Nearly two dozen sub-prime firms are set to receive billions in taxpayer dollars through a federal government program designed to stem foreclosures. According to a new Center for Public Integrity analysis of public records, of the top 25 participants in the Home Affordable Modification Program (HAMP), at least 21 were heavily involved in the sub-prime lending industry. The majority specialized in servicing sub-prime loans, but several firms both serviced and originated the loans.
“As foreclosures continue to increase, the Obama Administration is planning to spend up to $50 billion in federal bailout funds to help as many as four million homeowners stay current on their mortgages,” according to Center for Public Integrity Executive Director Bill Buzenberg. “Much of this money is going directly to the same financial institutions that helped create the subprime mortgage mess in the first place.”
The list of sub-prime lenders participating in HAMP are slated to receive more than $21 billion in taxpayer funded incentives. Many of these subprime lenders were recently profiled in the Center project, "Who’s Behind the Financial Meltdown?," which identified "The Sub-Prime 25," the top 25 originators of the high-interest loans which accounted for nearly $1 trillion worth of high-priced loans during the peak of the sub-prime market.
The list of HAMP recipients reads like a who’s who of major sub-prime lenders and loan servicers, including financial institutions that have already received hundreds of billions of dollars from the federal government’s primary bank bailout program.
Leading the pack is the firm formerly known as Countrywide, now owned by Bank of America, which also led the Center’s list of the top 25 sub-prime lenders. Bank of America, through its ownership of Countrywide, may receive up to $5.1 billion in incentive payments. Including subsidiaries that came over from its purchase of Merrill Lynch, Bank of America may collect as much as $6.9 billion.
Next on the list, receiving up to $2.7 billion in incentives, is JPMorgan Chase, which ranked number 12 on the Center’s sub-prime lender list. Including subsidiary EMC Mortgage Corporation, JPMorgan could collect as much as $3.4 billion. Wells Fargo, which ranked number eight on the Center’s sub-prime list, could collect as much $3.1 billion including its Wachovia subsidiaries.
Servicers receive an upfront $1,000 incentive payment for each eligible modification plus $1,000 each year for three years if the borrower stays in the program. The borrower may receive a $1,000 payment to be applied toward the principal for five years.
As of Aug. 12, 44 entities had qualified to collect a maximum of $21.5 billion in incentives, according to the Treasury Department.
Among the top program participants:
► At least two firms that earlier settled charges of illegal collection practices brought by federal regulators; another was placed under federal supervision before voluntarily surrendering its bank charter.
► A sub-prime subsidiary of top-bailout recipient American International Group Inc. (AIG).
► Two former subsidiaries of Merrill Lynch & Company and one former subsidiary of Lehman Brothers, investment banks that helped underwrite the sub-prime boom.
Past mortgage modification programs have not been successful in stemming foreclosure rates, according to the government. According to a survey by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, after one year, only 29.5 percent of modified loans were still current. Thirty-three percent were “severely delinquent” and 17 percent had gone to foreclosure.
For more information, visit www.publicintegrity.org.