Posts Tagged ‘loan modification’

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

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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.

Kondaur Capital and Jon Daurio In Foreclosure News Again

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I wrote about the debt buyer, Kondaur Capital, back in May. Remember those guys, the company that’s headed by former Ameriquest executive Jon Daurio?  They buy “scratch and dent” mortgages for pennies on the dollar, then get the homeowners out as quickly as possible and sell the home for a profit.  The Wall Street Journal just did another piece on them.

Apparently, one Baltimore homeowner, Eddie Patrick, was talked into dropping his lawsuit against Kondaur when it promised to “work with him” on a loan modification. They foreclosed on him anyway and then offered to sell the house back to him for $140k, which Mr, Patrick, not being made of money like these Wall Street scum, can’t afford.  Mr Patrick’s six year old son is battling brain cancer and recently had two operations. Kondaur has since generously offered Mr. Patrick $8,100 to move by the end of August and has lowered the sales price on the home to $130k.

This Daurio guy is a virtual font of insane and inane comments, especially since the fellow used to originate subprime loans that he knew full well the borrowers could never repay:

We help borrowers understand they have a house they can’t afford.

Except that they probably CAN afford the home with a decent mortgage on it. Most of the people who were sold “subprime” loans could have qualified for cheaper and safer conventional mortgages, as I noted here

The vast majority of these people knew the risk they were taking. Like so many of the borrowers I dealt with when I was originating loans, they thought housing prices were going up.

Actually, it was guys like Daurio who sold borrowers the bill of goods that prices would always go up and they could always refinance at a later date to get a better deal.  I’m going to get a little nasty here, but I can’t stand people like this Daurio, the architects of the current depression. No, Daurio, you ass, the borrowers weren’t aware of the risks, but you sure were, and you convinced them that home prices never fall. You and your Wall Street magic made it seem like they could afford these loans, when in fact, they could not.

Attributed to him, but paraphrased by the author of the WSJ article  is this little gem:

It is no surprise that some borrowers are unhappy when Kondaur forces them to face the music, Mr. Daurio says, but it isn’t his fault that borrowers got themselves into houses they can’t afford.

At the risk of repeating myself, actually, it is your fault, Daurio. You and your Wall Street brethren created these toxic mortgages and foisted them off on people. And now you want to profit off of the mess you made? Really? And this is being allowed?

Ok, enough excoriating of our pal, Daurio.  The real story here is that the regulators don’t know how to treat debt buyers like Kondaur. Are they debt collectors or mortgage lenders?  North Carolina’s chief deputy banking commissioner, Mark Pearce says:

I have concerns that some of these activities fall through the cracks of the regulatory structure.

For the first time, debt buyers, those denizens of the debt collection underworld, are entering the mortgage market, and our current laws aren’t clear on how to deal with them.  This doesn’t meant that current law won’t protect you from these predators, it just means it’s going to be a tougher fight.

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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New Class Action Suits Could Create Precedent To Enforce HAMP Modification Agreements

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By most measures, the Making Home Affordable Modification Program has had lackluster results in permanently averting foreclosures and dampening the effects of the foreclosure crisis. The main reason HAMP has been so ineffective is the fact that at its core, it remains a voluntary program on the part of mortgage loan servicers and lenders. In other words, HAMP has no teeth.  Servicers may choose to participate or not and even if they choose to participate,  nothing in the program language states that they must modify any loans.

Therefore, we have a situation where homeowners enter into trial modification agreements and comply with each and every condition of the agreement, only to have the servicer delay responding or continue to ask for more documents. All the while, the homeowner continues to make his or her trial payments. Worse, it is all too common for the borrower’s home to be foreclosed upon while the trial modification is pending, even though HAMP prohibits any foreclosure sale while the borrower is in a trial period plan.

Four class action suits, filed  by the Boston based non-profit  National Consumer Law Center, in the state of Massachusetts aim to give HAMP teeth it lacks. The lawsuits  claim that the trial plan is a contract that the servicers have breached by failing to modify the loan once all conditions have been met. The complaints go even further by suggesting that the signed agreement the servicers have with the U.S. Treasury represents a contract to mitigate the foreclosure crisis by offering assistance to homeowners at risk, and that by failing to modify enough loans, the servicers have breached that contract as well.

Should a judge rule in favor of the plaintiffs in these cases, a precedent will be established that renders both the trial plan and the agreement to join the HAMP program enforceable contracts.  This would mean that servicers would be required to give permanent modifications to those homeowners who comply with the terms of the trial plan, and furthermore,  be required to actually render assistance and prevent foreclosures per the HAMP agreement.

HAMP Loan Modification Program Results Continue To Be Underwhelming

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The Treasury released its latest set of numbers today for the Home Affordable Modification Program (HAMP) through April, 2010.  According to the Treasury, 300,000 American homeowners have received permanent loan modifications under HAMP. This number has grown in recent months and that is good news. However, in light of the fact that foreclosures have continued at a rate that exceeds 300,000 for the 14th month and counting, the number of homeowners who have received help remains miniscule when compared to the number of homeowners who have lost their homes.

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