State AGs and bank regulators say reports by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) ‘are misleading and likely to lead policy-makers and the public to develop misperceptions about the effectiveness of loan modification programs.’
A group of state attorneys general and state banking regulators is urging the OCC and 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 said in a letter to John C. Dugan, U.S. Comptroller of the Currency, and John M. Reich, director of the OTS.
The letter, which was signed by 12 state attorneys general, Superintendent of Banks for the State of New York Richard H. Neiman, Maryland Commissioner of Financial Regulation Sarah Bloom Raskin and Deputy Commissioner of Banks for the State of North Carolina Mark Pearce, questioned a recent report by the OCC and OTS that indicated 55% of loan modifications made by national banks and federal thrifts were redefaulting 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 redefault figure, and pointed out that it could discourage Congress and other policy-makers from promoting affordable loan modifications as a crucial response to the nationwide foreclosure crisis.
"The problem is not modifications," says Iowa Attorney General Tom Miller, the group's head. "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."
The redefault rate reported by the OCC and the OTS is especially troubling to the states, because national bank and federal thrifts service the vast majority of prime, Alt-A and option adjustable-rate mortgage loans, all of which present immediate challenges in 2009.
The letter was signed by the attorney generals of Arizona, California, Colorado, Illinois, Iowa, Massachusetts, Michigan, Nevada, North Carolina, Ohio, Texas and Washington.
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 policy-makers and the public to misperceptions about the effectiveness of loan modification programs," the letter said.
SOURCE: State Foreclosure Prevention Working Group