by A report to Congress by the Special Inspector General Troubled Asset Relief Program (SIGTARP) examined the reasons for the high percentage of redefaults by homeowners in HAMP. By December 31, 2015, over 500,000 homeowners who had HAMP modifications had missed three payments (“redefaulted”) on their loans. This number represents approximately one third of homeowners in the program. Concern over the high redefault rate and potential misconduct on the part of the servicers caused the Treasury, at SIGTARP’s request, to conduct compliance testing at each of HAMP’s largest servicers; Bank of America, CitiMortgage, JP Morgan Chase, Nationstar, Ocwen, Select Portfolio Servicing, and Wells Fargo. The Treasury looked at samples of 100 homeowners who had redefaulted out of HAMP at each of the targeted servicers. The study found that 6 out of 7 servicers had wrongfully terminated homeowners who were in good standing. (The only large servicer that had not been found to have erred in this way was Select Portfolio Servicing, Inc.). These six mortgage servicers account for 673,039 of the 915,699 (74%) HAMP modifications funded solely by TARP since the start of the program.
The improper servicing was so entrenched that 4 out of the 6 servicers continued to commit the termination errors even after the Treasury had repeatedly identified problems in their systems. Errors included miscounting the number of missed payments by a homeowner, misapplication of payments, and mishandling of rolling delinquencies. The report noted that servicers regularly failed to make timely and accurate reports to the Treasury thereby making monitoring difficult.
The Treasury also found that 5 out of 7 servicers failed to offer redefaulting homeowners alternative assistance available through the Making Home Affordable Program. The report concludes with the warning that the number of erroneous terminations from HAMP in the small sample tested is an indication of extensive misconduct on the part of the servicers which must be addressed by further oversight by the Treasury.