Report Connects Foreclosure Rates to Bank Understaffing, Disorganization

A new study finds that disorganization and understaffing at the nation's largest mortgage servicers contributed to low modification rates over the last few years, leading to 800,000 more foreclosures than necessary between 2009 and 2012.

New Study Implicates Nation's Largest Banks

The new report found that 800,000 more homeowners would have been eligible for a loan modification between 2009 and 2012 if the nation's largest banks had been adequately staffed, properly organized and had devoted resources to training staff members responsible for processing modification requests.

Officials at the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, Ohio State University, Columbia Business School and the University of Chicago authored the report. They analyzed the impact HAMP--the Home Affordable Modification Program--had on foreclosure and loan modification rates over the past few years.

Though it did not name the banks with the lowest loan modification rates, the study did mention that the nation's largest banks processed loan modifications at half the rate of smaller banks, which had larger, better-trained staffs. The nation's largest banks include Bank of America, Wells Fargo, JPMorgan Chase and Citi.

The experts theorize that these banks dragged their feet on increasing loan modifications, because improving modification rates would shift their focus from loan payment processing to actively negotiating with homeowners.

HAMP Increased Loan Modifications, but Fell Short of Goals

President Obama announced the HAMP program in 2009 and predicted that the program would lead to three to four million loan modifications by the end of 2012. The program gave monetary incentives to the nation's banks in an effort to remove the economic barriers that the banks claimed barred them from processing more loan modifications.

The report found that though it marginally increased the number of loan modifications, HAMP fell far short of its goals. Instead of the three or four million modifications, only 1.2 million modifications are predicted to be complete by the end of this year. The study estimates that 800,000 homeowners would have qualified for loan modifications if the banks had had their acts together. Instead, these homeowners suffered through foreclosure.

Report's Authors Suggest an Alternative: Private Servicers

Due to the poor performance of HAMP, the report's authors suggest the government use the money slated for bank incentives for another purpose. Instead of paying banks a subsidy that may or may not compel them to increase loan modifications, the authors recommend the money be used to fund private mortgage servicers that would be better staffed and more efficient. The big banks could transfer their loan modification applications to the new servicers. The experts predict this system would help improve the nation's foreclosure rate.

Though the study provides little recourse for homeowners who have been foreclosed on or have been threatened with foreclosure, at the very least it provides an explanation for the low loan modification rates over the past few years. If your bank has threatened you with foreclosure, contact an experienced bankruptcy attorney who can help you determine if bankruptcy or a loan modification could help you keep your home.

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