Servicers that handle loans in the government's Making Home Affordable program could face more enforcement at the urging of the Special Investigator General for the Troubled Asset Relief Program.
Alleged mismanagement of MHA loans has become the biggest risk to the program, according to the latest quarterly report by TARP Special Inspector General Christy Goldsmith Romero.
"The top threat in TARP today is unlawful conduct by any of the 130 banks and other financial institutions in TARP's $27.8 billion Making Home Affordable program," according to the report, which identifies priorities for TARP cases prosecuted with the Department of Justice.
In recent years, SIGTARP has been more focused on enforcement actions related to fraud by bank insiders. During that time, SIGTARP levied criminal charges against 99 bankers, convicted 83, and sentenced 56 to prison. The four insiders convicted worked at banks that collapsed and led to $13 million in TARP losses.
Treasury has spent $18.4 billion on MHA and plans to spend another $9.4 billion through 2023, which makes the program another important investment to defend with enforcement actions.
SIGTARP has recommended that certain servicers should pay for independent reviews of how MHA loan cancellations, payments or other activities were handled due to alleged mismanagement.
Those servicers are Ocwen, Wells Fargo, JPMorgan Chase, Bank of America, Nationstar/Mr. Cooper and Citi.
"Citi disagrees with the characterization of its performance. Treasury's MHA Program Progress Report in 2017 confirmed that Citi met or exceeded benchmarks in all categories except one that needed moderate improvement," a Citi spokesman said in an email.
JPMorgan Chase and Wells Fargo representatives declined to comment. The other servicers named in the report did not immediately respond to requests for comment.
The fact that other regulators have been cracking down more on MHA servicers is another reason SIGTARP wants to change its priorities.
"With an uptick in enforcement actions against financial institutions in MHA, SIGTARP is shifting resources to counter this threat," according to the report.
Examples the report cites include regulatory actions against Ocwen, the largest MHA institution, which has settled with the majority of a large group of states that had taken action against it. Ocwen also faces a pending action by the Consumer Financial Protection Bureau it is contesting in court.
The SIGTARP report also makes note of 2014 Justice Department actions against Wells Fargo, JPMorgan Chase, CitiMortgage and Bank of America; as well as a Federal Trade Commission action that year against Green Tree and Ditech. Green Tree and Ditech are subsidiaries of Walter Investment Management Corp.
"The fact that Treasury is scaling back its MHA examinations to identify institutions' failure to follow MHA rules also contributes to the elevated threat level," the report noted. "In 2016, Treasury rated Bank of America and Nationstar 'substantial improvement needed' in following MHA rules. Treasury no longer issues ratings, calling MHA a 'closed' program, despite being committed or obligated to pay $9.4 billion."
CitiMortgage has largely transferred or outsourced most of its servicing. Walter is in the process of trying to emerge from Chapter 11 bankruptcy.