Posts Tagged ‘HAMP’

Thank You, Captain Obvious!

Ok, so I haven’t been updating here much lately, but I am back, and I came across this post at Crooks and Liars today about the testimony at yet ANOTHER foreclosure crisis hearing in the House. Yet another financial expert is telling our Congressmen that the Treasury is all about protecting the banks and not the American people.

Umm..let’s see. The foreclosure crisis started in late 2007 and rapidly picked up steam when it finally took a tumble off a cliff in the fall of 2008. There have been  plenty of congressional and senatorial hearings during this time, with our representatives and senators wringing their hands about what can be done to fix the mess. Since then, millions of families have been foreclosed on, most of them, I might add, wrongfully, given the fact that we now know the extent of the mortgage fraud on the parts of servicers, Wall Street, and the brokers that sold these crappy, crappy loans to the American people.

Since then, what do we have to show for it? Bush tried Hope For Homeowners, and that didn’t work because no one who was in trouble could qualify. Then Obama comes along and he tries HAMP. Although HAMP has done better than Hope for Homeowners, it must still be classified as a complete failure because it is at best a band aid over the gaping wound that is the U.S. housing market. Millions of families have lost their homes since the advent of the crisis and millions more will lose their homes before its over.

So, why has nothing changed? Why can’t the government keep our great nation from bleeding out? As Adam Levitin put it “The federal regulators don’t want to get info from the servicers, because then they’d have to do something about it.” and “The prime directive coming out of the Treasury is ‘protect the banks and don’t force them to recognize their losses.”

As I have said many times, the only way to fix the foreclosure mess, which by the way, is one of the major impediments to a full and thriving economic recovery, is to tell the banks they’ve got to take their lumps, and modify every single distressed loan in the nation. Sure, this will cause  some banks will fail, but other, more stable banks will rise up to take their place. That’s capitalism. The bankers were the ones to take enormous risks with our money and the financial stability of the entire nation and they should be made to pay for their folly. The American people have already paid in blood, sweat and tears for what was largely not their fault.

Speaker Pelosi and 30 California Democrats: “Banks Need To Be Held Accountable.”

Today, Speaker Pelosi and 30 California Democrats told the justice department that “it is time that the banks were held accountable for their practices.” Really? You guys are just figuring this out? Wow, Congress is sure slow on the uptake…or maybe it’s all that Goldman Sucks money flowing into the pockets of elected officials that’s clogging up their brains.

Let’s see: over the past two years, we have seen the foreclosure rate continue to rise and hundreds of thousands of Americans have been kicked out of their homes in spite of programs designed to help them. Going through the HAMP process is a nightmare in and of itself, aside from the trauma of foreclosure itself, because the banks just don’t want to cooperate. They won’t even cooperate on short sales most of the time! Recently, we’ve had the Ally Bank signature debacle and another company, Lender Processing Services (LPS) has been in the news lately because apparently they’ve been having their employees sign authorized employees’ signatures to foreclosure documents.

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Bank Of America Lagging Behind In HAMP Modifications

Recent data released by the government reveal that Bank of America, for all its touting as a loan modification leader,  is the least responsive to beleaguered homeowners in need of mortgage assistance.

The numbers show that Bank of America has offered only 24% of homeowners whose HAMP modifications were cancelled alternative modifications while the big eight servicers have offered 44.5 % of this group alternative modifications. Further, where trial modifications have been denied, the big eight have offered 33% of these folks alternative modifications while Bank of America has offered only 11% of this group alternative modifications.

As for HAMP modifications, fifty percent of Bank of America’s trial modifications are still ongoing after six months even though the government specifically has ordered the banks to either convert the trials to permanent modifications or cancel them in three months. Only 26% of all Bank of America’s trial modifications have been converted to permanent ones.

Bank of America talks a good game and releases its own figures just prior to the time when the government releases its numbers. While Bank of America does have the greatest number of permanent modifications, this figure is misleading since it has the largest number of eligible loans out of any other servicer.

