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Did bank delays cause 800,000 foreclosures?

New research identifies the number of homeowners the federal HAMP program could have helped if banks had moved more efficiently.

By MSN Money Partner Sep 17, 2012 11:09AM

This post comes from Marilyn Lewis of MSN Money.


Neighborhood © Nancy Nehring, Photodisc, Getty ImagesNews outlets are reporting on a new study that computes the effectiveness of the $75 billion federal effort to stop foreclosures through HAMP, the Home Affordable Modification Program. Or, looked at another way, the study sizes up the damage from banks' failure to modify loans in the early years (2009-2010) of the foreclosure crisis.


If the largest banks had moved faster and more efficiently, about 800,000 foreclosures would have been averted, the study found.


The Consumerist's headline: "Study says 800K homeowners should've avoided foreclosure but big banks messed it all up."


Writes CBS News:

While HAMP did modify loans and prevent roughly 800,000 foreclosures, the study found it could have helped another 800,000 homeowners if all lenders had been operating at the same high level of capacity. That would have meant around 2 million homeowners would have been able to modify their loan instead of 1.2 million.

The research was the work of scholars from the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency, the University of Chicago, Columbia Business School and Ohio State University. They used a massive trove of government data covering about 60% of all U.S. mortgages.


The scholars also looked at why some banks did so much better than others at helping homeowners renegotiate their debt.


Long tradition

The American tradition of government offering household debt relief and foreclosure-prevention programs in troubled times dates back at least to the Great Depression. Yet, oddly, little evidence has been gathered about the effectiveness of these programs, the researchers said.


In one sense, the study uncovered what we already know -- which is that HAMP has fallen far short of its goal of helping 3 million to 4 million indebted households. 


Bloomberg Businessweek writes, "The program also had no effect on consumer spending -- no extra bump in auto loans, home prices, lower credit card delinquencies, or other ancillary benefits." (Post continues below.)

Instead of giving money to homeowners, HAMP pays servicers -- the companies (often bank-owned) that send mortgage statements, collect payments and foreclose when homeowners fall too far behind.


HAMP pays servicers $1,000 per loan after they've finished negotiating with a homeowner, plus $1,000 a year for three years if the borrowers keep paying on time. That's on top of the servicers' normal fees of about $400 to $1,000 a year for a $200,000 outstanding loan balance mortgage, the study says.


The budget for HAMP is hard to pin down, but $75 billion is the number used most. Much of it still is unspent. "I've seen HAMP alternately described as a $75 billion, $50 billion, $45.6 billion and $29 billion program," writes David Dayen on Firedoglake



Some banks responded well to the HAMP incentives and did lots of modifications to keep borrowers in their homes. But the biggest banks had much less impressive records. "A few large servicers . . . responded at half the rate (of) others," the study says.


Since 75% of the mortgage servicing business is concentrated in the hands of a few big banks, that meant HAMP's effectiveness was severely limited. Writes Bloomberg Businessweek:

The researchers did find strong correlation between a servicer's success with HAMP and the operational skill it had before the program was introduced. Banks that previously had fewer loans per employee, more training for staff, and shorter wait times for phone calls took far more advantage of HAMP.

Nonprofit news agency ProPublica writes: "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."


The researchers did not identify the problem banks. But ProPublica points out "the largest mortgage servicers are Bank of America, JPMorgan Chase, Wells Fargo and Citi."


$25 billion settlement

Public attention shifted away from HAMP after a $25 billion settlement was negotiated in March between banks and state and federal governments over abusive foreclosure practices.


But the settlement, too, has been disappointing. It has largely failed to stop foreclosures, which was the goal. Rather, banks are using the fines they agreed upon in the settlement to facilitate short sales, in which borrowers sell their homes for less than they owe.


"In a short sale, homeowners still lose their home, though under less punitive terms than a foreclosure," Bloomberg Businessweek writes.

The researchers conclude:

Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such policies.

