On Sept 9, 2009 the press release of a update on the governments Home Affordable Program was made available. This release highlighted the progress of HAMP, the efforts of the administration, its design, progress and limitations based on written testimony from Michael S. Barr the Assistant Secretary for Financial Institutions.
The program was designed to stabilize the weak financial market. It is estimated that the housing crisis could create well over 5 million foreclosures in the coming years. The promise of this program was to bring hope to homeowners. It offered a “pay incentive” to servicers and investors that was better than most Americans even knew about. Many had heard about the $1000 upfront payment and the continuous opportunity to earn additional money. However, most American didn’t even know there was more. According to the press release, “HAMP ALSO matches reductions in monthly payments dollar-for-dollar with the lender/investor from 38 percent down to 31 percent DTI.” Why would a lender/investor NOT want to modify if there was no real loss? Good question.
According to the release HAMP even took into consideration, the pooling and servicing agreement between servicers and lenders. It states that even if such a agreement existed, “Participating servicers, are required to service all loans in their portfolio according to HAMP guidelines, unless explicitly prohibited by pooling and servicing agreements, and further, must make reasonable efforts to obtain waivers of any limits on participation.” The problem is that some lenders who are participating in this program are not following the rules.
In a letter sent out by IndyMac denying loan modifications due to its servicing agreement with its investors, no where does it state what efforts were made to obtain a modification for the borrower based on HAMP’s reasonable effort requirement. It instead just references the pooling and servicing agreement and blames the lack of being able to perform a loan mod on HAMP. It interestingly, refers to wanting to discuss further alternative to foreclosure such as a short sale or cash for keys, but yet again does not bring up another important alternative discussed in the HAMP press release.
According to the Home Affordable Program, it states that, “each loan must be considered for a HOPE for Homeowners refinancing.” IndyMac makes no such reference to this in the letter from Brandon Latman, the Vice President of IndyMac Mortgage Services.
On July 9, Secretaries Geithner and Donovan wrote to CEO’s in a effort to communicate that a “senior liaison” needed to be available to deal with all aspects of HAMP and for that person to make decisions on behalf of the CEO. IndyMac, a division of OneWest Bank, needs to have that someone to review its outreach to borrowers, with a real understanding of how HAMP works and the other alternatives to foreclosure, not just a short sale or cash for keys. The liaison, should also discuss with our administration any loopholes that exist that prohibit the lenders/investors from working with borrowers.
Starting Oct 1, the program implemented by Congress and the United States Treasury Department, expects to have a standard denial code system in place to monitor lenders who deny loan modifications. It will require servicers to report the reason for the denial not only to the borrower but directly to the Treasury Department. Based on the letter sent by IndyMac, a division of OneWest Bank, it will be interesting to see if they reference the HAMP program as the problem for directly saying no to a modification as it states in the communication.
A recommendation would be for the government to not only review the denial code but audit the files themselves. One could only guess how many copies of financial statements, 4506 T are duplicated in them. So many borrowers have complained about the constant “loss” of paperwork and inefficiency of the loan modification process. The sample audit, talked about in the press release will run into the millions based on the lack of success of with lenders wanting or knowing how to comply.
The government needs to step up its efforts with lenders and servicers, who are trying to use the HAMP program as a way to not modify loans and are also not giving borrowers enough alternatives besides foreclosures and cash for keys. With the incentives provided, which are more generous than most knew, the reasons for not doing loan modifications seem distant and unacceptable.