Major Federal Court Ruling: Borrowers Are Third Party Beneficiaries Under HAMP

gavel

 

As you know, one of the major hurdles for HAMP has been the lack of enforceability on the borrower’s side. I have said on this very blog many times that HAMP, well-intentioned as it may be, had no teeth.

Well, in a recent ruling, a Southern California Federal Court Judge, M. James Lorenz, may have just given HAMP some badly needed dentures.  The ruling was made on behalf of the plaintiff, Ademar Marques, who sued Wells Fargo for breach of contract under HAMP. There have been and are a number of lawsuits alleging the same thing and the big question has been, how will the courts rule. Now we have an answer from at least one Federal Court.

The judge ruled that borrowers are intended third party beneficiaries to the contract made between the servicers and the Federal government when the servicers agree to participate in HAMP.  What this means is that, according to this ruling, borrowers do have standing to sue for breach of contract under HAMP. 

While there is no guarantee that other judges will rule similarly, it does establish precedent in case law for other judges to follow. It certainly means that cases in California, one of the states hardest hit by the foreclosure crisis, that there is hope for homeowners struggling to get their loans modified.

Should I Apply For A HAMP Loan Modification?

Unless you’ve been living under a rock for the past year or so, I’m sure you’ve heard of President Obama’s Home Affordable Modification Program, or HAMP for short. The program provides incentives to participating servicers and lenders to modify mortgages at risk of foreclosure.

Should you apply for a loan modification under HAMP? The answer depends on your circumstances. The first question you need to answer is do you qualify?

To qualify for a HAMP mod, your mortgage must:

1: Be on your primary residence. No vacation homes or homes purchased for investment purposes
2: not exceed $729,750
3: must constitute a hardship
4: must have been obtained prior to January 2009
5: payment in excess of 31% of gross income

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More Lawsuits Filed Against Lenders For Breach of Contract Under HAMP: Don’t Mess With Texas

It looks like more and more lawsuits are popping across the country from angry homeowners regarding the failures of bank servicers to properly handle loan modifications under HAMP. I’ve written about the suit filed in Massachusetts here.

The latest lawsuit was filed in the state of Texas by The Texas Housing Justice League and 15 homeowners against Bank of America and its subsidiary, BAC Home Loan Servicing LP.  This lawsuit, like the others, alleges, in part,  that the HAMP trial modification agreement is a contract which Bank of America and BAC violated by not timely modifying the loans once the plaintiffs had performed their parts under the loan modification agreement.  In some cases, the plaintiffs’ homes were foreclosed upon even while they were in an active trial modification and making payments.

The complaint lists a litany of grievances common to most homeowners who have attempted to get their loans modified: lost paperwork, servicer demands for same information numerous times, inconsistent information given by bank employees, and a difficulty in reaching someone in charge to get answers.

Like the other lawsuits, most important points of contention that the courts will have to decide are as follows:

1: Does the agreement between non-GSE servicers and the Treasury  to participate in HAMP constitute a legal and binding contract? If so, then the servicers are legally obligated to follow each and every program guideline, including but not limited to not foreclosing on properties that are in active HAMP trials. 

Granted, even if the courts decide that the HAMP participation agreement is a legally binding contract, the Treasury, and not the homeowners would have to sue for non-performance. 

2: Does the HAMP trial modification agreement between the servicer and the homeowner constitute a legal and binding contract? If so, then the servicer has a duty to the homeowner to perform its part of the contract, that is to modify the loan, so long as the homeowner has completed his or her part, that is made the payments and sent in the requested documentation.

How the court rules on the second question is more important for homeowners seeking modifications. Favorable rulings will invite more lawsuits from other states, and could possibly move the courts to act similarly in other jurisdictions.

HAMP: Borrowers Not Getting A Fair Shake From Servicers

A recent GAO report reveals what many critics of HAMP have long known  to be true: servicers are not treating borrowers fairly and uniformly when it comes to getting a HAMP loan modification.

