Attorney General Martha Coakley Reports to Congress on Mortgage Industry’s Lack of Action on Loan Modifications
AG submits testimony to Congressman Frank’s Committee; testimony included below
BOSTON, MA – September 18, 2008 – (RealEstateRama) — Massachusetts Attorney General Martha Coakley submitted testimony to the U.S. House Financial Services Committee regarding her office’s findings and observations with regard to the lack of progress in securing mortgage loan modifications for homeowners who are struggling to make payments and facing foreclosure. The Committee, chaired by Massachusetts Congressman Barney Frank, is holding a hearing today in Washington, D.C., regarding the implementation of new federal foreclosure mitigation legislation. Tomorrow, Attorney General Coakley will appear before the Committee in Washington to offer testimony regarding her Office’s role in investigating the practices of brokers selling auction rate securities to municipalities and other state entities.“Based upon our experiences here in Massachusetts, lenders, holders and servicers have not lived up to their very public promises of avoiding foreclosures by achieving loan modifications,” said Attorney General Coakley. “We appreciate Congressman Frank’s and his Committee’s diligent attention to this issue and hope that they will hold the industry’s feet to the fire at today’s hearing. We have been very active at the state level in urging the mortgage industry to take meaningful action to decrease the number of foreclosures, but we need Congress’ continued help in effectuating real change.”
The Attorney General’s written testimony outlines the office’s findings with regard to the implementation of loan modifications in Massachusetts. Specifically, the testimony notes that:
- Loan modifications are not being achieved in significant numbers. When compared to the number of foreclosures in process, far too few borrowers are able to restructure their loans to generate a sustainable loan; and
- When so-called loan modifications do occur, they often do not result in a sustainable loan. Lenders and servicers routinely offer and complete so-called loan modifications that increase monthly payments and increase overall debt. They do not meaningfully avoid foreclosure. At best, they temporarily delay the inevitable delinquency and eventual foreclosure.
In recent months, the Attorney General’s Office has reviewed 144 loan modification documents, reflecting all loan modifications filed in 14 counties. The office found that:
- Not one of the 144 loan modifications reduced the principal mortgage balance of Massachusetts; and
- Virtually none of the 144 loan modifications reduced the monthly payments for Massachusetts homeowners, so the distressed loans are no more affordable after “modification” than before.
In addition, the testimony highlights the attempts made by the Attorney General’s Office and other Massachusetts authorities in light of the state’s new 90 day right-to-cure law. Together with the Patrick Administration and Banking Commissioner Steve Antonakes, on May 1, 2008, the Attorney General’s Office urged lenders and servicers to use that 90 day period as a real opportunity for loan modifications, not simply a new procedural hurdle for foreclosing attorneys. Indeed, state officials engaged some of the nation’s largest creditors, asking them to agree to a loan modification protocol to ensure that avoidable foreclosures did not take place. State authorities lenders to commit to loan modifications that not only helped borrowers, that that were consistent with the economic interests of lenders and holders. Despite these discussions, not one of the creditors with whom the Attorney General’s Office and other officials engaged in discussions were willing to take any of the suggested steps toward meaningful modification programs. As a result, Massachusetts, like the rest of the country, is still not witnessing real loan modifications in significant numbers.
In response to the foreclosure crisis over the past 18 months, the Attorney General’s Office has sought accountability through litigation, regulation and other advocacy. On the enforcement side, the office has brought predatory lending cases against two major subprime lenders, Fremont Investment & Loan/Fremont General and H&R Block/Option One Mortgage Corporation. The office has also brought enforcement actions against mortgage professionals who engaged in loan application fraud and other loan origination misconduct. On the regulatory side, the Attorney General’s Office enacted regulations to prevent predatory lending and worked together with the Massachusetts Division of Banks for the enactment of legislation that provides additional protections for borrowers facing foreclosure. These new regulations went into effect in January 2008, and govern the mortgage brokers and mortgage lenders in Massachusetts. The office has also joined other states to seek real progress from lenders and servicers on the issue of loan modifications through it’s participation in the State Foreclosure Prevention Working Group.
The Attorney General’s Office has found that loan modifications can occur on a broad scale when the holders are motivated. It is possible to memorialize a loan modification protocol that provides significant relief to borrowers and accounts for the economic interests of holders. For example, in July 2008, the office negotiated with WMD Capital, the purchaser of a bundle of Fremont-originated subprime loans, to service those loans in a manner that accounted for Fremont’s loan origination misdeeds. Specifically, WMD Capital agreed to provide payment relief for borrowers who could not afford their current scheduled payment. If their current ability to pay warranted it, borrowers could reduce their monthly payment dramatically—as much as 50%—and still remain in their home.
In addition to the testimony submitted to the Committee for today’s hearing, Attorney General Coakley will testify in person before the Committee tomorrow at a hearing regarding the fall-out of the collapse of the auction rate security market. Since the market’s collapse earlier this year, the Attorney General’s Office has recovered $75 million for Massachusetts governmental entities from investment banks regarding auction rate securities. This includes recoveries from Citigroup, Merrill Lynch, Morgan Stanley, and UBS, on behalf of various municipalities and other state agencies.
The House Financial Services Committee Hearing is being held today in the Rayburn House Office Building in Washington, D.C. The Committee will also hear testimony from the FDIC, the Federal Reserve Board of Governors, the U.S. Department of Treasury, the U.S. Department of Housing and Urban Development, the National Consumer Law Center, the National Association of Realtors, and representatives of several of the nation’s largest mortgage lenders and servicers, including Chase, Bank of America, and Wells Fargo.
Download and view Attorney General Coakley’s testimony:
