Banks defend loan modifications ahead of Treasury report

CHICAGO - The Treasury Department isn't scheduled to release its monthly report on loan modifications until Thursday, but lenders are coming out with their own numbers - and defending the low number of permanent modifications - ahead of the Home Affordable Modification Program data.

Mortgage servicers say they are undertaking extensive outreach efforts to work with consumers, but not all borrowers are paying attention to the government program's deadlines or are providing the necessary documentation to receive a permanent loan modification. Chase Bank labeled the process of converting HAMP trial modifications to permanent ones "a struggle."

On Tuesday, Chase said it had offered HAMP trial modifications to 199,033 borrowers, and 16,131 consumers had been approved for permanent mortgage modifications as of Nov. 30. That compares with 182,622 trial offers made through October.

The lender said 75,000 borrowers - representing 51 percent of those offered trial modifications from April through September - successfully made their three payments but haven't submitted the paperwork necessary to make their modifications permanent. Another 29 percent did not successfully complete their trial period, leaving only 20 percent of eligible borrowers in a trial modification who are expected to transition into a permanent one.

On Monday, Bank of America said it had more than 160,000 customers in active trial modifications at the end of November. In October, the number of trial modifications totaled 136,994.

During testimony Tuesday before the House Committee on Financial Services, both servicers and community groups noted drawbacks in the HAMP program and offered numerous suggestions on how to simplify the process, make it more transparent, and boost the number of borrowers receiving permanent modifications.

"We're not satisfied yet with how this program is unfolding," Assistant Treasury Secretary Herbert M. Allison testified.

"The program's effectiveness has been hampered by a severe problem with servicer capacity, by a piece-by-piece rollout of complementary programs addressing second liens and short sales, and by lagging compliance, data availability, and appeals procedures," Julia Gordon, senior policy counsel for the Center for Responsible Lending, said in written testimony submitted to the committee.

Among other changes, Gordon called for servicers to stop the current practice of working on parallel paths, simultaneously moving a house through the foreclosure process while evaluating the homeowner for a loan modification.

"We're not satisfied yet with how this program is unfolding," Assistant Treasury Secretary Herbert M. Allison Jr. said in testimony Tuesday.

Borrowers continue to complain that mortgages servicers are losing their paperwork and that they are being shuttled from one customer representative to another, having to repeat their story every time.

"We're moving toward that model - a homeowner deals with one loan counselor - and for many individuals seeking a modification, they already have that experience. But we're not completely there yet," a Chase spokeswoman said.

The House hearing followed a meeting Monday between servicers and the Treasury Department to discuss the importance of converting borrowers' trial loan modifications to permanent ones.

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