Between the Treasury, Fannie Mae, which administers HAMP, and Freddie Mac, which oversees compliance, program transparency and oversight are very much a work in progress. Six months in, HAMP officials have limited ability to monitor servicers and even less leverage to enforce program compliance if servicers aren’t following the rules, lending experts say.
An early safeguard should have been HAMP's "readiness reviews" of servicers looking to join the program. One bailout watchdog, the Congressional Oversight Panel, warned in March that servicers were understaffed, could barely handle pre-HAMP modification demand, and would struggle with the increased volume HAMP would create. Presumably, readiness reviews could have spotted these problems and helped servicers ramp up to meet HAMP's demand. Yet according to a recent Government Accountability Office report, the readiness reviews weren't used to evaluate servicers but merely to make sure the companies understood how the program worked. In other words, HAMP participants were barely vetted. Indeed, 20 of the 27 servicers in HAMP as of July 14 didn’t receive reviews at all, the GAO found.
"Because servicers are not fully evaluated during the admittance process, Treasury is unable to adequately identify, assess, and address any potential risks that may prevent them from fulfilling program requirements," the GAO concluded.
The companies partipating in HAMP include those with questionable track records, some the targets of numerous lawsuits. For instance, Ocwen Financial Corporation, which the Central Florida Better Business Bureau gives an "F" rating, is the subject of a class-action lawsuit alleging unlawful and deceptive business practices, like increasing monthly payments without notice, misapplying homeowners' payments, and failing to give homeowners payment-related information in a timely fashion. (An executive for Ocwen questioned the veracity of the lawsuit and the BBB’s grade, saying the Bureau’s rating system unfairly targeted large companies.)
Saxon, in particular, has been hit with a large number of complaints and lawsuits accusing the company of violating fair lending practices, predatory lending, and unfairly trying to foreclose on homeowners. The Fort Worth, Texas, BBB gives Saxon a "D" rating, and more than 500 consumer complaints have been filed with the Bureau in the past three years. (Saxon declined an interview request and to respond to written questions. A spokesperson said in a statement that the company "has invested and will continue to invest the necessary amount of resources to effectively execute the Obama Administration's HAMP program" and remains "committed to exceptional service to all of our customers.") The company's business practices have even inspired a website, SaxonWatch.com, devoted to anecdotes and scathing testimonials about the servicer.
Stories, that is, like Steve Jeczala’s. A resident of Spokane, Washington, Jeczala is currently trying to obtain a Saxon modification for his cancer-stricken sister. She was rejected for a HAMP modification, he says, on the basis of her income, a patchwork of disability payments, monthly support from a cancer patient center, and $700 or so out of Jeczala’s pocket. Like Ordoñez and Page, he’s sent in application materials multiple times only to have them lost in the shuffle. "It seems like Saxon just wants her home," he says, "which is fine—they can have her home. At least let her die in it."
Despite its flaws, HAMP is a good-faith effort by the government to address the foreclosure crisis, and there are signs of improvement. In June, HAMP officials began conducting much more rigorous reviews of servicers, and have started a "second look" program, in which servicers’ decisions to approve or deny HAMP modifications are scrutinized. Compliance officials are also analyzing samples of HAMP-modified loans to track error rates with servicers. And government officials have on several occasions tried to light a fire under HAMP servicers to speed up the modification process. On July 9, Treasury Secretary Tim Geithner and Department of Housing and Urban Development Secretary Shaun Donovan sent a letter to servicers exhorting them to move faster with modifications. Several weeks later, servicers’ representatives met with Obama administration officials in Washington to talk about boosting modifications.
Servicers, to some extent, have gotten the message, as many of them have upgraded their capacities and expanded their staffs to meet the rapidly growing demand. To handle more activity, Saxon added an additional shift, The Wall Street Journal reported in mid-July, while upgrading document-scanning technology and increasing training for employees. Coffin, the Wells Fargo executive, told the Senate banking committee that her company had increased trained staff dealing with mortgage servicing by more than 50 percent, and implemented mandatory overtime, among other changes. Chase Home Finance and CitiMortgage have also increased staffing levels, along with retraining employees to deal with HAMP inquiries and modifications.
But even with improvements, it’s doubtful whether HAMP will ever match expectations and slow foreclosure rates, experts say. The Treasury has set a target of modifying 4 million mortgages by 2012, but Moody's estimates HAMP will in fact modify only 1.5 to 2 million. (For perspective, Goldman Sachs projects there will be 13 million foreclosures from 2009 through 2014.) And a Moody's analyst recently wrote that the program "will have to step up substantially in the remainder of this year in order" to meet even that total. Consumer advocates and attorneys throughout the country say some of the servicers with whom they’ve interacted often seem outright reluctant to modify loans. And mortgage experts largely agree that cramdown measures must be used to put a dent in the deepening crisis. "It is clear...that this new voluntary, incentives-based program will not and cannot achieve the necessary degree of foreclosure prevention and mortgage debt reduction that are essential prerequisites to an economic recovery," Alan White, a bankruptcy law expert and law professor at Valparaiso University who's studied the mortgage industry, told Congress in July.
Homeowners, in the meantime, are left to wait to see. About a month after first talking to Mother Jones, Kristina Page remains in limbo with Saxon. The company is still tracking down her application paperwork, while at the same time peppering her with automated phone calls saying her mortgage is delinquent. She is, quite simply, at a loss. "My goodness, is this what we really should have to go through?" she asks. "Is this what the president intended for this program?"