WASHINGTON -- Troubled homeowners are facing unacceptable delays when they turn to the Obama administration's flagship foreclosure prevention program for help, the watchdog agency that oversees the initiative reported.
The analysis found that the number of borrowers awaiting approval for the Home Affordable Modification Program nearly doubled in the six months that ended May 31. The volume of unprocessed applications jumped from 133,600 to 221,500, an "alarming trend" that leaves borrowers in limbo and exposes them to a higher risk of foreclosure, the special inspector general for the Troubled Asset Relief program concluded.
Some wait up to a year for a response to their applications.
HAMP lowers the monthly mortgage payments of borrowers who are in default or close to it. It's up to lenders to review applications and determine who qualifies for the modifications.
First, homeowners must be approved for a trial period to demonstrate that they can keep up with the new payment plan. If all goes smoothly, they should be approved for a "permanent" modification roughly three months later. (Permanent, as defined by the program, means five years of lower payments.)
When the report refers to unprocessed applications, it means the ones that have neither been denied nor granted a trial payment period.
JPMorgan Chase and Select Portfolio Servicing are singled out as being the least effective in keeping up with demand. Of the firms reviewed, they were the only ones to make a decision on less than half the applications they received in the six-month period. CitiMortgage took the longest to process applications. It reviews about 642 applications a month on average, and it would take a year to process all applications in the pipeline at that pace, the report said.
Citi said it has not had a chance to review the report and declined to comment on it. But a company spokesman said that the lender aims to swiftly respond to homeowners after it receives the necessary paperwork.
The analysis comes from the same watchdog that reached a $320 million settlement with SunTrust Mortgage earlier this month to resolve criminal allegations that the company misled HAMP applicants in the early years of the housing crisis, and failed to process their applications in a timely manner. The regulator alleged that the floor in one SunTrust office buckled under the weight of unopened applications.
The report relied on data from the Treasury Department, which launched the program in 2009. The administration questioned the conclusions, and suspects that the delays cited reflect wait times for all types of mortgage modifications, not just HAMP.
New regulations that kicked in this year require lenders to consider all foreclosure-prevention options available to borrowers who ask for help. That means someone applying for mortgage relief must now also be considered for all programs. Complying with the new rules may help explain some of the delays, industry officials said.
"Treasury remains committed to maintaining the standards HAMP has set while the industry implements new servicing regulations so that those households facing a hardship receive the best and most timely outcome," Timothy Bowler, the department's acting assistant secretary, said in a statement.
The new rules were also cited in a statement from JPMorgan, which said the bank "is confident that when analyzing our HAMP pipeline with an understanding of these requirements, our performance would reinforce (JPMorgan's) efforts to keep families in their homes."
Funding for HAMP came from the $700 billion that the Treasury Department used to bail out banks and other firms considered vital to the nation's financial stability. SIGTARP, which produced Wednesday's analysis, oversees the bailout money and has consistently criticized the administration's handling of HAMP in its regular reports to Congress.