More on MSN Money:

Sep 17, 2012 3:47PM
We should've just let the big banks fail
Sep 17, 2012 5:40PM

I am so sick of people posting that all homeowners in foreclosure purchased more than they could afford and they deserve to lose what they can't pay for!  I am one of those fighting foreclosure against Bank of America.  I didn't have any problems paying ALL my bills in full and on time every month, including my mortgage, for years until I lost my job like thousands of other Americans due to the economy.  When I contacted BAC to try to work out some kind of payment plan until I could find full-time employment again, I was given nothing but the run-around.  I am still fighting with them and it's been 3 YEARS!!!!!!!  I have been working full-time for quite a while and am still getting stall tactics from BAC about refinancing, remodifying, ANYTHING!!  I'm not trying to get away with anything for free.  I'm just trying to hold on to what I've busted my a@# for all those years.  But it's difficult when the big banks don't want to work with you, especially when you consider that MY tax dollars bailed your freakin' banks out of hot water!!!!!!

Sep 17, 2012 1:11PM

Lets see if I have this right. First the government requires banks to loan money to people who can't afford a house - then come to the rescue when they can't make payments, and if the goverment and banks would have given away  $75 billion tax payer dollars  faster - our forclosure rate would be down.


Got it.

Sep 17, 2012 4:49PM

Is anyone really surprised by this?

I would argue that the "big banks" made more money by NOT participating!

Disorganization and understaffing?

They had enough people to write the loans, why wouldn't they have enough to modify them?


More BS if you ask me...

Sep 17, 2012 12:44PM
What this study shows is that too big to fail was actually too big to succeed.
Sep 17, 2012 12:59PM
WOW... anybody still out there who doesn't think we need to:

Close the Banks. End the Federal Reserve. Get rid of Wall Street and focus 100% on job recovery so we can restore economy and start climbing out of this mess?

Sep 17, 2012 2:41PM
And why do I suspect we funded this useless study.  Clearly the banks had too much skin in the game to make it profitable to push the refi's through.
Sep 17, 2012 5:03PM
We lost ours...thank you BoA...tried for 1 1/2 years...they kept making promises, and we kept borrowing money to make the payment while my husband was ill and unemployed for 2 years! Not until I finally said I would not make another payment until I got an answer....the same phone call, "sorry you don't qualify..your income to debt ratio is too high"...ReallY?  That's because I have been borrowing from everywhere I could to make sure I made the payment until they came through with help.
Sep 17, 2012 6:42PM
I don't care what your house payment is and how much you live within your means. When you lose your job, and unexpected health problems arise at the same time it is pretty much a downward spiral from there. If you are one of the fortunate ones who were able to keep their home after losing all your income, I applaud you, if not I empathize with you.  I live in an are where roughly every other house has been foreclosed upon. The house that originally sold for 160 thousand are now selling for 50,000.  Since this is the case why couldn't/didn't the banks just sell these houses back to the original homeowner modifying the mortgage to the new lower price. Now the houses set empty and ugly because noone is taking care of them. I am college educated but feel very stupid because I just don't understand the banking/real estate mentality. What I do see on tv is every other commercial is giving 'atta boys' to the banks and real estate companies, indicating to me that whatever they did in the beginning of this mess was very very wrong  
Sep 17, 2012 12:55PM
Bull. You don't pay your debts you loose. period. Everyone is to blame except the idiot who bought more than they could afford. Tired of that BS.
Sep 17, 2012 5:20PM

First the banks tank the housing industry  with liar loans!

Obummer bails them out with money to"Help keep people in their homes!!"

The banks then takes this money and purchase futures based on their rigged libor rate!!

The homeowners and economy are left to bleed out and die!!!

Congress!The Senate!The Fed and Obummer all knew this!

Our Government is failing and needs to be replaced!!

Term limits for all...    Close The Fed..             

Sep 17, 2012 6:56PM

We continued to send the same paperwork over and over again,at least ten times, even while actually on the phone with a Citi employee faxing and talking to make sure they rec'd. After they acknowledged rec'pt by fax, time goes by and they send a letter stating they have not rec'd paperwork and apps.again. When 4 months elapse after doing this and they also do not apply the payments while in the midst of the HAMP program. We were never late on any of the payments, and recieve a foreclosure notice.

I had to come up with 20k to get relief from the lawyers that are in the same address as the mtg. co.or, the foreclosure would have taken place.As long as they could extend the time past 4 mos. and not credit the home loan monies as they send the funds to a different location and not to the loan, it shows unpaid.They can then recieve the credit monies for the foreclosure they placed.

