This article should come as no shock. The HAMP plan has a mediocre success rate as it lets the loan servicers evaluate homeowners in financial distress rather than the bankruptcy courts. There is NO ENFORCEMENT of the HAMP guidelines of any substance and the program has no principal reduction aspect.
HAMP litigation in bankruptcy court is gaining traction and compelling loan seervicers to provided special attention to Plaintiff's in pursuit of a loan mod or face attorney fees.
Unfortunately most folks can't afford litiigation costs and attorney fees. The failure of HAMP should result in an increase in foreclosures and short sales in the next year. It may be time to consider a short sale exit strategy for those who have fallen out of the program.
WASHINGTON -- By MARTIN CRUTSINGER
Nearly half of the homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out.
A new report issued Friday by the Treasury Department said that approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the effort have been cut loose through July. That's about 48 percent of the 1.3 million homeowners who had enrolled since March 2009. That is up from more than 40 percent through June.
The report suggests foreclosures could rise in the second half of the year and weaken the ailing housing market, analysts say.
Another 421,804, or 32.3 percent of those who started the program, have received permanent loan modifications and are making their payments on time.
Many borrowers have complained that program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.
The banking industry said borrowers weren't sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.
Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers' monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.
The Obama plan was designed to help people in financial trouble by lowering their monthly mortgage payments. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period.
]]>
B of A estimates that only 45,000 customers will ultimately qualify for this program and about $3 billion dollars of principal will be reduced provided all the customers accept and complete the program over a 5 year tern and the value of the home does not rise after the third year.
This "earned principal forgiveness" program will be offered as part of Bank of America's National Homeownership Retention Program, which is available in 44 states and the District of Columbia. To qualify for this principal forgiveness, homeowners will need to meet all the other qualifications of HAMP. They will need to prove that they have a hardship and cannot afford their current mortgage.
Details:
Take the example of a home now worth $200,000 but with a mortgage of $250,000. In this scenario $50,000 would be set aside as an "interest-free forbearance of principal." In determining the HAMP payment the bank would use a $200,000 loan-to-value to set the new mortgage payments.
As long as homeowners continue to pay the loan on time over a five-year period, each year one fifth of the "interest-free" principal set aside would be forgiven. So, for example, at the end of the first year $10,000 would be forgiven. This will continue each year as long as the forgiven amount does not reduce the principal below 100% of the current market value.
But in years four and five, if the market value has recovered, some of the principal may not be forgiven. For example, suppose in year 4 the house price has appreciated $20,000 and now the house is worth $220,000, the remaining $20,000 sitting in the "interest-free" account would not be forgiven.
On a side note: Bank of America Corporation on April 16, 2010 reported first-quarter 2010 net income of $3.2 billion compared with a net loss of $194 million in the fourth quarter and net income of $4.2 billion a year earlier. After preferred dividends, the company earned $0.28 per diluted share in the first quarter, up from a loss of $0.60 per share in the fourth quarter and earnings of $0.44 per share in the first quarter of 2009.
Sources: Lita Epstein, Bank of America
"During the housing boom, new loans were supposed to change hands several times as Wall Street firms bundled them into debt pools and sold them to investors. But the documents and contracts between borrowers and lenders often weren't altered to show changes in ownership."
Don't confuse your loan servicer with your loan owner. A change in loan servicers does not mean that the loan itself has been sold. 95% of mortgages were intended to be pooled into mortgage trusts. 95% of mortgages were intended to be sold multiple times until ending up in a trust along with up to 5,000 other mortgages. Bond investors then buy into the mortgage pool in exchange fo the right to receive future payments from the entire pool.
The mortgage backed securities business model contemplates multiple transfers of loan ownership from loan originator, to depositor, to underwriter and finally to the trust with a few month period after the loan is executed. However, these transfers are expensive, time consuming and involve dealing with the real estate laws of 50 states and countless county record keepers. Rather than ensure that the notes have been properly transferred into the mortgage trusts, lenders often skipped this process to save money.
As long as loans are performing, ignoring the property transfer protocols is not a problem for lenders. However, once defaults rise, it becomes necessary for lenders to "create" a paper trail that shows that the notes are properly held by the foreclosing party, the Trust.
This article details the extent that lenders will go to cover their tracks and attempt to avoid lawsuits from the bond investors. The lenders hire law firms and document preparation service companies to fabricate the note transfer documents need to file a foreclosure lawsuit, notice of default or to ask a bankruptcy court to grant relief of the automatic stay.
Sadly, for the lenders, the document fabricators aren't too smart. They frequently file documents that grant loan ownership directly from the originators to the trusts...ignoring the middleman parties that are required by the trust disclosures. Instead of fabricating loan docs to show a chain of title that moves from A to B to C to D....the fabricators create a "deed of trust assignment" that purports to move the loan ownership from A to D, skipping B and C. This is a sure sign of fraud. Finally, the assignments themselves are not legally effective. Mortgage notes are negotiable instruments like checks. In California, notes are transferred by "endorsement and delivery", not assignment. Assignments of deeds of trust without a transfer of the note itself is a legal nullity.
We are seeing this type of fraud DAILY in the bankruptcy courts as lenders try to secure relief of stay. We are hopeful that judges will begin to understand the scope of the deception.
By AMIR EFRATI
The Florida attorney general's office is investigating possible misconduct by a large law firm that files foreclosures for banks, according to a posting on its Web site.
