Lenders drag feet on modifying mortgages

WASHINGTON — The government's $50 billion program to ease the mortgage crisis is helping only a tiny fraction of struggling homeowners, and a list released Tuesday showed which lenders are laggards.

As of July, only 9 percent of eligible borrowers had seen their mortgage payments reduced with modified loans. And the first monthly progress report showed that 10 lenders had not changed a single mortgage.

The report indicated that lenders such as Bank of America and Wells Fargo have lagged behind government expectations. Both banks received billions in federal bailout money.

BofA modified just 4 percent of eligible loans, and Wells Fargo 6 percent. Wachovia, which was taken over by Wells Fargo in December, modified only 2 percent.

"We think they could have ramped up better, faster, more consistently and done a better job serving borrowers and bringing stabilization to the broader mortgage markets and economy," said Michael Barr, the Treasury Department's assistant secretary for financial institutions.

"We expect them to do more," Barr said.

The government is trying to squeeze better results out of its main anti-foreclosure program, which has put about 235,000 borrowers on the path to loan modifications out of the 4 million targeted for help.

National Economic Council Director Lawrence Summers has said the report is an effort to create transparency about which mortgage servicers are helping most.

"The biggest servicers certainly have the biggest ships to turn," Seth Wheeler, a deputy assistant Treasury secretary for federal finance, said before the report was released.

Wells Fargo said it plans to speed up its efforts, signing up most borrowers for the Obama plan with one phone call and sending customers a trial offer within two days.

The report is "only part of the story" because the numbers do not reflect an additional 220,000 loans Wells Fargo modified outside the Obama plan this year, a company executive said.

BofA said it would improve its "processes for reaching those in need" and continue working with the Treasury Department to help homeowners who fall outside the program's eligibility requirements.

JPMorgan Chase is happy with its progress so far, said spokeswoman Christine Holevas.

"That always has to be tempered with the fact that the demand is great; we know that we have more to do," Holevas said. "We believe we've made significant progress. We've ramped up, we've hired people, we've added office space, we've invested in technology."

JPMorgan said June 30 it had approved 87,100 loans for modification under the administration's plan since April 6.

Loan servicers send out bills, collect debts and keep records for mortgage lenders. A group of servicers met with Obama administration officials July 28 and pledged to step up the pace of loan modifications to keep more homeowners from sliding into foreclosure, according to the Treasury.

The report shows the levels of homeowner assistance for the 38 companies participating in the loan-modification program. The Obama administration said last month it has set a goal of starting at least 500,000 trial modifications by Nov. 1.

Many banks don't yet have the capacity to process the volume of loan modifications, said David Sisko, the head of default-management services for Deloitte & Touche. He said modification specialists have gone from processing an average of 50 to 100 loans a month to 200 to 300.

"The smaller banks and servicers are probably a little nimbler," Sisko said.

Eligible loans are at least 60 days past due, in foreclosure or bankruptcy, and originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas.

The data exclude Federal Housing Administration and Veterans Affairs loans.

The program requires banks that received federal aid from the Treasury's Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at "imminent risk" of default.

Banks can lengthen repayment terms, drop interest rates to as low as 2 percent and forbear outstanding principal, among other methods.

"A lot of these modifications are very hard to do; it takes time and you can't rush it," said Paul Miller, a bank analyst for FBR Capital Markets in Arlington, Va.

Information from Bloomberg News is included in this report.

Associated Press reporter J.W. Elphinstone contributed to this report.