BLOG VIEW: Why now? That's the question that confronts the U.S. Treasury Department following its announcement last week that it is halting HAMP incentive payments for Bank of America, Wells Fargo and JPMorgan Chase.
The action itself – the withholding of financial incentives in light of servicers' poor performance and noncompliance – is straightforward enough. The timing and execution of the action, on the other hand, call into question the Treasury's commitment to transparent foreclosure prevention and the servicing industry's attitude toward the federal government.
The White House undoubtedly wants consumers to view last week's development as the Obama administration's hard-line stance against a financial services sector that's been, at best, resistant to change – and, at worst, blatantly heedless – when it comes to assisting distressed homeowners.
But to most onlookers, the maneuver likely looks much less impressive than that. First, there's the ‘What took you so long?’ contingent of consumer advocacy groups, which have been decrying servicers' modification efforts since the very earliest days of HAMP. In a call with reporters last week, Tim Massad, the Treasury's assistant secretary for financial stability and point man on HAMP, tried his best to make the announcement sound like the latest in a series of get-tough measures against servicers, rather than a last-ditch attempt to hold servicers accountable.
‘Let's remember, what we're trying to do here is improve behavior, improve performance, so that we more effectively assist homeowners,’ Massad said. ‘This is the next step in our efforts to do so; it's not the first step.’
If the Treasury's servicer assessments are to be taken at face value, it would appear that the industry simply views HAMP and its administrators as a paper tiger. Otherwise, why would all of the program's 10 largest servicers still be in need of either ‘serious’ or ‘moderate’ improvements a full two years into HAMP's existence?
It's very easy for the TARP-era skeptic in each of us to assume that recalcitrant servicers, fully aware of HAMP's voluntary nature and the Treasury's limited set of punitive tools, have only been paying the Treasury lip service. Nobody's getting rich off of HAMP incentives, and the withholding of such funds has to be considered inconsequential, from an earnings perspective, to financial institutions the size of Bank of America, Chase and Wells Fargo.
But by taking enforcement action, however weak, in June 2011 – as opposed to any point in time earlier than the very recent past – the Treasury only serves to highlight its gross mismanagement of HAMP. The various government watchdog agencies that provide oversight of the Treasury's HAMP activities have long pushed for the department to tighten its reins on servicers. For two years, consumer groups and housing counselors have painted borrowers' HAMP experiences as hellish and servicers' cooperation as nearly nonexistent. So why did the Treasury choose now, of all times, to get tough on servicers?
The Treasury's actions become all the more curious when one considers the significant lag between the time Freddie Mac reviewed servicers' HAMP compliance and when the Treasury actually reported the findings. Yes, the assessments were labeled as first-quarter 2011, but servicers say the data is outdated, going back to 2010 and perhaps even 2009. For its part, the Treasury hasn't denied that the assessments are ‘backward-looking.’
A carefully worded statement from Bank of America acknowledged that more needs to be done to help consumers but also stated the bank's belief that future assessments from the Treasury will confirm progress has been made. Chase said it ‘respectfully disagrees with the assessment,’ adding that improvements have been made since the compliance reviews were conducted. Wells Fargo adamantly refuted that its current performance metrics resemble anything close to what was published by the Treasury.
So, if it's all but accepted that the Treasury cannot meaningfully punish noncompliant HAMP servicers, and it's understood that the report's data isn't even fresh, why would the Treasury want to cause commotion now? It might have more than a little to do with the Consumer Financial Protection Bureau (CFPB), which is nearing its start date, and the ongoing negotiations between state and federal officials and the nation's biggest servicers. The Treasury's loan mod machinations could curry favor with the public for the new CFPB, and documented evidence of substandard HAMP performance could potentially give state attorneys general greater leverage in negotiations.
Unfortunately, according to Wells Fargo spokesperson Teri A. Schrettenbrunner, the near-term harm caused by the Treasury's assessments could be major. While HAMP accounts for about 15% of Wells Fargo's modification activity (a percentage that gets halved when you consider only non-GSE HAMP mods, which were the focus of the Treasury's report), the program has been helpful in getting borrowers to talk to servicers, she says.
The Treasury's report could leave a bad taste in borrowers' mouths.
‘Our biggest concern is it's going to leave consumers with the impression that they shouldn't work with servicers on mods, and that's the exact wrong thing to have happen,’ Schrettenbrunner says.