The Web site said the office is looking at whether Florida Default Law Group, based in Tampa, was involved in "fabricating and/or presenting false and misleading documents in foreclosure cases." Mortgage documents that are used to prove a bank has a right to foreclose "have later been shown to be legally inadequate and/or insufficient," the Web site said.
A spokeswoman for Florida Default declined to comment. Ryan Wiggins, a spokeswoman for Attorney General Bill McCollum, said the investigation began last fall.
The civil probe comes as some judges and federal prosecutors in Florida are paying close attention to how banks--and so-called foreclosure-mill law firms that work for banks--are attempting to take control of homes from borrowers in default. Judges across the country have chastised banks and their attorneys for attempting to seize properties they can't prove they own.
Last month, a Florida judge said that a mortgage document filed by a bank in a foreclosure case was part of an "intentional effort to mislead" the court.
The attorney general's office said on its Web site that Florida Default "appears to be" a client of Lender Processing Services Inc., a Jacksonville company that has said it is being investigated by the federal criminal prosecutors.
LPS, which processes and sometimes produces documents needed by banks to prove they own the mortgages, has acknowledged errors with documents they processed that were filed in foreclosure cases and said they have been fixed. An LPS spokeswoman said on Thursday the company is "willing to cooperate with any regulatory body that contacts us."
Ms. Wiggins said the attorney general's office recently began investigating conduct by LPS in foreclosures.
Faulty bank paperwork has been an issue in foreclosure proceedings across the U.S. since the housing crisis took hold a few years ago. It is sometimes difficult for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans.
During the housing boom, new loans were supposed to change hands several times as Wall Street firms bundled them into debt pools and sold them to investors. But the documents and contracts between borrowers and lenders often weren't altered to show changes in ownership, judges have found.
http://online.wsj.com/article/SB10001424052748704302304575214523297904834.html
]]>This is nothing that we and borrowers don't already know...but see for yourself:
http://www.gao.gov/new.items/d10556t.pdf
Highlights:
When Treasury announced the program in March 2009, it estimated that HAMP could help 3 to 4 million borrowers. Through February 2010, including both the portion funded by TARP and the portion funded by Fannie Mae and Freddie Mac:
about 1.1 million borrowers had begun trial modifications; of which
about 800,000 were in active trial modifications, and
fewer than 200,000 permanent modifications had been made.
As of early March 2010, the TARP-funded portion of the program had 113 participating servicers, and about $36.9 billion of the $50 billion in TARP funds for HAMP had been allocated to these servicers. A typical TARP-funded modification could result in a monthly mortgage payment reduction of about $520.
Treasury has taken some steps, but has not fully addressed concerns that GAO raised in its July 2009 report on HAMP's transparency and accountability. For example, Treasury has yet to finalize some key components of its internal controls over the first-lien program, including establishing metrics and benchmarks for servicers' performance. In addition, Treasury has not finalized remedial actions, or penalties, for servicers not in compliance with HAMP guidelines. According to Treasury, these remedies will be completed in April 2010. Lastly, GAO reported that Treasury's projection that 3 to 4 million borrowers could be helped by HAMP was based on several uncertain assumptions and might be overly optimistic, and GAO recommended that Treasury update this estimate, but the Department has not yet done so.
Preliminary results of GAO's ongoing work show inconsistencies in some aspects of program implementation. Although one of HAMP's goals was to ensure that mortgage modifications were standardized, Treasury has not issued specific guidelines for all program areas, allowing inconsistencies in how servicers treat borrowers. For example, the 10 servicers GAO contacted had 7 different sets of criteria for determining whether borrowers who were not yet 60 days delinquent qualified for HAMP. Also, some servicers were not systematically tracking all HAMP complaints and, in some cases, tracked only resolutions to certain types of complaints, such as written complaints addressed to the company president. GAO also found that servicers faced challenges implementing HAMP because of the number of changes to the program, some of which have required servicers to readjust their business practices, update their systems, and retrain staff.
The report reflects the reality on the front lines. Servicers have no incentive to help homeowners in financial distress. There is no penalty for lack of compliance with HAMP guidelines. The Treasury Department is doing nothing to act as a watchdog, yet continues to write checks to the servicers.
I renew my call for a private cause of action. Homeowners need access to the Courts to hold loan servicers accountable. Leaving HAMP guideline enforcement up to Fannie Mae has failed. The crisis has worsened and its cost taxpayers $37Billion to date.
After earning unprecedented wealth in creating the foreclosure crisis, how is it that taxpayers must now pay lending industry players BILLIONS for their failed efforts to implement HAMP and mitigate the crisis that they created?
In what other industry can you create a crisis and be so well paid to do such a terrible job attempting to fix the crisis?
Its an extreme case of the fox watching the chickens...in this case, we are talking about a very well paid fox.
The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values.
The FHA refinance options being announced today may provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage.
No specific details or underwriting guidelines are available, nor has a timeline for implementation been announced. See below:
http://www.treasury.gov/press/releases/tg614.htm
March 26, 2010
TG-614
Housing Program Enhancements Offer Additional Options for Struggling Homeowners
Refinements to Existing Administration Programs Designed to Help Unemployed, Underwater Borrowers While Helping Administration Meet its Goals
WASHINGTON - Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own. The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values. These changes will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012. Costs will be shared between the private sector and the Federal Government; the Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).
Housing Policy Overview
The Administration's goal is to promote stability for both the housing market and homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing, and support for Fannie Mae and Freddie Mac. The Administration's efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation. Today, mortgage rates are at record lows and, thanks in large part to these programs, more than four million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than one million are saving an average of over $500 per month through the Administration's modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing.
