WASHINGTON (Reuters) - The Obama administration turned up the heat on three big banks on Thursday to help fight the housing crisis, withholding payments to them under a foreclosure relief program that has had little impact.
The Treasury said Wells Fargo, Bank of America and JPMorgan Chase & Co need to improve their loan modification efforts substantially to merit the financial incentives the administration’s main housing rescue program provides to mortgage servicers.
A fourth servicer, Ocwen Financial Corp, was also cited by the Treasury as needing “substantial improvement” but was not subject to financial penalties.
“While we continue to get tens of thousands of new homeowners into mortgage modifications each month, we need servicers to step up their performance to meet the needs of those still struggling,” Treasury Secretary Timothy Geithner said in a statement.
A prominent housing expert, economist Robert Shiller, warned at a New York housing summit that real home prices could easily drop another 10 percent to 25 percent.
That would greatly complicate efforts to help “underwater” homeowners by driving thousands more into a situation where their mortgage balances exceed the value of their homes. Already more than 3.5 million homes have been foreclosed on since the beginning of 2007, according to data firm RealtyTrac.
Treasury’s move against the servicers came as the department issued its latest “scorecard” on the number of homeowners who have won permanent loan modifications under the program.
The number fell to 28,867 in April from 36,432 in March. At the end of April, 608,615 Americans had active permanent loan modifications, which consumer advocates say is far too low.
When the Home Affordable Modification Program was launched in the spring of 2009, the administration said it expected 3 million to 4 million homeowners would benefit by having their loans modified to permit lower payments or to extend the period over which payments could be made.
The program, which provides financial incentives to services who help borrowers rework mortgages, has been widely derided as ineffective.
The Republican-led House of Representatives voted to shutter the program in March, although the Democrat-led Senate is not expected to follow.
For the first time, the administration measured the performance of the 10 biggest servicers — the companies that make sure mortgage holders submit their monthly payments — and found shortcomings of greater or lesser degree in all.
“Four servicers have been identified as needing substantial improvement and six servicers have been identified as needing moderate improvement,” it said.
The Treasury reviewed how the servicers identify and contact homeowners, the way that they evaluate and assist people and their management and governance procedures.
A senior Treasury official told reporters on a conference call that all the government wants is for the servicers to become more efficient. “If they fix the problem, they’ll get the money,” the official said.
Bank of America, the industry leader with nearly 110,000 permanent modifications in place, pledged corrective action.
“We acknowledge improvements must be made in key areas, particularly those affecting the customer experience,” said Bank of America spokesman Dan Frahm.
But JPMorgan Chase said it “respectfully disagrees” with Treasury. “We have made significant improvements since the modifications that Treasury reviewed,” a spokesman said, adding the bank would continue to work on its processes and controls.
“Until we see better results on servicing practices, I think it is important to say that the report is very consistent with our desire to have a high level of transparency around all of the governments programs and to get the information out there — but also to send a message that we want things to be better,” said Mary Miller, assistant secretary for financial markets at Treasury at a dinner for Women in Housing and Finance.
Additional reporting by Margaret Chadbourn in Washington and Leah Schnurr in New York; Editing by Chizu Nomiyama. Bernard Orr