States urge OCC and OTS to push for affordable mortgage modificationsMortgagePress.comloan modifications, Office of the Comptroller of the Currency, Office of Thrift Supervision, State Foreclosure Prevention Working Group
A group of state attorneys general and state banking regulators
is urging the United States Office of the Comptroller of the
Currency (OCC) and the Office of Thrift Supervision (OTS) to
encourage national banks and federal thrift servicing operations to
modify large numbers of mortgage loans that are becoming
unaffordable for consumers.
"We have done far too little to modify unaffordable loans, not
too much," the State Foreclosure Prevention Working Group, led by
Iowa Attorney General Tom Miller, said in a letter to John C. Dugan
of the OCC and John M. Reich, Director of the OTS.
The letter, which was signed by 12 state attorneys general and
three state bank regulators, questioned a recent report by the OCC
and OTS that indicated 55 percent of loan modifications made by
national banks and federal thrifts were re-defaulting within six
months. Other data, including data collected by the states, show a
lower re-default rate, the states said. The states 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
A copy of the letter may be found by clicking
"The problem is not modifications," said Iowa Attorney General
Miller. "The problem is the quality, effectiveness and
aggressiveness of the modifications. Our view is that the failure
to act sooner and more aggressively has perpetuated the downward
trend in real estate markets across the country, and the failure to
prevent foreclosures has depressed property values and increased
the likelihood of more foreclosures."
One reason previous modifications are defaulting is that the
modifications did not actually help borrowers, the states said.
"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," the letter stated. In fact, many
modifications have actually increased consumers' monthly payments.
"We should not be surprised to see a significant re-default rate
for these types of loan modifications. Homeowners struggling to
afford their current mortgage are unlikely to be able to afford
higher monthly payments."
The letter to the OCC and OTS was signed by the attorney
generals from Arizona, California, Colorado, Illinois, Iowa,
Massachusetts, Michigan, Nevada, North Carolina, Ohio, Texas and
Washington and the state banking regulators from Maryland, New York
and North Carolina.
"We want to convey our deep concern about OCC and OTS efforts to
encourage and monitor loan modification efforts," the letter
continued. "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
The State Foreclosure Prevention Working Group told the federal
officials it was ready to work cooperatively with them to develop a
comprehensive report on the efforts of mortgage servicers to
prevent foreclosures. "We do not believe that regulatory turf
battles should prevent us from developing a collaborative report on
foreclosure prevention results that would provide increased
transparency, consistency, and reliability," the states said.
The state AGs and bank officials asked the two federal
regulators to "provide to the public a full and 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 a more transparent and robust reporting, we are
concerned that the statistics publicized by the OCC/OTS Report are
misleading and likely to lead policymakers and the public to
misperceptions about the effectiveness of loan modification
programs," the letter stated.
For more than a year, the State Foreclosure Prevention Working
Group has worked to urge servicers and lenders to find loan
modifications that would benefit both lenders and homeowners. The
Group has issued reports on loan modification activity by 13 major
non-bank sub-prime servicers, including a re-default rate of 25.8
percent, compared to the 55 percent re-default rate reported for
loan modifications made by national banks and federal thrifts for
the same period. The OCC has discouraged national banks from
cooperating with the states effort. "Even adjusting for difference
in data reporting, this difference is substantial," the states
For more information, visit www.ots.treas.gov or www.occ.treas.gov.