Even with this success, we continue to see challenges. Servicers were slow to implement HAMP, resulting in a slow start for the program. Recent improvements in the program have accelerated the pace of modifications, and the adjustments announced today will improve performance. But our strategy to address the crisis must evolve because our challenges have also evolved.
Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: "We can't stop every foreclosure." And in fact, we can't maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford. Instead, the Administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation. The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers.
Eligible homeowners for modifications under HAMP must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. The new flexibilities for the modification initiative announced today continue to target this group of homeowners.
The FHA refinance options being announced today will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.
Taken together, the Administration's broad housing initiatives and the new flexibilities announced today will offer a second chance to millions of responsible, middle-class American families struggling to stay in their homes and will help to stabilize our households, neighborhoods and communities.
The Administration has taken a broad set of actions to stabilize the housing market and help American homeowners. These efforts are having an impact on our housing markets - we are seeing signs of stabilization. Looking back to over a year ago - stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages. Millions of responsible families who had made their monthly payments had fulfilled their obligations saw their property values fall, and found themselves unable to refinance at lower mortgage rates.
In February 2009, less than one month after taking office, President Obama announced the Homeowner Affordability and Stability Plan. As part of this plan and through other housing initiatives, the Administration has taken the following actions to strengthen the housing market:
Actions Supporting Market Stability and Access to Affordable Mortgage Credit
· Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market;
· Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments; and
· The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined.
Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities
· Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;
· Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750;
· Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;
· Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;
· Supported the First Time Homebuyer Tax Credit, which has helped hundreds of thousands of responsible Americans purchase homes.
· Through the Recovery Act is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and
· On February 19, 2010, the Administration announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation's hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.
Historically low mortgage rates along with expanded refinancing flexibilities for Fannie Mae and Freddie Mac loans have helped more than four million American homeowners with Fannie Mae and Freddie Mac loans to refinance, saving an estimated $150 per month on average and more than $7 billion in total. HAMP has provided more than 1 million struggling homeowners a second chance to stay in their homes - with each homeowner in a modification saving more than $500 per month on average.
Together, these initiatives are having an impact - strengthening the housing market, helping responsible homeowners prevent avoidable foreclosures and rebuilding communities and neighborhoods. Today mortgage rates remain at historic lows - the primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis. We are also seeing encouraging signs in housing indicators - home prices and the pace of home sales have stabilized in recent months.
]]>March 25 (Bloomberg) -- More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.
The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.
U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.
Modifications are "clearly not working well and it's not a surprise," said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. "It's pointless to rewrite these loans because they're underwater."
The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.
Obama Program
President Barack Obama's administration is pressuring lenders to alter loans to reduce the number of properties lost to foreclosure. About 4.5 million foreclosures filings are expected in 2010, according to RealtyTrac Inc., an Irvine, California-based seller of default data.
A government watchdog report released today criticized the government's main foreclosure prevention effort, the Home Affordable Modification Program, or HAMP, for "spreading out the foreclosure crisis" over several years by failing to help enough troubled borrowers.
"The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway," said the report by the Special Inspector General for the Troubled Asset Relief Program, prepared for a Congressional hearing today.
Assistant Treasury Secretary Herb Allison defended the program at the Congressional hearing, saying it has shown signs of stabilizing the housing market.
Before HAMP
The Mortgage Metrics data are based mostly on modifications made before HAMP, Joe Evers, deputy for large bank supervision at the Comptroller of the Currency, said in a phone interview today. Permanent loan changes under the government program accounted for only 21,000 of the total 594,000 modification plans initiated during the fourth quarter of 2009, making it too soon to evaluate the effectiveness of that plan, Evers said.
There were 168,708 delinquent loans permanently modified under HAMP as of the end of February, according to a Treasury Department report March 12.
Borrowers were more likely to default when their monthly payments aren't reduced enough in modifications to make staying in a home affordable, Evers said.
"Our data show that when you reduce payments by 20 percent or more you have a tendency for lower re-default rates," he said from Washington.
Bank Modifications
The Mortgage Metrics report tracks 34 million mortgages with an outstanding balance of $6 trillion and is based on data from nine national banks and three thrifts. The data represent more than 64 percent of all first-lien mortgages.
Modified loans in the portfolio of banks -- as opposed to loans owned by investors or government-sponsored enterprises such as Fannie Mae and Freddie Mac -- had the best record of avoiding re-default, the Mortgage Metrics report said.
The banks are free to design modification plans for individual borrowers, Bruce Krueger, a mortgage banking expert with the Office of the Comptroller, said in a phone interview. The HAMP program requires lenders to follow a path of concessions to modify loans, beginning with interest rate reductions, extended loan terms and principal forebearance.
"It's a very rigid process," Krueger said of the HAMP program. "If the loan is on the bank's books itself, the servicer can do whatever the bank might allow."
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.
]]>Commentary from the frontlines: Follow the money! There is inherent conflict of interest between what is good for a loan servicer and what is good for the loan's owner or investor (typically a mortgage backed security trust). Loan servicer's usually only make .25-.50 percent of the revenue that they process on behalf of an investor when a loan is performing. However, when a loan goes into default, servicer's make a killing. Loan servicers profit from the late fees, BPOs, foreclosure costs, attorney fees, forced placed insurance and all the other excessive fees.
