 "We have done far too little to modify unaffordable loans, not too
much," Madigan wrote in a letter to John C. Dugan, U.S. comptroller
of the currency, and John M. Reich, director of OTS.The letter,
which was signed by 12 other attorneys general and three state bank
regulators as members of the State Foreclosure Prevention Working
Group, indicated that data collected by the states conversely show a
significantly lower re-default rate on modified loans. The working
group has issued reports on loan modification activity by 13 major
non-bank subprime servicers showing a re-default rate of 25.8
percent, compared with the 55 percent re-default rate reported for
loan modifications made by national banks and federal thrifts for
the same period.
Madigan and the other state authorities questioned the OCC
re-default figure and pointed out that it could discourage Congress
and other policymakers from promoting affordable loan modifications
as a crucial response to the nationwide foreclosure crisis.
"The problem is not modifications," Madigan said. "The issue is
the quality, effectiveness and aggressiveness of the modifications.
There is a growing body of research that suggests the majority of
loan modifications in the past year have not led to meaningful
payment relief to homeowners. In fact, many modifications have
actually increased consumers' monthly payments."
The re-default rate reported by the OCC and OTS is especially
troubling to the states because national banks and federal thrifts
service the vast majority of prime, Alt-A and Option-ARM loans, all
of which present immediate challenges in 2009.
"We want to convey our deep concern about OCC and OTS efforts to
encourage and monitor loan modification efforts," the letter said.
"The data suggests that national banks and federal thrifts are
relying on traditional loss mitigation techniques common for prime
loans in appreciating markets, rather than applying the techniques
and lessons learned by subprime servicing specialists on the need to
more aggressively adjust payments and principal balances."
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Madigan said the State Foreclosure Working Group would work
cooperatively with federal regulators to develop a comprehensive
report on the efforts of mortgage servicers to prevent foreclosures
in order to provide increased transparency, consistency and
reliability in available data.
"We are concerned that either the institutions supervised by the
OCC and OTS have thus far failed to offer homeowners sustainable
loan modifications, in contravention of guidance issued by the
federal banking agencies, or that the data collection has some other
limitations not identifiable by your current report," the letter
said.
The state AGs and bank officials asked the two federal regulators
to provide a full, transparent report of loan modifications made by
national banks and federal thrifts, including detailed information
on types and numbers of loan modifications -- and whether the
modifications had helpful terms for homeowners, such as lower
monthly payments.
"Without more transparent and robust reporting, we are concerned
that the statistics publicized by the OCC/OTS report are misleading
and likely to mislead policymakers and the public about the
effectiveness of loan modification programs," Madigan said.
[Text from file received;
news release from attorney general's office]
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