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Report: Chase worst by far at finalizing loan modifications

In an eye-catching report Wednesday, the nonprofit news outfit ProPublica said 97,000 homeowners have been stuck in trial loan modifications for more than six months under the government's anti-foreclosure program, which was supposed to generate permanent modifications after three months.

What's astonishing is a finding by ProPublica reporter Paul Kiel, who has been bird-dogging this issue, that 60,000 of those 97,000 borrowers have their mortgages with JPMorgan Chase & Co.

Chase has the third largest number of loans potentially eligible for government-sponsored modifications,  just behind Wells Fargo & Co. but far back of Bank of America Corp., according to a U.S. Treasury Department report Thursday on the government program. (The report lists Wachovia Corp., now part of Wells Fargo, separately.)

A Treasury spokeswoman didn't respond immediately to a phone call and e-mail seeking comment.

Chase spokesman Thomas A. Kelly said he hadn't seen the ProPublica report. However, he said the New York bank "calls borrowers up to 36 times, sends up to 15 mailings and then knocks on their doors twice to try and get the documents we need." The bank explained its difficulties in obtaining documentation in a December press release, Kelly said.

Kelly said he didn't know how other banks handle loan modifications so he couldn't say whether Chase for some reason has more than average trouble in getting documentation from its borrowers. Chase's portfolio includes numerous loans originated by Washington Mutual Inc., one of the most aggressive lenders during the easy-money days of the housing boom. 
 
The Obama-sponsored anti-foreclosure program committed $75 billion in government funds to subsidizing workouts on troubled home loans. Borrowers participating in it have complained frequently about banks losing documents, repeatedly asking for the same documents, and failing to make trial modifications permanent, a problem examined in a Los Angeles Times story in November.

The trial modifications were supposed to become permanent if the borrowers made reduced payments for three months and documented their finances. But Chase and other banks have contended the borrowers aren't providing needed paperwork, especially proof of income.

In response, the Treasury Department recently changed its policies to allow the banks to gather documents before launching a trial. That new stance came with a hardening of tolerance for endless "trial" modifications. The Treasury said the new-style modifications would have to be made permanent immediately after the borrowers made three payments at the lower rate. It said loan servicers who don’t abide by the guidelines could face financial penalties.

According to ProPublica, which said it analyzed data provided by the Treasury, nearly half a million homeowners have been in loan mod limbo for more than three months. The report also had this interesting observation about a risk of trial modifications:

Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period, putting someone who was behind when the trial began even further behind if it fails. The homeowner can be in worse shape if the modification fails since she’s been making the trial payments instead of saving for the possibility of foreclosure. 

--E. Scott Reckard

 
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