The Treasury Department will restore permanent Home Affordable Modification Program payments to Bank of America (BAC) and JPMorgan Chase (JPM).
Early last year, the Treasury reviewed past grievances such as lost paperwork, poor borrower responses, improper evaluations, and others.
The three largest servicers BofA, Chase and Wells Fargo (WFC) needed substantial improvement under HAMP, and the Treasury temporarily withheld incentive payments to each.
Wells was the first lender to earn back its payments early in 2011, followed by BofA in the third quarter. According to the fourth-quarter report released Friday, the Treasury said Chase finally made enough improvements. As a result, the withheld payments will be restored.
The Treasury will give back $89.1 million to Chase withheld since June 2011. BofA received $81.7 million in HAMP payments back for rebounding in the third quarter report.
“Today the Treasury made it official that no bank will ever be penalized for the almost limitless misconduct committed under this program,” said former Special Inspector General for the Troubled Asset Relief Program Neil Barofsky in an interview with HousingWire. “They’ve sent a disgraceful message.”
The Treasury did not give any deadline to the servicers needing to make vast corrections, implying that a further crack down or deeper investigation would have slowed an already disappointing program.
Participating servicers started 18,000 permanent modifications in January and began 951,000 since the program launched in March 2009. It will fall far short of the once estimated 3 million to 4 million borrowers.
Barofsky said officials once told SIGTARP there would be roughly 25,000 permanent workouts per week.
As of Dec. 31, the Treasury allocated nearly $30 billion to servicers participating under HAMP.
According to the latest HAMP report, seven servicers still need moderate improvements, including BofA, Chase, Wells, American Home Mortgage Servicing, Citigroup (C), Ally Financial (GJM), and Ocwen Financial (OCN).
Two servicers need only minor improvements including OneWest Bank and Select Portfolio Servicing, the report said.
“We’ve worked very hard to make substantial improvements to our servicing business. We’re continuing to make demonstrable progress across mortgage banking and won’t be satisfied until we get the highest rating from the HAMP audit,” a Chase spokesman said.
The Treasury said HAMP helped establish standards mortgage servicers may use to implement larger proprietary programs. HAMP redefault rates are significantly lower than private programs as well. The Treasury changed program guidelines again in January to allow more borrowers to enter the program and provide more incentive for principal reduction, though no official estimates are provided.
Tim Massad, assistant secretary for financial stability at the Treasury, said the assessments are a principal tool used to measure improvements in the mortgage servicing industry.
“By shining the spotlight on key practices, we have prompted servicers to improve their implementation of the Making Home Affordable Program. However, there is still more work to be done to ensure that the industry treats all borrowers properly,” Massad said, adding the recent $25 billion servicing settlement will also help compliance efforts.
A new mortgage fraud task force headed by New York Attorney General Eric Schneiderman launched investigations into mortgage fraud during the crisis.
Barofsky, now a senior fellow at New York University, said not even Schneiderman has the authority to go after HAMP violations, which he saw often while in charge of SIGTARP.
“If they violated contracts with the Treasury, then only the Treasury will be able to go after them,” Barofsky said. “But by not enforcing any rules under the program, they’ve created the ultimate moral hazard.”
