By Mark Huffman
ConsumerAffairs.com
February 3, 2009
Attorneys General from a dozen states are calling on the Office of the U.S. Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) to encourage national banks and federal thrift servicing operations to modify large numbers of mortgage loans that are becoming unaffordable for consumers.
The call follows reports by the OCC and OTS indicating that 55 percent of loan modifications made by national banks and federal thrifts were re-defaulting within six months.
"We have done far too little to modify unaffordable loans, not too much," said the state offiocials in a letter to John C. Dugan, U.S. Comptroller of the Currency, and John M. Reich, director of OTS.
The letter said that data collected by the State Foreclosure Prevention Working Group show a significantly lower re-default rate on modified loans. The working group has issued reports on loan modification activity by 13 major non-bank subprime servicers showing a re-default rate of 25.8 percent, compared with the 55 percent re-default rate reported for loan modifications made by national banks and federal thrifts for the same period.
The officials questioned the OCC re-default figure, and pointed out that it could discourage Congress and other policymakers from promoting affordable loan modifications as a crucial response to the nationwide foreclosure crisis.
"The problem is not modifications," said Illinois Attorney General Lisa Madigan. "The issue is the quality, effectiveness and aggressiveness of the modifications. There is a growing body of research that suggests the majority of loan modifications in the past year have not led to meaningful payment relief to homeowners. In fact, many modifications have actually increased consumers' monthly payments."
The re-default rate reported by the OCC and OTS is especially troubling to the states because national banks and federal thrifts service the vast majority of prime, Alt-A, and Option-ARM loans, all of which present immediate challenges in 2009.
"We want to convey our deep concern about OCC and OTS efforts to encourage and monitor loan modification efforts," according to the states' letter. "The data suggests that national banks and federal thrifts are relying on traditional loss mitigation techniques common for prime loans in appreciating markets, rather than applying the techniques and lessons learned by subprime servicing specialists on the need to more aggressively adjust payments and principal balances."
The state officials asked the two federal regulators to provide a full, transparent report of loan modifications made by national banks and federal thrifts, including detailed information on types and numbers of loan modifications — and whether the modifications had helpful terms for homeowners, such as lower monthly payments.
"Without more transparent and robust reporting, we are concerned that the statistics publicized by the OCC/OTS Report are misleading and likely to mislead policymakers and the public about the effectiveness of loan modification programs," said Madigan.
