Behind the curve as usual, Congress will again reintroduce bankruptcy cramdown in an effort to deal with the foreclosure crisis.  This is a good article that describes what we already know:  the HAMP plan is not a good solution to the mortgage crisis.  The plan, at best, kicks the can down the road yet doesn't deal with the biggest problem:  negative equity.  I private right to sue lenders who don't comply with the HAMP guidelines would help.  Bankruptcy cram down would give lawyers and homeowners the most leverage to negotiate principal reduction.  Unfortunately, it will be difficult get such a law passed in the Senate.  The lenders still hold considerable influence over our representatives.  Keep your fingers crossed; cramdown would be the silver bullet that so many homeowners seek.

Source:  http://www.bloomberg.com/apps/news?pid=20601087&sid=aK_i0u8bqxeE&pos=5

Dec. 8 (Bloomberg) -- The U.S. loan modification program is "destined to fail" because it doesn't confront the real problem of negative home equity that is driving foreclosures, Amherst Securities Group LP's Laurie Goodman told Congress.

Goodman, a senior managing director, cited the drop in home values as the main cause of defaults and urged lawmakers today to require lenders to reduce outstanding principal for borrowers who owe more than their homes are worth. Without a change, 7 million of the 7.9 million people behind on their mortgages in the third quarter will eventually lose their homes, she said.

"If policies continue to kick the can down the road -- working with a modification problem that does not address negative equity -- delinquencies will continue to spiral with no end in sight," Goodman said in testimony to the House Financial Services Committee today in Washington.

The three-year housing slump has wiped at least 28 percent off home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.

"The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse," Julia Gordon, senior policy counsel at the Center for Responsible Lending, told the committee. "Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts."

'Great Frustration'

Fewer than 1.5 million of the 3.2 million homeowners targeted by the Obama administration for mortgage relief are likely to qualify for the Home Affordable Modification Program, Herb Allison, the U.S. Treasury Department's assistant secretary for financial stability, told the committee.

Banks have said they are rushing to meet a new deadline announced by the Treasury on Nov. 30 to permanently convert more than half of the 650,994 loans that were in trial modifications at the end of October into permanent reductions by year's end.

"We have a great frustration at the failure of the combined efforts of the federal government to make a substantial impact on the foreclosure issue," said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. "No one thinks we have done a satisfactory job."

Frank said he plans to introduce legislation this week that will create a new federal program that will lend mortgage money to homeowners while they are unemployed. The measure will be offered as an amendment to a broader package of proposed new rules designed to rein in excessive speculation on Wall Street.

Mortgage Cram-Down

A mortgage "cram-down" bill that stalled in Congress earlier this year will also be attached to the broader financial regulatory legislation and voted on this week, Frank said today. The cram-down provision would let federal judges lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court, even if the lender objects.

At Bank of America Corp., which accounts for almost a third of the loans targeted by the program, 55 percent of borrowers aren't eligible because they are unemployed, don't live in the home or their mortgage payment is less than 31 percent of gross monthly income, Jack Schakett, who runs the bank's credit loss mitigation strategies, said in an interview yesterday.

The Treasury summoned Bank of America, JPMorgan Chase & Co. and Citigroup Inc. officials to Washington yesterday to pressure them to speed U.S. foreclosure-prevention efforts ahead of the year-end deadline to convert trial plans to permanent status.

The program, announced in February, was originally touted to help up to 4 million borrowers at risk of foreclosure to renegotiate lower payments by lengthening loan terms, lowering interest rates and making other changes to mortgage contracts.

Extraordinary Volume

While JPMorgan Chase has started trial modifications on 140,988 loans, or about 29 percent of its eligible pool of loans, the bank is "facing challenges with borrowers completing documentation or making trial plan payments as agreed," said Molly Sheehan, who runs housing policy for the company's home lending division.

Mortgage bankers said they have ramped up staffing to keep up with the "extraordinary" volume of applications and flurry of paperwork. JPMorgan Chase has opened 30 homeownership centers in 13 states, with 21 more planned for the first quarter, to more directly reach borrowers and help collect paperwork. The bank has added more than 2,550 new loan modification counselors and 2,825 mortgage operations employees this year to deal with the "unprecedented volume," Sheehan said.

'Bad Guidance'

About 30 percent of borrowers in trial-payment plans have turned in the necessary paperwork to qualify for a permanent loan modification so far, Allison said. An eligible borrower with three months of trial payments who doesn't turn in all their paperwork by year-end "jeopardizes their chance to get a permanent modification," a Treasury spokeswoman, Meg Reilly, said in an e-mail this week.

Reilly said no one will be eliminated from the Home Affordable Modification Program without "a thorough review."

"We hear too many consumer complaints of lost paperwork, bad guidance, long waits and difficulty in simply contacting servicers," said Douglas Roeder, senior deputy comptroller for large bank supervision at the Office of the Comptroller of the Currency, which regulates national banks under the Treasury.

Bank of America is trying to move 65,000 trial payment plans into permanent status by Dec. 31. Of those, 50,000 have either not submitted any of their paperwork or have submitted incomplete or inaccurate information, Schakett said.

"Several factors likely contributed to this, including ineffective communications with customers, shortcomings in document maintenance, misunderstandings about program requirements and the inability to comply," he said.

Eligible Loans

About 29 percent of JPMorgan Chase's borrowers in trial modifications aren't paying as agreed, 20 percent haven't turned in any documents and 31 percent are missing some paperwork, Sheehan said. Only 20 percent of borrowers have made all payments and provided all the paperwork, the majority of which are expected to get a permanently reduced payments, she said.

The Obama administration requires banks that received federal aid from the Treasury's Troubled Asset Relief Program, as well as mortgage-finance companies Fannie Mae and Freddie Mac, to lower monthly payments for borrowers in need.

Eligible loans under the program are at least 60 days past due or judged at risk of delinquency, in foreclosure or bankruptcy, and originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data exclude Federal Housing Administration and Veterans Affairs loans. A borrower's mortgage payment must be 31 percent or more of gross monthly income.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.