The Obama Administration is pressing for more home modifications, so why the high failure rate, especially at Bank of America?

Bank of America’s answer can be found in U.S. Treasury to Push Lenders to Finish More Home Modifications.

The U.S. Treasury Department will step up public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures.

More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed. That failure is getting the administration’s attention.

“We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications,” Treasury spokeswoman Meg Reilly said in an e-mail yesterday. The Obama administration plans to announce additional steps tomorrow, including new private-public partnerships and resources for borrowers.

Bank of America Corp. was among the worst performers in the program, with 14 percent of loans in modification in October, according to the Treasury. The bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury’s list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, has said the eligibility data may be overstated.

“As many as one-in-three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31 percent or is unemployed,” Frahm said in a Nov. 10 interview.

Citigroup, the third-largest U.S. bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages. JPMorgan, the second-largest U.S. bank, has started 133,988 modifications, or 32 percent of those eligible, the Treasury said.

The administration’s $75 billion Making Home Affordable program includes the mortgage modification initiative and loan refinancing through Fannie Mae and Freddie Mac.

Problem Loans at Bank of America

Bank of America has 990,628 eligible loans except for a few details like 1/3 of the portfolios consists of vacant homes, the homeowner is unemployed, or the customer has a debt-to-income ratio below 31 percent. Anyone care to assign probabilities to each of those three categories?

Spectacular Failure

Forget about Bank of America, note the spectacular failure of the plan in general. 650,994 loan revisions have been made and 0% of them have been converted to permanent repayment plans.

Taxpayer Risk

Notice how the plan operates. It takes mortgages and dumps them on the taxpayer via a passthrough of Fannie Mae and Freddie Mac.

If you get the idea that Fannies and Freddie are going to need another bailout you have the right idea.

Mike “Mish” Shedlock
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