Payments received from borrowers during a trial mod or forbearance plan are put in a "suspense account". Suspense funds earn interest for the loan servicers. Those funds are used to pay off the accrued servicer fees first and foremost. Generally, investors get paid after the loan servicer. So as not to disturb the cash flow to the servicers, MBA proposes that the government make special loans to servicers so they can pay themselves and also let their investor's share in the foreclosure crisis gravy train. The proposal would effectively double the time that servicer's can milk a property in foreclosure, in addition to the HAMP plan, and allows investor's to further delay recognizing the true losses on their books.
Of course, as with the HAMP plan, evaluation of borrowers would be under the supervision of the loan servicers.
the fox is watchin' the unemployed chickens too?
Proposal details: http://www.mortgagebankers.org/files/News/InternalResource/71954_BridgetoHAMP.pdf
"The Mortgage Bankers Association (MBA) has put forth a concept for a new forbearance program that would allow borrowers who've lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower's mortgage payment for up to nine months while the homeowner looks for employment."
"Under MBA's proposal, borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months and earning 75 percent of their previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once new employment is secured, the program would serve as a "bridge" for the borrower to be considered for a modification under the administration's Home Affordable Modification Program (HAMP)."
"MBA suggests that some participating servicers would need access to special loans through Treasury so they could continue to advance payments to investors during the extended forbearance period. The trade group also noted that the program would need to be voluntary and flexible due to financial accounting considerations, in particular whether or not lenders would have to classify the forbearance as a troubled debt restructuring (TDR). MBA created this program through a special task force of its members, and consulted with Fannie Mae and Freddie Mac on the design. Last week, MBA representatives met with officials from the White House, the Treasury Department, and HUD to present the proposal."
"Last Friday, President Obama announced a new initiative to provide $1.5 billion to housing finance agencies in especially hard-hit states for them to develop their own loss mitigation programs, with one particular area of focus being assistance for unemployed homeowners. MBA's proposal though, puts the unemployment issue on the national stage, and although participation by servicers would be voluntary, the program would be coupled with federal HAMP efforts. Nationwide, MBA said in a letter to Treasury Secretary Timothy Geithner, "Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent."
Jan. 19 (Bloomberg) -- The U.S. Treasury Department has failed to win agreements to get struggling borrowers' home- equity debt reworked, among the biggest roadblocks to reducing foreclosures that may reach a record 3 million this year.
None of the lenders holding a combined $1.05 trillion of the debt has signed contracts requiring participation in the second-mortgage modification plan announced eight months ago. The largest banks remain "committed" to joining, Meg Reilly, a department spokeswoman, said in an e-mail.
President Barack Obama in February announced a $75 billion program to cut first-mortgage payments. The Treasury detailed a plan on April 28 in which second-mortgage owners modify or retire debt when the first lien is changed, saying it would be running in a month. The near-record level of home-equity debt held by lenders including Bank of America Corp. and Wells Fargo & Co. may lead to foreclosures that threaten housing stability after the worst slump since the 1930s.
"The issue of the second liens has to be escalated," said Richard Neiman, New York's banking superintendent and a member of the Troubled Asset Relief Program's Congressional oversight panel. The government should consider forcing banks to participate and to recognize the "true value" of second liens, he said.
Bank of America, Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. carry such mortgages at about $150 billion more than their value, according to estimates by Joshua Rosner, an analyst at Graham Fisher & Co. in New York.
Equity lines and other second mortgages rank junior to typical mortgages, meaning they get wiped out in a foreclosure unless sale proceeds from a seized home exceed the first debt.
Still Struggling
As Obama's Home Affordable Modification Plan, or HAMP, lowers first-mortgage payments, some borrowers are still left with bills they can't afford, according to Newport Beach, California-based Pacific Investment Management Co.
"Modifying the first mortgage doesn't necessarily get the homeowner to good shape," Scott Simon, head of mortgage-bond investing at Pimco, manager of the world's biggest fixed-income fund, said in a telephone interview.
About 25 percent of homeowners who received trial loan modifications are failing to keep up with their reduced payments, the Treasury said Jan. 15.
Loan Modifications
Of an estimated 3.36 million U.S. homeowners with delinquent payments eligible for loan modifications under the Obama plan, 66,465 received permanent changes, according to Treasury data. That group saw its total median debt burden -- mortgage, junior liens, alimony, car payments and other bills -- reduced to 55 percent of gross income from 72 percent.
Rosner said overvalued home-equity debt prevents residents from getting the aid likeliest to keep them in their homes: principal forgiveness.
First-mortgage owners usually won't agree to the deeper principal reductions needed to reduce the loan to at or below the home's value when home-equity holders aren't willing to make sizable cuts, said John Taylor, chief executive officer of the Washington-based National Community Reinvestment Coalition.
Three million U.S. homes will be repossessed this year as high unemployment and depressed values leave borrowers unable or unwilling to make their payments or sell, RealtyTrac Inc. forecast on Jan. 14. Almost 10.7 million, or 23 percent, of residential properties with mortgages were in negative equity as of Sept. 30, according to First American CoreLogic.
Targeting Principle
Policy makers may be able to reduce re-defaults on modified debt from an average of 57 percent within a year "significantly" more by getting mortgages lowered rather than by spurring larger payment cuts, New York Federal Reserve Bank researchers wrote in a December paper.
The government is considering changes to permanently cut balances on which borrowers owe more than the property is worth, said Michael Barr, the assistant Treasury secretary for financial institutions.
"We are in the process of reviewing that now as we have been continually," Barr said on a conference call last week. "You have to be very careful not to design a program that would change people's behavior across the country."
Bank of America CEO Brian Moynihan "recommitted" to participating in the Treasury program this month as part of "our aggressive efforts to help customers," Rick Simon, a company spokesman, said in an e-mail.
