Feds Ignored Banks That Flouted Anti-Foreclosure Program

For sheer willful incompetence, it's hard to top the U.S. Treasury's Home Affordable Modification Program. Fewer than one in four homeowners have managed to get mortgage relief under the initiative, which the Obama administration launched in 2009 to combat the tide in foreclosures related to the housing crash. A major reason why HAMP is a bust: The feds have allowed banks and loan servicers to get away with murder.

Take Ally Financial and its GMAC mortgage unit, which kicked off the "robo-signing" scandal last year after having been caught falsifying foreclosure documents. ProPublica reports that the government for months allowed GMAC to flouted HAMP rules in turning away borrowers who had applied for a loan modification under the program:

[T]he company operated with almost no oversight for the program's first eight months. When auditors did finally conduct a major review more than a year into the program, they found that GMAC had seriously mishandled many loan modifications â€"- miscalculating homeowner income in more than 80 percent of audited cases, for example. Yet GMAC suffered no penalty. GMAC itself said it hasn't reversed a single foreclosure as a result of a government audit.

The documents also reveal that government auditors signed off on GMAC loan-modification denials that appear to violate the program's own rules, calling into question the rigor and competence of the reviews.

And how are other large loan servicers, such as Bank of America (BAC) or JPMorgan Chase (JPM), doing in complying with HAMP? Not well, judging from the thousands of homeowners who have reported difficulty in negotiating the program. Then again, it's hard to know for sure how large financial firms are performing, because Treasury officials long refused to say. ProPublica:

For HAMP's first two years, the government offered very little public detail about its oversight efforts. It was virtually impossible for the public â€"- or even Congress â€"- to know how well the banks and mortgage servicers were complying with the government's effort to prevent struggling homeowners from losing their homes. Those years were crucial, because that's when the vast majority of homeowners eligible for a modification â€"- about 3 million â€"- were evaluated by servicers.

Other government agencies also are falling down on the job in helping struggling homeowners avoid foreclosure. The Inspector General for the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, concludes in a new report that the FHFA has failed to stop the government-sponsored enterprises from using strong-arm legal tactics in foreclosing on people. The IG notes:

FHFA has not developed formal policies to address poor performance by law firms that have relationships â€"- either directly through contract or through its loan servicers â€"- with both of the Enterprises.

Millions of foreclosures later, many of them unwarranted and unnecessary, here we are. Since the outset of this crisis, big financial firms have consistently resisted cutting people's mortgage payments. That's never going to change. What can -- and must -- change is how the feds handle such resistance.

Image from Flickr user Respres via Wikimedia Commons, CC 2.0
Related:

• Foreclosure Express: Why the Feds Let Banks Get Away Murder
  
• Feds to Homeowners: It's Your Own Damn Fault Our Foreclosure Program Failed
• Justice Denied: How the Feds Are Caving to Wall Street on Foreclosures
• Feds: How About a Foreclosure Settlement? Banks: F.U.
• How Ally Financial "Robo-Signed" People's Homes Away