Treasury Reviews Find Servicers Are Effectively Using Workouts

Treasury finds that despite significant progress, he said, “there is still more improvement needed.

The August Housing Scorecard finds industry efforts to be fair to customers are paying off with servicers effectively using modification program eligibility criteria.

The scorecard highlights servicer data in the “second look disagree” category, designed to report on the rate “Treasury’s program reviews disagree with the servicer’s decision not to assist a homeowner.” 

According to the report in 2Q 2013, the average second look disagree percentage for the top servicers did not exceed 2%, which is “less than half of Treasury’s established benchmark.”

In 2Q 2013 mortgage servicers continued “to appropriately calculate homeowner income,” the key criteria used to determine a homeowner’s eligibility and modified payment amount under the program, with most servicers reporting “income calculation error rates below the benchmark established by the Treasury.

While servicers “will need to continue to demonstrate progress” during federal reviews, the report finds they are enhancing their execution in key areas, such as timely solicitation of homeowners so they can benefit from a workout option, detailed communications and proper use of the Net Present Value model during the evaluation process.

Quarterly assessments of servicer performance show the standards set by the Making Home Affordable Program “have changed the mortgage servicing industry,” said Treasury assistant secretary for financial stability Tim Massad. But despite significant progress, he said, “there is still more improvement needed in servicer behavior,” and there are still homeowners struggling to avoid foreclosure and in need of assistance.

Data through July 2013 show over 1.7 million homeowners received foreclosure mitigation assistance through the Making Home Affordable Program.

The number of homeowners who received a permanent modification through the passed 1.2 million, saving approximately 39% on their monthly mortgage payments at an estimated total of $21.6 billion.

The Federal Housing Administration offered more than 1.9 million loss mitigation and early delinquency interventions.

Lenders participating in the Hope Now alliance processed more than 3.7 million proprietary modifications through June.

In July up to 73% of eligible non-GSE mortgages benefited from principal reduction with their HAMP modification, bringing the total amount of savings from principal reduction on permanent modifications to an estimated $11.1 billion.

During the second quarter of 2013 the Neighborhood Stabilization Program helped rehabilitate 25,000 units of foreclosed and abandoned homes in addition to providing direct assistance to 10,000 homeowners under the NSP1, NSP2 and NSP3 programs. 

Market improvements also are helping. Ongoing home price improvements helped decrease the number of underwater homeowners by 42% from 12.1 million in January 2012 to 7.1 million as of the second quarter of 2013.

As indicated in the August housing scorecard, said HUD deputy assistant secretary for economic affairs, Kurt Usowski, “with the number of underwater homeowners decreasing by more than 40%, it is clear that we are moving in the right direction.”

Thanks to housing price appreciation 5 million homeowners “are above water” and no longer owe more on their mortgages than they were worth, according to CoreLogic.