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Chase is Failing to Provide New Yorkers Needed  Mortgage Modifications
 
An Analysis of Current New York and Federal Data
A report by New York Communities for Change2-4 Nevins StreetBrooklyn, NY 11217(347) 410-6919info@nycommunities.orgwww.nycommunities.orgIssued February 2011
 
 
 
Executive Summary
Using recent data collected from a variety of sources, this report shows how Chase is harming familiesand communities in New York by refusing to modify the mortgages of struggling homeowners at analarming rate. The report examines and analyzes Chase’s performance in this area using the followingdata:-- results compiled for Chase-serviced loans where modifications have been requested byborrowers (through a group of New York City loan counseling organizations).-- results as reported by the federal Home Affordable Modification Program (HAMP).Affordable, permanent, transparent and timely mortgage modifications using principal reduction arenecessary to protect New York families, communities and economy. A variety of experts –from theChair of the FDIC to the State Foreclosure Prevention Working Group (made up of state AttorneysGeneral and state banking regulators) – have made this point during the last several years. As thecountry’s third-largest mortgage servicer, Chase has a major responsibility to modify mortgages – aresponsibility at which they are failing.Chase has failed to provide affordable mortgage modifications for New York City borrowers. Asreported by loan counseling operations in New York to the Center for New York City Neighborhoods,of the 1,027 homeowners with Chase mortgages who came to get help, only 6% now have a permanentmodification. A full 80% of these homeowners who asked for a modification have not even received anoffer of a modification.Chase has done a poor job with the HAMP program as compared with other servicers. Chase has onlyconverted 36% of trial HAMP modification to permanent modifications, and it rejects adisproportionately high percentage of homeowners for the federal mortgage program. Chase actuallyhad fewer permanent active modifications at the end of December compared to the end of November.Additionally, the bank begins foreclosure proceedings on a higher percentage of homeowners who eitherdo not qualify for HAMP or have their modifications cancelled than the other three big servicers.Even though Chase has told its investors that it has done proprietary modifications, proprietarymodifications have been shown to perform less well than HAMP modifications. Proprietarymodifications have a higher re-default rate, less of a payment reduction, and more often do not includethe necessary principal reduction. Chase has not released data to let New Yorkers know the terms of their propriety modifications, even though this data has been requested by researchers.Chase must come into line with best practices. Chase must put in a place a mortgage modificationprocess that
produces permanent, affordable, transparent, timely modifications whenever thesehave a positive net present value. These modifications must include principal write-downs andinterest rate reductions for the life of the loan. Loans must be considered for modification beforeforeclosure may be initiated, and any foreclosure proceeding must be frozen (including all steps of the foreclosure process, not just sales) if there is a request for a loan modification and while loansare being considered for modification, and during any appeal.
Chase should issue a new portfolioloan at affordable terms for any borrower where agreements with investors preclude the neededmodification. For any junior/second lien that is entirely underwater, the lien must be written off. Costsand fees charged during the modification or foreclosure process cannot be added to the new loan.
 
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Introduction
Using recent data collected from a variety of sources, this report shows how Chase is harmingfamilies and communities in New York by refusing to modify the mortgages of strugglinghomeowners at an alarming rate. The report examines and analyzes Chase’s performance in thisarea using the following data:-- results compiled for Chase-serviced loans where modifications have been requested byborrowers (through a group of New York City loan counseling organizations).-- results as reported by the federal Home Affordable Modification Program (HAMP).Affordable, permanent, transparent and timely mortgage modifications are important forfamilies, the community and the economy. In a speech in January, FDIC chair Sheila Bair urgedbanks to quickly provide mortgage modifications as a means to aid the economy.“Bair also said lenders need to pursue more loan modifications instead of foreclosures,arguing it will help the economy as well as the borrower”.
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 “The fact is, every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them–and the rest of us–even more,” she said. “It is time for government and industry to reach an agreement thatwill finally bring closure to the crisis.”
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 Principal reduction must be a keystone of the modification process. Currently less than 5% of mortgage modifications include principal reduction, despite the many experts who believe this isnecessary.
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A recent industry analysis concludes that principal reduction is “the least costly and onlypermanent solution for defaulted loans”.
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Principal reduction reduces the likelihood of re-default, as shown by a 2009 study of loanmodifications.
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The State Foreclosure Prevention Working Group, made up of state Attorneys Generaland state banking regulators, said in an August 2010 report that: “The State WorkingGroup believes that servicers should strategically increase their use of principal reductionmodification to maximize prospects for success. … in fact, the vast majority of loanmodifications actually increase the loan amount by adding servicing charges and latepayments to the loan balance.”
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1
 http://www.reuters.com/article/idUSN1922390420110119 
2
 http://blogs.wsj.com/developments/2011/01/19/fdics-bair-mortgage-industry-should-compensate-consumers/  
3
Laurie Goodman, Roger Ashworth, Brian Landy, Lidan Yand,
The Housing Crisis – Seizing the Problem,Proposing Solution,
pp. 13-14 (October 1, 2010).
 
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Roberto G Quercia & Lei Ding,
 Loan Modifications and Redefault Risk: An Examination of Short-Term Impacts,
Cityscape: A Journal of Policy Development and Research (HUD), Vol. 11, Number 3, 171, 1712-73 (2009).
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“Redefault Rates Improve for Recent Loan Modifications,” State Foreclosure Prevention Working GroupMemorandum on Loan Modification Performance (August, 2010),
available at 
 http://www.csbs.org/regulatory/Documents/SFPWG/DataReportAug2010.pdf .
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