Servicers Respond to Treasury's Decision to Withhold Incentives

Treasury says it will not pay program incentives to three of the nation’s largest mortgage servicers until it sees evidence that they’ve made improvements to the way they handle borrowers under the Home Affordable Modification Program (HAMP). 

After reviewing three key areas of program implementation, Treasury officials gave Wells Fargo, JPMorgan Chase, and Bank of America grades of “needs significant improvement.” That grade carries with it a suspension of incentive payments. 

Treasury evaluated the servicers on identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management, and governance.

Wells Fargo issued a statement immediately following the release of Treasury’s report saying the company is “formally disputing” the findings.

“It paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury,” Wells Fargo said.


Tim Massad, assistant Treasury secretary, explained to reporters Thursday that the review was conducted primarily during the first quarter of this year, with some servicer reviews starting earlier in the fourth quarter of last year.


But according to Wells, the report reviews activities “that date back a year or more.” The company says it has since made improvements to its processes that are not reflected in the assessment.


“We are willing to accept fair and accurate criticism,” Wells Fargo said. “We realize that continued improvements are needed, but this report does not fairly reflect our leading role in making loan modifications….We want our customers to know we are here to help them.”


As of April 30, Wells Fargo says its servicing portfolio held 673,179 loans that were active trial or completed mortgage modifications initiated since the beginning of 2009. Of these, 574,128 were done through Wells Fargo’s own modification programs and 99,051 were completed through HAMP.


JPMorgan Chase also pointed to the fact that Treasury’s review covered aged actions that don’t reflect current performance.

“The bank respectfully disagrees with the assessment,” said a JPMorgan spokesman. “We have made significant improvements since the modifications that Treasury reviewed and continue to work hard to keep improving our processes and controls.”

JPMorgan reported in its first-quarter earnings announcement that it has completed 324,000 loan modifications since the beginning of 2009. Treasury’s report shows that of these, 95,440 were permanent HAMP mods.

In its response to Treasury’s servicer assessment report, Bank of America said, “We are committed to continually improving our processes to assist distressed homeowners…. We acknowledge improvements must be made in key areas, particularly those affecting the customer experience.”

Bank of America says it has already made progress in several performance areas. The company recently brought in a team of executives, who collectively have more than 70 years’ experience working with distressed borrowers, to head up critical areas within its Legacy Asset Servicing division.

“We believe future reviews will confirm [our] progress,” Bank of America said. “We meet regularly with [Treasury] officials to review performance and address any concerns, and will continue that process.”

Bank of America has completed more than 127,000 permanent HAMP modifications and more than 850,000 through its own proprietary programs.

Servicers are paid $1,000 for every permanent modification made under HAMP. “Pay for Success” incentives are then awarded to servicers annually for three years as long as the borrower stays current.

According to Massad, Bank of America, JPMorgan Chase, and Wells Fargo, together received $24 million in incentive payments last month. He says because HAMP participation is voluntary and Treasury doesn’t have the authority to impose fines like a regulator could, they’re using the tools they have to push servicers to take remedial actions when they are not in compliance with program guidelines.

“In comparison to the cost of supporting the program, the incentives were diminutive,” Ed Delgado, CEO of the Five Star Institute, told the Wall Street Journal on Thursday.

Delgado also notes that banks “are not in the loss mitigation practice to earn incentive fees, rather the servicing model was established to prevent foreclosures and reduce credit loss exposure.”

Massad stressed that Treasury’s objective is to “improve behavior” and “set a standard of transparency.” 

But Delgado says, “Based on [Thursday’s] performance reports, I wouldn’t be surprised if one of the larger banks withdraws from participation in the [HAMP] program.”

*Editor’s Note: Ed Delgado is CEO of the Five Star Institute, the parent company of DS News and DSNews.com.
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