recipient of the bailout money. Homeowners in the Golden State also remain deeply underwater, according to recent data. In California, 27.9% of homeowners who owned single-family residences were underwater at the end of the third quarter, according to data released Wednesday by real estate information site Zillow.com. In Los Angeles County, 17.4% of borrowers owed more on their mortgages than what their homes were worth.

    Even as the state struggles to get big lenders to sign on, the program has provoked complaints that it’s a giveaway to the banks. Critics say property values have fallen so steeply that much troubled mortgage debt is not worth 50 cents on the dollar. Foreclosures on these homes are so costly that the banks will come out ahead financially by writing down loan balances to keep borrowers in the homes, they contend.

    “I don’t think we should have to be paying the lenders,” said Prentiss Cox, a professor at the University of Minnesota Law School Clinic. “We have already paid them in the form of the bailout, and it seems to me what we need is enforced loan modification, because that is in everyone’s interest.”

    Critics also are unhappy that homeowners who refinanced their homes to take cash out of their properties will not be allowed to participate in the program. That will exclude many African American and Latino borrowers in low-income communities who were hustled into loans they did not understand or could not afford, said Yvonne Mariajimenez, deputy director of Neighborhood Legal Services of Los Angeles County.

    These borrowers were “enticed by predatory lenders to refinance and pull out equity to pay medical debt, fix their houses and the like,” Mariajimenez said. “A disproportionate number were people of color that live in minority communities.”

    Getting banks to write down principal has proved difficult through government programs, though some lenders have done it through their own proprietary initiatives. The federal government’s loan modification program, which is also funded by money from TARP, has always allowed loan servicers to forgive principal on troubled mortgages, but has never required them to do so.

    Proponents of forgiving principal say this is a serious flaw. They contend that debt forgiveness is the only workable way to address the problem created by underwater loans.

    alejandro.lazo@latimes.com

    scott.reckard@latimes.com

    Copyright © 2010, Los Angeles Times

    http://www.latimes.com/business/la-fi-foreclosure-fund-20101110,0,5744232.story

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