Posts Tagged ‘servicers’

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.

Fannie Mae’s Wrong Headed Gambit To Staunch Strategic Defaults

Last week, Fannie Mae issued a press release announcing that it was putting into place policy that would block strategic defaulters from getting a new Fannie Mae backed loan for seven years following the foreclosure.  In addition, Fannie Mae will also instruct its servicers to pursue deficiency judgments against borrowers where they are allowed.

Clearly, mortgage lenders do not like strategic defaults. They don’t like them because they’re kind of a wake up call to reality. Once lenders are forced to take back a home, they must face the immediate loss in value, which is why they want people to continue to pay. As long as they’ve got a paying mortgage, they can keep pretending the property securing the mortgage is worth the note value.

Yet, you’d have to have been living under a rock not to know that neither the lenders nor the servicers have done much to help homeowners avoid foreclosure. They’ve been recalcitrant when it comes to both loan modifications and short sales and many homeowners have, understandably, thrown up their hands and decided that walking away could save them a whole lot of stress and aggravation.

Instead of actually forcing its servicers to engage in meaningful work-out solutions with borrowers, Fannie Mae is, in effect, sticking its head in the sand and pretending that we aren’t in a foreclosure crisis at all.  The lenders do not want to face any losses at all, which meaningful work-out solutions would invariably force them to do, though not as steep as they would face in foreclosure.

Geithner Chides Mortgage Servicers For Not Doing Enough To Help Families Avoid Foreclosure

geithner

Reuters reports today that Treasury Secretary Geithner is upset with mortgage servicers for their lagging efforts in helping troubled homeowners avoid foreclosure. He is also incensed to hear of servicers acting in bad faith by foreclosing on families who might have qualified for a HAMP modification, losing documents, and even guiding families away from help.

Secretary Geithner has vowed to get tough with servicers who are not in compliance with HAMP guidelines and “withhold incentives or demand their repayment” as a consequence of their non-compliance.

While it is good to hear that Treasury is beginning to take some action with recalcitrant servicers, I have to wonder if it will be enough. As with the entire HAMP program, this may be too little and too late to be of use to anyone.

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