Absolute Criminals! They should all be in prison.

Sep 17, 2012 10:35PM

The HUD Guidelines for HAMP NEVER had this default requirement listed in order to apply for a modification.


Sep 17, 2012 6:51PM
It took me 3 1/2 years to get a Loan Mod. When I first called about this program I was current on my payments. I was told by JP MORGAN?CHASE that I need to be over 3 months past due. I lost my job 10 months and I'm now paying $42.00 less. WaUa.

Sep 17, 2012 7:26PM
Interesting article but it was the increased federal requirements that led to the unavailability of HAMP.  I guess if the banks had known all the additional requirements and federal red tape they could have geared up to address the problem.  Personally, refinancing has gone from a handshake to 64 pages of documentation and five months of delay.  The reason is that all loans are now being underwritten by Freddie and Fanny.  Banks that finance their own mortgages are declared stressed and sold.  Interesting way of doing business, sort of like the good old days dealing with the Mafia.  More interesting is that the fed blames the failure of their programs on the banks and does not disclose the facts behind the issues. Something a good journalist would have realized in an election year.
Sep 17, 2012 6:21PM
I dont see why the fed is printing more to pump into banks that are not loaning. When I got my first house I qualified for 103000. The house I got was 64000. No where near what I could have got. One must buy within their means.However much the house payment is, is what one needs to earn a week.
Sep 17, 2012 11:43PM
If your loan is underwater (you owe more than the home is worth), you can not refinance it in ANY normal way to get a lower interest rate.

The only way to get a refinance when interest rates dropped was to apply for a loan modification.

So, if you were paying close to 7%, and then interest rates had dropped to 4.5%, you could not just refi if your loan was underwater. You had to have a very close loan-to-value ratio to qualify for a refi. After the bubble burst, most home values plummeted beyond the L-T-V.... so your only choice if you wanted to stay in your home was a modification.

Sep 17, 2012 9:06PM






If you have a small business beware, there is something out there that steals, they blind you and it is through bank accounts, credit cards, even as to duplicating checks, there is also something out there that is a compulsive shopper.  


People who speak the truth are sick, crazy or are mentally ill, but it is real


I have experienced, if there is someone out there that has experienced something beyond their understanding or anything that you can not explain.


Please post the message here I have been trying to find answers.    

Sep 17, 2012 6:16PM

Are these the too BIG to fail banks?. I have zero balance, I simply dont trust themAnd they are failing.

Sep 26, 2012 9:42PM

In 2004-2006 I earned 250k a year as a general contractor. I employed 46 people. In 2002 I sold my home and used the money to grow may business. My family downsized, we rented and I worked 70 hrs a week to make this happen. 

in 2006 I put 130k down on a 685k home my payments were just under 4000 a month. Well within my income!!!

In November of 2007 I went from having 17 scheduled jobs on my books to 3. I literally went from having millions of dollars a year on my books to a few thousand in 1 month. Non of my clients could get financing for their projects, many others were canceled out of fear.  

I took a couple of jobs with little or no profit in them to keep my loyal employees fed. I then began liquidating assets.

About six months later Citibank informed me that my LTV was now upside down (What!). and that the loan was considered high risk. They raised my interest rates and my mortgage went up to 6200 a month!!!!!! My income had dropped considerably and I went from paying 48K a yr to 75k a year. After numerous phone calls and an attorney six or seven months had passed and I started missing payments I couldn't help it. I had sold my truck, my boat and my motorcycle and put the money toward my mortgage. 

Citibank never came through with the modification. Due to the number of foreclosures in my neighborhood my home short sold for 385K or 300k less than the original sale price.

That is my story, credit destroyed, original home gone!, dream home gone! a lot of blood sweat and tears gone! 

If you think I bought a house I could not afford --- KISS MY ****!!! 

My only mistake was being in a business that built homes for the other people who got suckered as well. Hell I worked soooo much I could not justify taking the time to build my own home.

Somebody needs to drive a truck BATF style into the home of Citibanks CEO. Not the building where the poor shlubs do the bidding of the over payed corporate robbers.

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