Foreclosure Fail: Study in the US pins blame on big banks

A study by the US government and academic researchers finds that about 800,000 homeowners missed out on mortgage modifications because of big banks' poor performance

Over the past several years, we've reported extensively on the big banks' foreclosure failings. As a result of banks' disorganization and understaffing — particularly at the peak of the crisis in 2009 and 2010 — homeowners were often forced to run a gauntlet of confusion, delays, and errors when seeking a mortgage modification.

But while evidence of these problems was pervasive, it was always hard to quantify the damage. Just how many more people could have qualified under the administration's mortgage modification program if the banks had done a better job? In other words, how many people have been pushed toward foreclosure unnecessarily?

A thorough study released last week provides one number, and it's a big one: about 800,000 homeowners.

The study's authors — from the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago — arrived at this conclusion by analyzing a vast data set available to the OCC. They wanted to measure the impact of HAMP, the government's main foreclosure prevention program.

What they found was that certain banks were far better at modifying loans than others. The reasons for the difference, they established, were pretty predictable: The banks that were better at helping homeowners avoid foreclosure had staff who were both more numerous and better trained.

Unfortunately for homeowners, most mortgages are handled by banks that haven't been properly staffed and thus have modified far fewer loans. If these worse-performing banks had simply modified loans at the same pace as their better performing peers, then HAMP would have produced about 800,000 more modifications. Instead of about 1.2 million modifications by the end of this year, HAMP would have resulted in about 2 million.

That's still well short of the 3-4 million modifications President Obama promised when he announced the program back in early 2009. But it's a big difference, and a reasonable, basic benchmark against which to compare the program's failings.

The report does not identify these poor performing banks, but it's not hard to ID them. A “few large servicers [have offered] modifications at half the rate of others,” the authors say. The largest mortgage servicers are Bank of America, JPMorgan Chase, Wells Fargo and Citi.

Bank of America in particular (the largest of all the servicers when HAMP launched) has been far slower to modify loans than even the other large servicers, as other analyses we've cited haveshown.

Rick Simon, a spokesman for Bank of America, said the banks' “home retention results are significant and in line with our industry peers to date.”

The Home Affordable Modification Program (HAMP) paid subsidies to mortgage servicers on the theory that doing so would convince them to embrace modifications. The authors say that voluntary approach apparently didn't have much effect with the biggest servicers. They weren't very good at modifying loans before HAMP was launched and weren't much better after it launched.

The authors wrote that while they can't be sure why these banks underperformed, they “may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans. In addition, this may have involved significantly altering their organizational capabilities, such as building appropriate infrastructure and hiring and training servicing staff.”

That echoes on our reporting on how ill-suited the big banks were when it came to modifying loans. The result inside the banks has sometimes been chaosAs one Bank of America employee complained, "The whole documentation collection thing has got to be purposely not funded. Like, I can't get a fax. I work for a huge bank that has tons of money, and you're telling me that I can't get a fax?"


Since HAMP's oversight has been lax — the Treasury Department, which runs the program, has responded indulgently to mortgage servicers breaking HAMP's rules — banks haven't had to worry much about their low modification rates. (You can see this explained with a song. It's also a big part of our book on the foreclosure crisis.)


A Treasury spokeswoman, responding to the new report, said HAMP had resulted in “one of the most comprehensive compliance reviews of mortgage servicing operations in the country. Servicers in the Making Home Affordable Program are subject to an unprecedented level of compliance oversight.”

The report did have some positive findings concerning HAMP. As we've reported, modifications in the program have been more generous to homeowners than modifications done outside HAMP. The authors also found that the program did boost the number of modifications — i.e. it caused modifications that likely would not have happened if not for the program.


The authors also say that HAMP might have induced more modifications if the program had not required such extensive screening of homeowners seeking a modification. From the program's launch, the administration emphasized that the program wouldn't help the wrong sort of “irresponsible” homeowner. That emphasis led to requirements that homeowners send in lots of paperwork to prove their income, which in turn further taxed the big servicers' inadequate systems.


Despite the recent stabilization in home prices and a drop in the rate of homeowners falling behind on their payments, HAMP's limited impact remains a very relevant issue. Even in the sixth year of the foreclosure crisis, the country remains saddled with an extraordinarily high number of loans in foreclosure — about 2 million. That backlog hasn't improved much in the last couple years, meaning it's still hard to forecast when the foreclosure rate will return to a normal level.




SEBI asks bourses to synchronise listing date, approval

SEBI has asked stock exchanges to synchronise their listing dates and trading approvals with each other for fresh shares to check transfer of shares before listing

Mumbai: With an aim to check transfer of shares and other securities issued through public offers and other issues even before listing, market regulator Securities and Exchange Board of India (SEBI) has asked the stock exchanges to synchronise their listing dates and trading approvals with each other for fresh shares, reports PTI.


The move follows a directive from SEBI last month barring the activation of International Securities Identification Number (ISIN) codes of additional securities being issued through follow on public offers (FPOs), rights issue, preferential allotment and bonus issues.


The ISIN is a 12-character alpha-numeric code that uniquely identifies equity, debt or other securities. The ISIN code serves the purpose of uniform identification of securities for their trading and settlement in the market.


In a circular issued on Tuesday, SEBI further widened the scope of such additional shares and said that the directive would apply to any shares or securities being issued through any means and said that such securities would remain frozen till the time final listing or trading permission is granted by the exchange.


"The stock exchanges are advised to provide the details to the depositories whenever final listing or trading permission is given to securities.


"Further, in case of issuance of equity shares by a company, listed on multiple stock exchanges, the concerned stock exchanges shall synchronise their effective dates of listing or trading approvals and intimate the same to depositories in advance," SEBI said.

After coming across fraudulent transfer of shares being allotted through IPOs even before the actual listing of the companies, SEBI in January 2006 had allowed activation of ISINs only after the commencement of trading on the stock exchanges in case of shares of the companies.


Through its circular last month, SEBI had decided that in case of public offers for debt securities as well, the ISINs shall be activated only on the date of commencement of trading on the stock exchange.


Further, in order to curtail the transfer of additional issue of shares and securities through FPO, rights issue, preferential allotment and bonus issue of the listed company, the depositories would have to keep such securities frozen till final listing or trading permission is granted.


For this, SEBI has asked the depositories to allot such additional securities under a temporary ISIN which shall be kept frozen.



GB Tools files for IPO, plans to raise Rs40 crore

GB Tools, the manufacturer and exporter of drop forge hand tools and allied forging products plans to raise Rs40 crore through an IPO for expanding its facility at Jalandhar

Mumbai: GB Tools & Forgings has filed documents with market regulator Securities and Exchange Board of India (SEBI) to raise about Rs40 crore through the initial public offering (IPO) route, reports PTI.


GB Tools & Forgings has filed a draft red herring prospectus (DRHP) to garner an aggregate of Rs40 crore through IPO, SEBI said.


The company said proceeds of the issue would be used for expansion and modernisation of its existing hand tool manufacturing facility at Jalandhar that needs Rs32.17 crore funds, and general corporate purpose. It also proposes to consider a pre-IPO placement of up to Rs10 crore with certain investors.


The company is engaged in the business of manufacturing and export of drop forge hand tools and allied forging products.


SPA Capital Advisors is acting as the book running lead managers to the proposed issue.


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