Awaiting Final Guidelines
"We are waiting for final guidelines," Simon said.
Citigroup is "actively engaged with the U.S. Treasury in finding a workable solution," Mark Rodgers, a spokesman, said in an e-mail.
Wells Fargo is working with the government "to understand the program specifics," Mary Berg, a spokeswoman for the San Francisco-based bank, said in a phone message.
Tom Kelly, a spokesman for New York-based JPMorgan, declined to comment.
Banks' reluctance to write down second mortgages also hampers short sales, when homeowners sell a house for less than they owe, minimizing the damage to themselves, their communities and their lenders.
"If I had to name one sticking point, it's the second mortgage," said Ethan W. Gregory, an agent with First Coast Realty Associates in Jacksonville, Florida, who specializes in short sales.
'Nuisance Value'
Holders of home equity loans often hold up loan workouts to extract money from deals when their junior liens are technically worthless, said Dave Walker, chief credit officer of PennyMac Mortgage Investment Trust, a Calabasas, California-based company managing $2.85 billion in distressed mortgage debt.
"The typical focus of a second lien investor is to extract a 'nuisance value' out of the second lien rather than rehabilitate the loan," Walker said. "If the second lien is entirely underwater, they have little or no potential recovery through liquidation of the property and their interest is wiped out at foreclosure. However, they can often demand a small payment -- $1,000 to $3,000 -- to release their lien."
Americans tapped home equity as values more than doubled between the start of 2000 and the market's apex, and took "piggyback" loans in lieu of down payments.
Home prices rose in each of the six months through October, increasing 5.3 percent, after a record 33 percent plunge from the 2006 peak, an S&P/Case-Shiller index for 20 metropolitan areas showed. Gains were driven by a decline in the share of sales involving "distressed" properties that will reverse this year as foreclosures climb, Deutsche Bank AG said Dec. 18.
The government's Home Affordable program offers subsidies to lenders, bond investors, loan servicers and consumers to rework first mortgages so that payments, insurance and taxes don't exceed 31 percent of a borrower's income.
Lender Relief
The Treasury said in April that home-equity lenders would receive a subsidy to reduce interest rates to as low as 1 percent. Lien holders could get as much as 12 cents on the dollar to retire debt. Officials said on a conference call that within about a month its program would start helping borrowers, and that as many as half of "at risk" homeowners had second mortgages.
The Treasury "has been working to create program infrastructure and technology, including a new platform that matches second liens to first liens modified under HAMP," Reilly said Jan. 7. "Because there has not been a systematic method of notification to second lien holders when a first lien on the same property is modified, ramp up has taken some time."
Fink's View
BlackRock Inc. CEO Laurence Fink, who oversees the world's largest asset manager, has called the government's effort flawed because of its treatment of second mortgages, which he said should be wiped out before first liens are touched.
"There is modification going on protecting our banks, protecting their balance sheets," Fink said in a September interview. With the right types of changes, he said, "the homeowner is better off, America is better off, and you could say the first lien holder is better off."
The Federal Deposit Insurance Corp. last year urged lenders to consider whether borrowers' housing debt exceeds the value of their properties and whether first mortgages have been reworked when determining loss allowances.
Bank of America's allowance for home-equity losses equaled 6.4 percent of its $152 billion portfolio as of Sept. 30, according to a slide from an earnings presentation posted on its Web site. Half the portfolio was tied to borrowers with debt exceeding 90 percent of their property's value.
TARP Approach
U.S. officials should force banks to sell their home-equity loans at current market prices of pennies on the dollar to a government-run entity, which would then forgive the debt, said Taylor, whose community-reinvestment group represents 600 organizations that work with banks on lending in low-income neighborhoods.
"When they were handing out all this TARP money, this would be a very easy conversation, but they still have the ability to do this, if they have the willingness," he said, referring to capital injections under the $700 billion TARP.
That's not a reasonable point of view because many banks can't afford to take the hits to their capital, Rosner said.
If the U.S. were to overpay for the debt, it would allow the lenders to remain solvent, he said, "but for the government to have to subsidize those writedowns, arguing it's in the best interest of the borrowers, would be merely a backdoor bailout of the banks that brought us to this crisis."
Loan Servicers
Spokespeople for Fannie Mae and Freddie Mac, the largest owners of first-mortgage risk, declined to comment. The companies were seized by the U.S. in September 2008 and are being supported by unlimited taxpayer capital through 2012, after drawing $111 billion so far.
While Home Affordable allows loan servicers to reduce borrowers' principal instead of just their payments, such steps aren't required and decisions are designated to the servicers.
The four largest U.S. banks, which own almost $450 billion of home-equity debt, are also the biggest servicers handling payments and collections on loans held by others.
"If they can get the first to eat it, why would they want to on the second?" said Pimco's Simon, who added that his firm would support principal reductions being done on a "loan-by- loan" basis.
A new legal theory is emerging that may assist homeowners in receiving proper and fair consideration for a loan modification. While you are not entitled to a loan modification, you may have the contractual right to be fairly considered pursuant to the published guidelines and directives issued by Fannie Mae and the Treasury Department.
Understand the context of this emerging legal theory. Over the last year, most loan servicers have entered into a contract with Fannie Mae as the agent for the U.S. Treasury department. An actual contract sample is attached: http://www.consumerlaw.org/issues/financial_distress/content/loan_modification/RGMortgageCorporation.pdf
The contract's terms includes the published guidelines and directives published by the government. Some of the guidelines are discretionary and some are mandatory. The legal question is: did the government and the loan servicers intend that borrowers are the "intended" beneficiaries to the contract? If so, such a third party beneficiary can sue to enforce the performance of the contract.
