Servicers are ill Equipped to Handle en Masse Modification of Mortgages

Mortgage servicers have always worked as collection agents – this being their business and as such they are ill equipped to handle en masse modification of mortgages. This was the view of Patrick Madigan the assistant attorney general of Iowa. Speaking at an interview he said, “The mortgage industry has responded to this crisis with a series of half steps based on a notion that a turnaround in the housing market was just around the corner.”

The mortgage modification plan introduced by the Treasury stipulates that three parties have to take part in it – the firm that owns the loan, the company that services it and the house owner. All shares a portion of over $20 billion that the federal government has calculated would have to be spent to contain foreclosures. The Treasury wanted to involve as many servicers as can be possible but the GAO noted that the department was not monitoring the process as much as it should.

GAO noted in its July report that there were “significant gaps in its oversight structure.” The firms were under staffed in overseeing the work of the office and it’s monitoring of the modifications. By July, 8 months had passed since the programme was underway but many posts remained vacant.

The government has taken “readiness reviews” of a mere 7 out of a total of 27 servicers. There are no further plans for further reviews. That too the reviews consisted of discussions only with the senior officials. The information gleaned was not later checked. GAO said, “Treasury cannot identify, assess and address risks associated with servicers that lack the capacity to fulfill all program requirements.”

The Treasury however was quick to reply that it was speeding up reviewing procedures and trying to rectify the defects that have been identified. Seth Wheeler of the Treasury said, “Clearly, we’re not there yet. Clearly there’s still inconsistent application of the program, even though we have made progress.”

Many firms have been identified and mentioned by the judges and or regulators for having indulged in erroneous activities with their clients. One of them is Ocwen Financial Corporation, based in Florida that deals with the servicing of over 300,000 mortgages across the country. It will be receiving over $200 million from TARP funds.

Nationwide law suit has been filed against Ocwen. One of the plaintiffs is Brad Rhoton. He said, “Ocwen has screwed up my finances so bad you can’t believe it. It’s been the most maddening process you can imagine.”

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