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National Mortgage Professional
Feb 11, 2009

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 crisis. A copy of the letter may be found by clicking here. "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 principal balances." 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 said. For more information, visit or
Feb 11, 2009
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