To date, I know of three federal cases moving this theory through the courts. All three have faced motions to dismiss by loan servicers. One motion succeeded, one failed and the third, a class action suit, is pending.
Under the right facts, with the right judge...the theory should work to get a consumer a fair chance at a loan mod. These days, good faith consideration for loan modification is the exception, and not the rule.
]]>
-A family loses their home to foreclosure every 13 seconds.
-15 million homeowners owe more than their mortgages are worth.
-9 million foreclosures by the end of 2012 resulting in a $2 trillion loss in home property values in the United States. With millions of option ARMs and Alt-A loans scheduled to reset in the next few years, coupled with rising unemployment, the projected numbers are likely to only get worse.
"Mortgage servicing companies are key to addressing the foreclosure crisis because they occupy the unique niche of collecting payments and making decisions about foreclosures on behalf of investors who own pools of mortgage backed securites. Unfortunately, most workouts offered by servicers are not aff ordable to the homeowner, and many even fail to lower the monthly payment that led to the delinquency, thereby resulting in high re-default rates."
If you are reading this Blog, then chances are you have already failed in your attempts to get a loan modification. Consider the reasons why the HAMP program is not working:
Mortgage servicers remain severely understaffed and are not complying with the HAMP contracts they signed.
HAMP requires servicers to suspend all foreclosure activity until it canbe determined if a homeowner is eligible for a modification; instead, servicers are proceedingwith foreclosures before such determinations are made. In direct violation of the guidelines, some servicers also continue to
1) require homeowners to make large, up-front cash payments as a condition for being considered for a modification;
2) fail to apply the HAMP rules to all portfolios being serviced;
3) refuse to evaluate for HAMP modification those distressed homeowners currently paying on time;
4) base the affordability calculations on interest-only or option-arm minimum payments, when HAMP requires affordability to be based on the loan's principal interest, taxes and insurance; and
5) neglect to offer principal forbearance when interest rate reductions are not enough to make the loan affordable.
Source:
http://www.acorn.org/fileadmin/Fair_Housing/Reports/HAMP_WhitePaper3.pdf
Does this sound familiar? The HAMP contract is an agreement between the Treasury Department and the individual loan servicers. Currently, a borrower has no clear private cause of action or right to sue a servicer if they fail to play by the rules. Only the Treasury is in a contractual position to pressure the servicers into compliance and so far, that pressure has been quite mild. Its a classic case of the Fox watching the Chickens.
The HAMP program will never succeed unless the Obama administration creates a strong disincentive for the servicers that ignore the HAMP guidelines. The obvious solution is to create a private cause of action and enable borrowers who have been denied due process under the HAMP, to sue, to have their day in court, to seek justice. Let the law dawgs out, Mr. President!
Source: http://www.acorn.org/fileadmin/Fair_Housing/Reports/HAMP_WhitePaper3.pdf
]]>
Go this link and find specific loan mod performance results on your loan servicer.
The charts on page 5 of the the HAMP Modification Activity by Servicer shows the relative performance of the top 20 loan servicers that have signed up for the HAMP loan modification program.
Companies typically do not own the loans that they service. The loans are owned by mortgaged backed security trusts referred to as "private investors". As such, loan servicers typically have no "skin in the game". As a result, those companies who service loans for private investors are the worst performers within the HAMP plan.
There is a direct relationship between the performance and the number of loans that the servicer actually owns. Citibank has a relatively large number of loans within their portfolio as opposed to loans owned by a private investor or mortgage backed security trust.
Citibank, Saxon and GMAC has been the most successful modifier of loans on a percentage basis. Each of these servicers have active modifications on at least 44% of their eligible loans, defined as those loans that are at least 60 days delinquent. The worst performers include One West Bank (21%), Ocwen (20%), Bank of America (19%), Litton (16%), American Home Servicing (9%), HomeEq (4%) and Wells Fargo owned Wachovia (3%).
Bank of America has the largest number of loans at 203,470, yet only 9,367 are actually owned by Bank of America. JP Morgan Chase is next with 153,967 eligible loans, of which only 21,871 are actually owned by the bank. Wells is third with 118,708 eligible loans, of which only 5,041 are owned by the bank. Most of the loans serviced by the big servicers tend to be owned by private investors. If the loans default, these banks don't suffer the same losses. Compare these proportions to CitiBank. Citibank services 112,998 loans and owns 31,648 of these loans. Because Citibank owns a substantial number of the loans, they have tended to modify more of the loans so as to minimize their potential losses.
]]>
Source: http://financialstability.gov/docs/report.pdf
Approximately 89% of eligible mortgage debt outstanding is covered by HAMP participating servicers. During the 4th quarter of 2009, the number of servicers who have signed servicer participation agreements to modify loans under HAMP rose from 63 to 102.
WARNING: Keep in mind that not every investor or loan pool within a servicer's portfolio necessarily signs up for the HAMP plan. Investors can opt out on an individual basis.
