CNN Money is reporting that three top mortgage servicers are finally being penalized by the Obama administration for poor performance. Tami Luhby writes, "Federal officials say these banks are doing such a bad job at foreclosure prevention that the government will stop paying them for modifying delinquent loans."
On Thursday the Treasury Department announced that it will withhold incentive payments to Bank of America, J.P. Morgan Chase and Wells Fargo until they substantially improve their performance in the federal Home Affordable Modification Program, known as HAMP.
The banks needed to boost their performance in several areas, including correctly evaluating whether a homeowner meets the HAMP income requirements.
Though the administration has talked tough in the past, this is the first time it is wielding the most powerful weapon in its HAMP arsenal: the withholding of payments. Servicers are eligible for up to $4,500 over three years if they put borrowers into sustainable modified mortgages.
Until now, officials had hoped that compliance reviews and publication of each servicer's performance would be enough to get the banks to improve their handling of troubled borrowers. They stressed that the withholding of payments is the "next step" in the process.
How ridiculous is it that the Treasury has to withhold incentive payments because these banks can't manage to do what they are paid to do: work with struggling homeowners to modify precarious loans. It's about time that the government held the banks accountable for something. Homeowners are on the hook; why should banks be let off of the hook?
It is a shame that the Treasury has allowed big banks to kick people while they are down for so long. We're not sure why banks need financial incentives to do their jobs, but maybe this "tough love" approach will help them along.
Read more at CNN Money.
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