Home Foreclosure? Blame the Banks

If you've been keeping an eye on the foreclosure crisis in the U.S. and blaming the banks for the excessive rates, your blame was well placed.

In 2009, President Obama announced HAMP, or the Home Affordable Modification program, which gave mortgage servicers subsidies to increase their rates of mortgage modification.

At the time, the President promised between three and four million modifications through the program. This was a bit of a stretch, considering that if all banks made modifications at the same rate as the decent performers, only about 2 million modifications would have been made.

But instead, by the end of this year, HAMP will have only produced roughly 1.2 million modifications.

And the reason, it seems, is that some banks just couldn't be bothered.

The results of a study released by the Social Science Research Network show that around 800,000 homeowners have experienced an unnecessary foreclosure because of the banks' shortcomings.

The study was conducted by a team from the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago.

They found that these 800,000 people would have qualified for a mortgage modification. They could have saved their homes and avoided an immense amount of stress if the banks simply would have done what they were supposed to.

The problems were shortcomings from certain banks. Ones that had lower mortgage modification rates were consistently under-staffed and lacked sufficient staff training.

But the program also failed in oversight. The subsidies were provided so that banks would increase modification, but the Treasury Department didn't follow up to ensure they were or penalize banks that were failing to do so.

And sometimes it was just a matter of convenience.

From The Raw Story:

The authors wrote that while they can't be sure why these banks underperformed, they “may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans. In addition, this may have involved significantly altering their organizational capabilities, such as building appropriate infrastructure and hiring and training servicing staff.”

Note that unemployment remains high, at a national rate of 8.1% as of August 2012, and the banks were receiving funding in order to promote this program.

But it also is likely that the main culprits weren't small banks that would have required a lot to restructure. Study authors wrote that a “few large servicers [have offered] modifications at half the rate of others.”

Though the study doesn't name banks specifically, the Raw Story does. It's easy to determine, knowing the largest of these large servicers include Bank of America (NYSE: BAC), JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), and Citi (NYSE: C).

Bank of America is one of the most guilty. It has been one of the slowest to modify loans, and the majority of its customers have had their mortgages either unresolved or foreclosed, as the chart shows:

Foreclosure rates are slowing and home prices are becoming steady. The housing market is finally picking back up. But that doesn't change the situation for the 800,000 who should have been saved from foreclosure or the millions of others who have already lost their homes.

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