National HAMP results:
Number of Trial Period Plan Offers Extended to Borrowers (Cumulative): 1,164,507
All HAMP Trials Started Since Program Inception: 902,620
All Active Modifications (Trial and Permanent): 853,696
Active Trial Modifications: 787,231
PermanentModifications: 66,465
Permanent Modifications Pending Borrower Acceptance: 46,056
Total Permanent Modifications Approved by Servicers: 112,521
California HAMP results:
Active trial mods: 158,935 [20% of national total]
Permanent loan mods: 13,353 [20% of national total]
Los Angeles-Long Beach-Santa Ana HAMP results:
Active trial mods: 45,945 [29% of state total]
Permanent loan mods: 3,469 [26% of state total]
Riverside-San Bernadino-Ontario HAMP results:
Active trial mods: 36,671 [23% of state total]
Permanent loan mods: 3,383 [25% of state total]
]]>
The log jam is occurring when it comes to the auction dates. Sales can happen on only 21 day notice. But these days, Lenders are repeatedly setting sale dates, waiting to the last minute and then postponing the sales. For example, there currently 35,198 pending sale dates in the next month that were originally filed in the first 6 months of 2009. Another 41,216 of the upcoming sales were initiated in third quarter 2009. Another 39,478 of sales have been initiated since the beginning of the fourth quarter of 2009. All told, 116,492 properties, hundreds of thousands of Californians, have a foreclosure sale scheduled on their home tonight. Another 106.616 properties are in the NOD pipeline. Historically, NODs outnumber sale date properties [NTS] by an eight to one margin. Still, hundreds of thousands of additional loans are in default and will soon follow into foreclosure unless a substantive political solution is crafted.
Imagine what this is going to do to home prices when these properties flood the market. Prices will be pushed down further as long term interest rates increase as Fannie Mae stops buying mortgage backed securities.
Source: Foreclosureradar.com.
RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its Year-End 2009 Foreclosure Market Report™, which shows a total of 3,957,643 foreclosure filings -- default notices, scheduled foreclosure auctions and bank repossessions -- were reported on 2,824,674 U.S. properties in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.
Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008 -- when a similar monthly jump in foreclosure activity occurred. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent from the third quarter, although it was still up 18 percent from the fourth quarter of 2008.
"As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," said James J. Saccacio, chief executive officer of RealtyTrac. "After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.
"Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December," Saccacio continued. "In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog."
A total of 632,573 California properties received a foreclosure filing in 2009, the nation's largest state foreclosure activity total and an increase of nearly 21 percent from 2008. After four straight month-over-month declines, California foreclosure activity in December increased nearly 9 percent from the previous month, but the state's fourth quarter foreclosure activity was still down 17 percent from the previous quarter.
Source: http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&accnt=0&itemid=8333
]]>By John Gittelsohn and Prashant Gopal
Jan. 7 (Bloomberg) -- Efforts by U.S. banks to help distressed homeowners have focused mainly on temporary fixes such as interest-rate reductions that may only put off the day of reckoning, despite policy makers wanting them to do more.
Banks may be forced to resort to a remedy they've been trying to avoid -- principal reductions -- as another wave of foreclosures looms and payments on risky loans rise, Bloomberg BusinessWeek magazine reports in the Jan. 18 issue.
While interest-rate reductions or extending loan terms reduce homeowners' monthly payments, they don't give much comfort to borrowers who owe more on their homes than their properties are worth. Borrowers who don't have equity in their homes are more likely to hand over the keys when they run into trouble. "The evidence is irrefutable," Laurie Goodman, senior managing director of Amherst Securities Group in New York, testified before the U.S. House Financial Services Committee on Dec. 8. "Negative equity is the most important predictor of default."
The 25 percent plunge in residential real estate prices from their 2006 peak has left homeowners underwater by $745 billion, according to research firm First American CoreLogic -- a number that tops the government's $700 billion bailout for banks. That's why Federal Deposit Insurance Corp. Chairman Sheila Bair is considering incentives for lenders to cut the principal on as much as $45 billion of mortgages acquired from seized banks. "We're looking now at whether we should provide some further loss-sharing for principal writedowns," says Bair. "Now you're in a situation where even the good mortgages are going bad because people are losing their jobs."
Deepening Crisis
The foreclosure crisis is likely to deepen this year in part because payments on many adjustable-rate mortgages are set to balloon. Unless there's a sharp recovery in property values or a change in lenders' willingness to cut principal, at least 7 million borrowers currently behind on their payments will lose their homes, Goodman estimates.
Some lenders may be coming around to the idea of principal reduction. "If you can right-size the mortgage and return to an equity situation, the incentive is to stay," says Micah Green, an attorney at Patton Boggs in Washington and a lobbyist for a coalition of mortgage bond investors. Banks can either forgive principal outright or defer it. In deferrals the borrower must pay back the full amount on the original mortgage when he sells the property; if the ultimate sales price doesn't cover the principal, the homeowner has to pay the difference, making it a less effective tool.
Deferring Principal
A principal deferral helped Marcus Beckett stave off foreclosure. The 42-year-old small-business owner couldn't afford his $2,413 monthly mortgage bill after his income dropped and his son, Riley, was born. In October, OneWest Bank agreed to defer $66,000 of the $423,000 debt on his two-bedroom condominium, which he'll have to pay back if he sells his Aliso Viejo, California, home. The monthly tab on the house he bought in 2006 is now $1,314. "It's like I got a second chance on life," Beckett says. "I feel, mentally, I'm able to keep making payments."
While principal reductions remain rare, banks are doing them more often. In the third quarter of 2009, some 21,000 home loans -- 3 percent of the total modified mortgages -- included a principal reduction or deferral, according to Mortgage Metrics, a government publication. That's up from 6,245 in the first quarter of 2009, the first time the U.S. reported the data.
