WASHINGTON — Comptroller of the Currency John Dugan on Wednesday criticized industry efforts to detail how many loans have been modified or given workouts, saying previous tallies have failed to make an accurate accounting of how many borrowers have been aided.
Mr. Dugan, whose agency offered a report that he said was more reliable, said prior efforts have been inconsistent in defining the types of loans being modified and what qualified as a modification.
"Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness — they were typically responses to surveys that produced aggregate, unverified results from individual firms," Mr. Dugan said in a speech in New York. "That lack of loan-level validation raised real questions about the precision of the data."
Mr. Dugan is the first regulator to publicly question the loan reporting efforts to date, which have largely been managed by Hope Now, a collection of servicers, banks, and other mortgage industry participants. The group has claimed that more than 1 million borrowers' loans were modified between October and March — a number Bush administration officials have used to argue current modification efforts are working in stemming the housing crisis.
But the Office of the Comptroller of the Currency said Wednesday that it found only 167,000 borrowers had been helped in the fourth quarter of last year and the first quarter of 2008. The OCC's numbers were the result of analysis of mandatory reporting by its nine largest banks, which account for 40% of all outstanding mortgages and 25% of outstanding subprime mortgages.
The Hope Now alliance is a voluntary reporting effort and says it represents 90% of the subprime industry.
Lawmakers, analysts, and consumer groups have criticized the methodology of the Hope Now reporting, with some critics contending the group was inflating the number of modifications for political purposes.
Mr. Dugan said the OCC undertook foreclosure prevention analysis to try to bring some clarity to what was going on.
"We also came to realize that there were some significant limitations with mortgage data reported by other organizations and trade associations," he said.
The OCC report is the first such workout report from a federal regulator. The Office of Thrift Supervision is working on a similar effort but has not released its report yet.
The OCC said its metrics are more comprehensive, covering servicers and holders of mortgages. It also said its analysis was based on loan-level data, which provides greater detail and reliability over time. The agency also established standardized definitions to ensure that information was reported consistently across banks.
Mr. Dugan, who called for the creation of a national reporting standard, hinted the agency's approach could serve that function. "We are hopeful that the standard definitions and methodology used in this report will be applied more broadly across the U.S. mortgage market," he said. "The more we can use standardized metrics across the board, the better we can measure, monitor, and manage mortgage risk."
Observers said Mr. Dugan's comments highlight the challenges facing policymakers, who have been trying to find ways to stem the housing crisis without having a good grasp of whether struggling borrowers are already being assisted.
"What the data report illustrates is how difficult it is to get very good timely data, which is absolutely critical to making policy," said Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc.
Jaret Seiberg, senior vice president of financial services policy for Stanford Washington Research Group, said the comptroller's comments are a challenge to the industry to produce better-detailed data.
"The comptroller clearly extends an invitation to the private sector to come up with a better reporting system, and that suggests that he finds the existing system inadequate," he said. "Regulators hold a lot of sway, and if the industry resists their call for better data reporting, then these servicers run the risk they are going to have a system imposed on them that's going to be much more onerous."
Howard Glaser, a housing consultant, said the differences between the OCC's report and Hope Now add more doubts about Hope Now's credibility.
"There have been suspicions all along on the over-reporting of Hope Now. … I think that Dugan's move today will change the nature of reporting. The Hope Now voluntary numbers will not be trusted and we'll see increasing calls for more data," he said.
Faith Schwartz, Hope Now's executive director, defended the alliance's reporting.
"OCC data is reflective of the results of the nine banks it governs that offer mortgage loans," she said in a statement. "Hope Now statistics reflect member data and provide a larger view of the number of solutions delivered by a larger number of mortgage servicers. Because of these differences, the data will not match exactly."
The OCC found that repayment plans still far surpass more extensive modification efforts, though loan modification efforts are increasing. The agency found 135,973 repayment plans were granted between October and March, while only 30,906 loans were more extensively modified.
In an interview, Mr. Dugan said the emphasis on payment plans is to be expected during normal times because it is easier for institutions to undertake. Still, he said it is clear modification efforts are picking up.
"Payment plans are a temporary thing, and often in better times that's all you need," he said. "In more distressed times, you need more often to go to the next phase, which is the loan modification phase, so it's not surprising we are in that. How long that's going to last and how much more significant it will get, I don't know."
The OCC also found most of the loss-mitigation efforts focused on subprime loans as opposed to prime mortgages, even though problems in the market have migrated to that area.
The OCC found that new foreclosures in March declined to 45,696, down 21% from January's high and down about 4.5% from the start of the new reporting period last October.
Mr. Dugan warned that even the OCC's reporting was not perfect and there has been "noise" in this initial data collection.
"We need to be cautious about identifying trends in a six-month sample," he said. "Month-to-month data may be quite volatile and subject to fairly strong seasonal effects that can only be discerned from a longer time series that permits year-to-year comparisons. So observed changes month to month should be taken with a grain of salt."
The OCC reported that the overall mortgage servicing portfolio of its nine banks reflects credit quality that is relatively satisfactory and relatively stable. The number of current and performing loans remained at about 94% over the six-month reporting period. Serious delinquencies increased just one-tenth of a percentage point over that period, from 2.1% to about 2.2%. The OCC will continue the reporting on a quarterly basis and may expand the information over time.
