As the nation’s largest banks are paying multi-billion dollar settlements and being investigated by Attorneys General and other regulators, many of their servicing problems and abuses continue to hurt homeowners. A new report by the California Reinvestment Coalition (CRC) with data analysis by Urban Strategies Council, “Race to the Bottom: An Analysis of HAMP Loan Modification Outcomes by Race and Ethnicity for California”, reveals that California homeowners are having trouble accessing sustainable home loan modifications, and that borrowers of color are disproportionately facing specific problems that are making it more difficult for them to access modifications. The report analyzes recently released data from the Treasury Department about the HAMP program, in conjunction with CRC’s April/May 2011 survey of nonprofit housing counselors.

The findings of the report suggest that modifications are still hard to come by, and that servicers have not corrected many of the problems that have led to investigations of foreclosure abuses.
• Of 568,630 borrowers requesting loan modifications in California, 46% were denied immediately. A mere 23% of those who applied received a permanent modification. The other third of the applicants were either stuck in aged trial modifications or had their modifications cancelled.
• Principal reductions are nearly impossible to receive. In Los Angeles and Fresno, for example, only 5% of loan modifications included some degree of principal forgiveness.
• An astonishing 94% of housing counselors reported that homeowners are losing their homes while negotiating for a loan modification with their servicer (the “dual track” problem).
• Much of the data released from Treasury was incomplete or inadequate for true transparency.

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“The new data, along with the latest survey of housing counselors in California, confirm that things are tough for all families trying to avoid foreclosure, but it may be tougher for borrowers of color,” said Kevin Stein, CRC’s Associate Director and author of the report. “Federal and state regulators need to ensure that banks give all borrowers a fair chance to stay in their homes.”

Racial disparities were evident in various dimensions of the HAMP data.
• “Incomplete modification requests” was the most frequent reason for trial modification cancellation, but borrowers of color had the highest share of cancellations for this reason. In Fresno, Latinos and African Americans had trials cancelled for this reason 47% and 44% of the time, compared to 37% of white borrowers.
• The issue of servicers losing documents several times persists. One housing counselor reported that a loan servicer rejected a modification application because it was in Spanish.
• In Los Angeles and Sacramento, African Americans disproportionately had their trial modifications cancelled for the reason “not accepted by borrower”. This seems unusual, and raises concerns that servicers are steering applicants to less favorable non-HAMP modifications.

As the state Attorneys General investigation and regulator investigations ensue, these persistent problems and inequities should be investigated and corrected in any settlement with loan servicers. The report includes a series of policy recommendations that would create real protections for homeowners seeking loan modifications.

The report was written by the California Reinvestment Coalition, with HAMP data analysis provided by Urban Strategies Council. For more information, contact Kristina Bedrossian at (415) 864-3980; kbedrossian@calreinvest.org.

For more on this report visit the California Reinvestment Coalition’s website here