Posts Tagged ‘loan modifications’

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.

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.

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.

Bank of America Launches Its Earned Principle Reduction Program Under HAMP

Bank of America has started its program to reduce principle balances on some of the loans it services as part of  it’s participation in HAMP. 

The way it will work is that Bank of America would use principle reduction, ahead of interest rate reductions and term extensions, in order to bring the borrowers’ payments to 31% of their verified income.  The amount of principle reduced will be foreborn in an non-interest bearing account, and as the homeowner makes timely payments on his modified mortgage, he will earn forgiveness of the forebeared principle.

As of this writing, loans that are eligible for this earned principle reduction program are Pay-Option ARMs and two year hybrid ARMs originated by Countrywide before January 2009. The amount owed must exceed 20% of the property value and the mortgage must be 60 days or more delinquent.

Treasury has announced that it will implement a similar idea for HAMP later this year so that it may benefit a wider range of homeowners.

Sens Franken and Snowe Sponsor Amendment To Create Office of the Homeowner Advocate

Senator Franken, the junior senator from Minnesota, and Senator Olympia Snowe of main, along with several other senate colleagues have sponsored an amendment to the financial reform bill that would create the Office of the Homeowner Advocate.  This office would assist homeowners who believe that their servicer is dealing unfairly with them as they proceed through the HAMP loan modification process.

By now, it is no secret that applying for a HAMP modification is a complex process and is an uphill battle. Today, there is nowhere for homeowners who feel that they’ve been mistreated and denied unfairly by their mortgage servicers during the application process.  With the government working to stop attorneys from helping homeowners navigate through this complex, and yes, adversarial process, the Office of the Homeowner Advocate would be a welcome refuge.

Yet, creating a department within the government simply to deal with the concerns of homeowners trying to save their homes would be a drop in the bucket. There are non profit agencies like NACA out there that assist homeowners, but as we’ve seen, there is really not enough help to go around. Why not create a special license for attorneys who wish to assist homeowners through loan modifications? Getting such a license would cost a certain amount, and the attorney would have to be in good standing with the Bar in his state to apply.

I know that some proposals are in the works for such a license, but included in the terms of that license are caveats that any attorney who assists homeowners to get a loan modification can’t get paid unless and until their loan gets modified. Since the process can take anywhere from six months to a year and a half, how are such attorneys supposed to stay in business?

In closing, it is good that we may have an agency within the government that deals directly and solely with complaints about unfair treatment by mortgage servicers. However, the nature of the crisis requires that more help be made available, and soon.

Strategic Defaults May Force Lenders and Servicers To Modify Loans, Including Principle Reductions

The writing is on the wall. Many people across the United States have decided that it just doesn’t make an ounce of economic sense to continue paying on a mortgage when the underlying asset isn’t worth half of what they owe on paper. A lot of these folks could afford to continue to make payments, but they’re deciding its just not worth it. 

In a May 3rd article on the Freddie Mac site,  Executive Vice President Don Bisenius implores people to continue paying on their mortgage if they can afford to do so. He claims that people walking away from their homes harms communities and further brings down property values.  Mandelman Matters already tears this guy a new one, so I won’t go that route, but I do believe that the banksters might be running a little scared these days.

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Are You NPV Positive? Know If You Qualify For HAMP Before Applying

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Imagine if you could know whether or not your HAMP loan modification application will get approved into a permanent modification before you even went though the process to apply.  Not only would you save yourself the hassle of filling out the paperwork and sending in your documentation, you’ll save money by avoiding paying trial modification payments only to be told that you don’t qualify in the end.

The banks use what is called the NPV formula to evaluate the value of the cash flows generated by your loan in a foreclosure situation as opposed to a modification situation. If the cash flow generated from modification is greater, then you are NPV positive and your modification will be approved. If the value of a foreclosure is greater, then you will be denied.

The exact formula that lenders use is a secret. Only the servicers and the Treasury have access to it, and, well, the people who helped create it. Those folks have made it available to certain persons and entities and now, for a fee, you can get your own NPV evaluation and know whether or not you pass the NPV test.

To find out how to get your own NPV analysis, send an email to npvreportinfo@handlingdebt.org

I hate spam just as much as you do and I will never sell your email address to anyone else, nor will I use your email address to market anything else to you. The only other person who will see your email is the person who will do your NPV analysis. That’s it.

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