Treasury’s Servicer Ratings for Modifications are Eye Opening

The Treasury Department recently issued The Making Home Affordable Program Performance Report Through April 2011 which reviews mortgage servicers in their administration of President Obama’s Making Home Affordable program. Bank of America, J.P. Morgan Chase Bank and Wells Fargo Bank did so poorly that the government will withhold the financial incentives it pays for mortgage modifications made through the program until these servicers show improvement.

The Report includes a number of metrics for the servicers reviewed but the one I found most interesting was the “Income Calculation Error %.” The borrower’s income is critical to a determination of whether the borrower qualifies for a Making Home Affordable modification. The Making Home Affordable-Compliance unit (MHA-C) did its own income calculation for certain applicants and compared it to the servicer’s income calculation. Differences of 5% or more between MHA-C’s and the servicer’s calculation were included in the “Income Calculation Error %.” Treasury set a benchmark of less than 5% meaning that Treasury believes that MHA-C’s and the servicer’s calculations should be within 5% of each other 95% of the time. None of the ten servicers reviewed met the benchmark. The results ranged from 6% for GMAC Mortgage and Litton Loan Servicing to 33% for Ocwen Loan Servicing. J.P. Morgan Chase was 31%, Bank of America was 22% and Wells Fargo was 27%.

This data means that many borrowers did not get mortgage modifications because the servicer miscalculated their income. We can applaud the Treasury for taking steps to correct the servicers’ miscalculations for future applications. But what’s being done for those who lost a modification opportunity because of an income miscalculation?