Positive Results
Banks that negotiate principal reductions have seen positive results. Last year, Wells Fargo & Co. cut $2 billion of principal on delinquent loans. After the modifications, the six- month re-default rate on those loans was roughly 15 percent to 20 percent. That's less than half the industry average. "We are very comfortable with what we've been doing," says Franklin Codel, chief financial officer of the bank's home-lending unit. "We offer a principal reduction if that makes sense for that individual borrower's situation."
When principal reductions were granted for pay-option adjustable-rate mortgages -- loans with high default rates because they enabled borrowers to pay less than the cost of interest as the principal increased -- the re-default rate after 60 days fell to 6 percent, according to Mortgage Metrics.
"In terms of incentive, you have more skin in the game or less negative equity to deal with," said Fred Phillips-Patrick, director of credit policy for the Office of Thrift Supervision.
Demand Better Deals
Many banks don't want word to get around that they reduce principal. They fear that homeowners who can afford their payments will demand better deals. John Lashley, a 44-year-old salesman in Huntersville, North Carolina, is making his payments. But he is thinking about walking away from his four- bedroom home unless his lender, Sun Trust Mortgage, agrees to cut the principal on his $345,000 loan.
The house next door recently sold for $260,000, and Lashley doesn't see the point of pouring money into his house when he may never recoup the investment he made in 2007. "Why should I stay in my house?" he says. "It's not a moral decision. It's a financial decision."
The conflicting interests of mortgage lenders and home- equity lenders is a roadblock to doing principal reductions. Banks, credit unions and thrifts held $951.6 billion in home- equity loans as of Sept. 30, according to Federal Reserve data.
Dueling Interests
Mortgage lenders don't want to cut principal unless the home-equity lenders agree to take a hit. Typically, though, the home-equity lenders are reluctant; much of the value of their loans would be wiped out. That could drive more banks into insolvency, says Joshua Rosner, an analyst at investment research firm Graham Fisher in New York.
The threat of lawsuits is also hampering principal reductions. In December 2008 money manager Greenwich Financial Services sued lender Countrywide Financial in New York State Supreme Court. Greenwich, which owns mortgage-backed securities, demanded 100 cents on the dollar for some Countrywide investments. The securities included loans on which Countrywide had agreed to cut $8.4 billion in principal and interest to settle allegations of predatory lending.
Greenwich Financial's case is pending. Bank of America Corp., which bought Countrywide in 2008, says: "We are confident any attempt to stop this program will be legally unsupportable." Greenwich says it's willing to accept loan changes that benefit borrowers.
No Pressure
So far the feds haven't put pressure on banks to forgive debt. President Barack Obama's $75 billion program to spur banks to alter loan terms doesn't require them to do so. But the FDIC and other regulators are looking at measures to promote the writedowns. Mark Zandi, the chief economist for Moody's Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices. "You're not going to wipe out all the borrowers' negative equity," he says. "This just gives them enough hope to get them committed again."
To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.
]]>Jean Braucher is the Roger C. Henderson Professor of Law at the University of Arizona James E. Rogers College of Law. This article is based on a longer paper, available for free at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1518098).
The Obama Administration originally envisioned bankruptcy modification as a companion to HAMP. The House passed a bill to achieve that goal, only to see it stall in the Senate. An attempt to get the legislation moving again in the House failed on December 11, but the more problems with HAMP become apparent, the greater the chances that bankruptcy modification might ultimately be enacted.
Low quantity. Only 31,382 modifications were made permanent in the first eight months of HAMP, which became operational last April and committed $75 billion to help three to four million borrowers avoid foreclosure. In response to these poor results, Treasury launched a "Conversion Campaign" to get as many as possible of another 697,026 pending trial plans converted into permanent ones.
Comparing the permanent modifications at the end of November to the 386,865 trial plans at the end of August (giving them three months to become final), the conversion rate has been about eight percent, equivalent to chances of a college applicant getting into Harvard or Yale.
A Treasury official used police and military rhetoric to describe its campaign: "SWAT teams" of Treasury staff are now "imbedded" at servicers in an "escalation process." So if you have clients who could benefit from HAMP modifications, now is a good time to contact the program's "Hope Hotline": 1-888-995-HOPE (4673).
Treasury also acknowledged persistent accounts of servicers "losing" documents and asks borrowers and their counselors to report program violations. That's another action item for you if you have clients who have been given the runaround. Other servicer violations should also be reported, such as conducting foreclosure sales while reviews or trial plans are in progress, charging for evaluation, or offering noncomplying plans that are more expensive than HAMP calls for. Gross monthly mortgage payments are supposed to be reduced to 31 percent of gross monthly income. Any of these practices could make a good basis for state Unfair and Deceptive Practices (UDAP) actions, typically carrying statutory damages and attorneys' fees.
Low quality. Principal reduction is not required under HAMP and is rarely given. Three-quarters of borrowers are left underwater, often seriously so, with the principal obligation on average at 137 percent of the home's current value, according to the Congressional Oversight Panel report last October. Borrowers who later lose income are stuck, unable to sell and pay off the loan or refinance. Temporary interest rate breaks are the way affordability is achieved, without principal reduction, and that creates high risk of redefault, especially given high unemployment.
The Obama Administration originally envisioned bankruptcy modification as a companion to HAMP. The House twice passed bills to achieve that goal, only to see them stall in the Senate. An attempt to get the legislation moving again in the House failed on December 11, but the more problems with HAMP become apparent, the greater the chances that bankruptcy modification might ultimately be enacted.
Alternatively, HAMP's guidelines could include principal reduction as a standard tool when needed to keep borrowers in their homes, something Treasury could implement itself. As is, many HAMP modifications are not going to be sustainable.
]]>