Both banks added staff and contacted more homeowners to reduce loan rates or to arrange repayment plans to cut monthly payments, executives said today at a House Financial Services Committee hearing in Washington. doubled its modifications in the first half of this year from the second half of 2007, and Wells Fargo increased staffing fivefold.
``Bank of America remains committed to helping our customers avoid foreclosure whenever they have a desire to remain in the property and a reasonable source of income,'' said Michael Gross, the Charlotte, North Carolina-based lender's managing director for , mortgage, home-equity and insurance services.
U.S. bank regulators, including Federal Reserve Chairman Ben S. Bernanke, and lawmakers are prodding mortgage servicers to help more borrowers who are falling behind on their payments. Foreclosure filings rose 121 percent in the second quarter from a year earlier, . of Irvine, California, reported.
Wells Fargo, which services one in eight U.S. mortgages, expanded its staff to more than 1,000, from 200 in 2005, to help borrowers, said Mary Coffin, executive vice president of Wells Fargo Home Mortgage. The San Francisco-based company contacted 94 percent of customers who are delinquent and helped 60 percent who agreed to work with the bank to avoid foreclosure, she said.
``Foreclosures are a measure of absolute last resort,'' Coffin said.
Bank of America helped more than 117,000 homeowners avoid foreclosure from January through June, almost double the pace in the second half of 2007, Gross said. The bank will modify at least $40 billion in troubled mortgages by the end of 2009 to help more than 250,000 borrowers keep their homes, Gross said.
Voluntary efforts so far``have not ramped up'' fast enough to curb foreclosures, said Julia Gordon, policy counsel at the Center for Responsible Lending, a Durham, North Carolina-based consumer group.
``We have heard wildly different things about how much modification is going on,'' said Representative Brad Miller, a North Carolina Democrat. ``We have heard from industry that they are modifying like crazy. And we've heard from consumer advocates that they are hardly modifying at all.''
``There needs to be a sense of urgency,'' he said. ``Yes, I'm glad you're doing what you're doing, but please don't take any comfort from it because we've got problems.''
Bank of America and Wells Fargo are among , servicers and counselors called the Hope Now Alliance, launched last year at the request of Treasury Secretary Henry Paulson to reach more borrowers at risk of default and change loan terms.
Almost 1.7 million homeowners averted foreclosure through loan modifications from July 2007 to May 2008, Faith Schwartz, executive director of the Hope Now Alliance, said at the hearing.
Frank said he expected lenders to help more borrowers or he would consider changing the relationship between servicers and investors to remove contractual barriers to modifying loans. Servicers have said they are sometimes constrained from changing loans because by contract they must represent investors who own the mortgage.
``If it is the case that the servicers cannot respond appropriately, then that institution of a servicer acting on behalf of ultimate investors'' can't continue, Frank said during the hearing.
The bank executives told Frank their obligations to investors have led them to reduce loan interest rates before they cut mortgage balances.
``Reducing the interest rate will generally result in a lower loss to the investor than reducing the general balance,'' Gross said. ``It is the preferred option. That is the option that we are contractually bound to offer.''
The House this week passed legislation written by Frank to create a government program to insure mortgages for struggling borrowers after servicers voluntarily agree to reduce the loan balance.
If servicers don't participate, ``then next year we'll have to change the law to reduce the role of servicers,'' Frank told reporters after the hearing.