The GAO found several areas of inconsistency that could result in inequitable treatment of similarly situated borrowers:

  • Because Treasury did not include guidelines for borrower solicitation into the HAMP program until after a year since its inception, servicer outreach to borrowers ranged from 31 days to more than 60 days into a delinquency. Similarly, there were no guidelines for borrower communication, resulting in long delays for responses to borrower applications and for information on the program.
  • Although part of the HAMP program was meant to reach out to borrowers before they fell behind on payments, no guidelines have been issued regarding what “imminent default” means. As a result, of the ten servicers surveyed, the GAO found all of them had 7 different criteria for determining “imminent default.”
  • Treasury has issued no guidelines for servicer internal quality assurance to ensure compliance with HAMP guidelines. Some servicers aren’t reviewing denials to ensure that they are just.
  • Treasury has not adequately made borrowers aware that the HOPE hotline may be used to raise complaints regarding how servicers are handling HAMP modifications.
  • Treasury has not established clear consequences for servicer non-compliance with HAMP guidelines.

I hate to sound like a broken record, here, but there is one major overriding reason why HAMP is not working out too well: it is a voluntary program with no teeth. Relying on servicers to help borrowers when the relationship between servicer and borrower is adversarial is like using a fox to guard the henhouse and being surprised when all the chickens are gone the next morning.

In a foreclosure situation, the interests of the borrower and the servicer are completely misaligned: the borrower needs payment relief to be able to stay in the home, or barring that, a way to sell the home and leave with a little money to start over somewhere else. The servicer on the other hand, primarily wants to make as much money as it can, and secondarily, it wants to ensure that the investor gets the best rate of return.

Prior to HAMP, loan modifications were rare and servicers, in general, were loathe to even discuss them. Loan modifications cost the servicer  money on the front end,  and result in a diminished rate of return for the investor. HAMP was supposed to address this issue by giving servicers and investors incentive payments to make modifications a more attractive option than outright foreclosure.

It hasn’t quite worked out that way. The incentive payments provided by HAMP remain a drop in the bucket as compared to what servicers can generate by foreclosing and considering that servicers and investors still view loan modifications as a last resort, they truly can’t be expected to willingly modify even a percentage of their portfolios.

Until the government forces banks to modify all delinquent loans, without concern for profits, either to the servicer or the investor,  the foreclosure crisis will continue to plague us and our economy will suffer the consequences.

Underwater Homeowners & HAMP: The Huge Problem of Negative Equity

Most homeowners who receive assistance from the Home Affordable Modification Program remain deeply underwater. The average homeowner in HAMP owes $1.50 for every dollar of their home’s value. This puts them at a greater risk of “walking away.” even after receiving a modification.

Republican critics of the program, like California Representative Darryl Issa say “It defies common sense that taxpayer money is being used to pay banks to modify loans that are likely to default anyway.”  In his usual “the free market is the answer to everything” zeal, he went on to say “In cases where the loan changes could keep borrowers out of foreclosure, banks have a clear incentive to make changes without a need for public funds.” He’s written to Treasury secretary Geithner to call for an immediate end to HAMP.

Except banks’ track record of loan modifications pre-HAMP was even worse than their record with HAMP.  The problem with banks and loan modifications, whether they’re private or government subsidized is that banks have proven singularly unwilling to do the one thing that will correct this entire mess: write down principle.

While recent changes to the HAMP program include provisions for principal reduction,  like everything else about the program,  it remains voluntary. Moreover, HAMP is designed so that the banks only modify loans from which they can profit. The entire NPV test, which is the test that determines whether someone qualifies for a HAMP modification or not, is designed to test whether it would be more profitable for the bank to foreclose or modify.  You don’t have to be an economic genius to see that it favors homeowners who are underwater since foreclosing on those folks will cause the bank to take that immediate loss. The deeper the home is underwater, the less profitable foreclosing becomes.

