The Wall Street Journal
By: Ruth Simon
April 29, 2011
The clock is ticking for the biggest U.S. banks to revamp their foreclosure practices.
Under orders from U.S. regulators, 14 financial institutions have until mid-June to lay out plans to clean up their mortgage-servicing operations--and another 60 days to make the changes.
It will be a daunting, expensive chore despite the work done since the foreclosure mess erupted last fall. J.P. Morgan Chase & Co. said it would take a $1.1 billion charge related to the consent order and other servicing-cost increases. Citigroup Inc., which services $602 billion of mortgage loans, predicted the changes will boost expenses by as much as $35 million a year.
"It does raise the bar," said Frederick Cannon, director of research at Keefe, Bruyette & Woods Inc. The overhaul either goes "beyond what was considered best practices for the industry, or [banks] weren't really complying with best practices."
On Thursday, Fannie Mae, Freddie Mac and their federal regulator rolled out new guidelines designed to encourage more successful modifications while preventing foreclosures from dragging on. The rules will require servicers to approach borrowers earlier and more frequently after a first missed payment in order to have a better chance at modifying loans. The mortgage titans also will pay more to servicers that meet certain benchmarks and establish timelines for banks to modify loans or process foreclosures.
Here is a status report on how close some of the largest mortgage servicers are to meeting three important requirements in the regulatory order:
Single point of contact. Borrowers who have been bounced from one bank employee to another must get a "single point of contact" to steer them through loan modification and the foreclosure process.
In June, Wells Fargo & Co. began assigning an employee and backup employee to each borrower seeking a loan modification. The program "significantly improved customer communication and the modification process," said Wells Fargo spokeswoman. It plans to expand the effort to foreclosures and short sales, or sales for less than what is owed on the property.
Some borrowers still aren't satisfied. "They kept assigning me a person, but I never got to speak to that person," said Rachel Goler, a bus driver who lives in Monroeville, Pa.
Wells Fargo's spokeswoman said the employee assigned to Ms. Goler "was falling down on his job." The borrower's phone calls also weren't transferred to the right department, the San Francisco bank said.
Ally Financial Inc. assigns borrowers who have had trouble submitting a completed financial package a team of employees to help them gather documents, execute a final loan modification or weigh other foreclosure alternatives. Ally is looking for ways to better identify borrowers who need extra help, a spokeswoman for the Detroit lender said.
J.P. Morgan is working on a software program to make it easier for employees and borrowers to track loan-modification requests. Last year, it started providing some borrowers with a "relationship manager" to advise on the process.
Citigroup now provides borrowers with a single point of contact for gathering documents and handling short sales. In the next months, it will roll out a "concierge" system that will assign a small team of employees to help delinquent borrowers and homeowners at risk of default navigate the system.
Bank of America Corp. has begun its version of a single point of contact but declined to provide details.
Deadlines. Banks are required to set "appropriate deadlines" for deciding whether borrowers can get a loan workout.
Frustrating waits are common, and borrowers often are asked for fresh financial information because their documents sit around at the bank for too long. Los Angeles Neighborhood Housing Services says it takes an average of 141 days for borrowers it works with to get an answer after completing an initial loan-modification request. The nonprofit group, which works with borrowers at risk of foreclosure, said Wells Fargo has the fastest turnaround, with initial reviews averaging 79 days. A Wells Fargo spokeswoman said 60% of borrowers receive a decision five days after the company receives a complete package, up from 45% a year ago.
"We're not happy" with the time it takes to give borrowers an answer, said Christine Larsen, head of operations for retail financial services at J.P. Morgan, who is responsible for implementing the consent orders. The bank is trying to speed response times by setting new customer-communication deadlines.
Ally Financial said it responds to the average borrower within seven to 10 days of receiving a complete financial package.
At Citigroup, the goal is to give borrowers a final answer about a permanent modification within 22 days of their final trial payment. "On average, we do that," said Sanjiv Das, chief executive of the CitiMortgage unit.
Staffing levels. Banks must make sure they have enough employees to deal with the tidal wave of troubled loans. For some lenders, that means hiring more workers.
J.P. Morgan said it will add as many as 3,000 new home-lending jobs, mostly drawing the workers from elsewhere in the company. BofA said it hired roughly 3,000 people in the first quarter to work on troubled mortgages. Citigroup said it will expand its loan-modification unit by 500 employees.
Wells Fargo doesn't expect to increase staffing because the number of borrowers behind on loan payments is declining. It might transfer employees from other parts of the company with excess capacity.