Of course, you also don’t need to be an economic Einstein to see that it also makes sense to bring loan values in line with the values of the properties securing the loans. I mean, that would make perfect sense, right? How can someone have a $300k mortgage on a home worth $150k and actually call that a secure investment?

The bean counters at the banks, unfortunately, don’t have too much economic sense. They just look at the dollars and cents on the banks’ balance sheets and if they’re decreased in any way, well, the sky is falling. I am not going to argue that principle write-downs won’t affect the banks’ bottom line. Of course they will. However, it’s a bit like receiving your bank statement, which , through an error shows you have a million dollars instead of only a thousand dollars. Of course, you’d much rather pretend that there wasn’t an error, and bank of the basis that you have a million dollars to spend, or invest,  but at the end of the day, that million dollars doesn’t exist. It is  just $999,000 of funny money. Mortgages that far exceed the value of the homes upon which they are secured are just as much funny money as the million dollar account error is. 

The world works differently for banks than it does for the rest of us, though. For the banks, they can continue to play with funny money, while you won’t be able to even pretend you’re $999,000 richer than you actually are for very long.

HAMP Still Not Making The Grade: Geithner Refuses To Consider Alternatives

By almost every measure, the HAMP program continues to underperform in its effort to address the problem of mortgage foreclosures. Since its inception a year and half ago, only 340,000 homeowners have received permanent modifications and 436,000 have been dropped from the program. Last month alone, 155,000 homeowners were kicked out of trial modifications as opposed to only 30,000 who received new trial modifications. Accordingly, it appears the HAMP program is helping fewer and fewer homeowners as time goes on.

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New Enhancements To The HAMP Program Potentially Could Mean A Speedier Evaluation Process

In the past year and a bit since the inception of the Home Affordable Modification Program (HAMP), it has gone through a number of enhancements. The latest enhancements, which were announced back in January of this year, have now gone into effect as of June 1st.

Those enhancements detailed in Supplemental Directive 10-01, should help to speed up the process in evaluating borrowers for loan modifications and converting trial modifications to permanent ones.

One of  HAMP’s major obstacles has been  a poor conversion rate  from trial modifications to permanent ones.  Whether the servicers are to be believed and the fault lies with borrowers for not sending in the necessary income documentation, or it’s the servicers’ fault for losing that  paperwork,  the result  has been the same:  most trial modifications end up being denied or  are in limbo for months and months.  Under the new directive, servicers can only offer trial modifications based upon verified income:

Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer may evaluate a borrower for HAMP only after the servicer receives the following documents, subsequently referred to as the “Initial Package”. The Initial Package includes:

  • Request for Modification and Affidavit (RMA) Form,
  • IRS Form 4506-T or 4506T-EZ, and
  • Evidence of Income

In other words, any trials offered will be based on income and other information already received by the servicer.   Conceivably, this means  that once a borrower is in a trial modification, barring any large change in the borrower’s income, that borrower should end up with a permanent HAMP modification if he makes all his payments on time.

The new directive also places some requirements for servicer communication with borrowers while under review for a HAMP mod:

Within 10 business days following receipt of an Initial Package, the servicer must acknowledge in writing the borrower’s request for HAMP participation by sending the borrower confirmation that the Initial Package was received, and a description of the servicer’s evaluation process and timeline.

and

Within 30 calendar days from the date an Initial Package is received, the servicer must review the documentation provided by the borrower for completeness. If the documentation is incomplete, the servicer must send the borrower an Incomplete Information Notice in accordance with the guidance set forth in the “Incomplete Information Notice” section below. If the borrower’s documentation is complete, the servicer must either:

  • Send the borrower a Trial Period Plan Notice; or
  • Make a determination that the borrower is not eligible for HAMP and communicate this determination to the borrower in accordance with the Borrower Notice guidance provided in Supplemental Directive 09-08.

Time will tell how well these enhancements to the program work. The major stumbling block to the success of the program remains its voluntary nature and the lack of enforcement ability to actually compel servicers to modify eligible loans and to cease foreclosures during the evaluation period.

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