Millions of Americans have lost their homes. Many more could have been save if Obama’s administration and Congress had not let lenders have a way out. But thanks to their “get out of jail” card, lenders have found a way not to modify US homeowners.
Years ago, when homes were purchased, the bank or lender, owned the mortgage on the property. If the loan got sold the homeowner was notified and the new payment would be posted to the new lender. Today, banks play more the role of a servicer, or collector of the payment for the note, while a pool of investors own the note through another bank. An example of this is Deutsche Bank, who uses Indymac Bank as a servicer for loans. Deutsche Bank themselves are a trustee for the pool of investors that actually own the loans. Confusing right?
Many homeowners were excited when they believed that a program was coming out to help them keep their homes. This program known as HAMP, or Home Affordable Modification Program, was a collaboration between Obama’s Administration, the US Department of Treasury and Congress. Unfortunately, this program was designed to help the lenders find a way out of not doing the modification.
Servicers complained, that they would be in violation of their servicing contracts if they did modifications on homeowners loans and could face possible lawsuits. However, according to a study done by UC Berkley’s law school, who looked at contracts, they found that only 8% of them prohibited modifications. About 1/3 said nothing about modifications and the rest has some limits but generally gave most of the authority to the servicers. This was confirmed at the time, earlier this year, by Deutsche Bank’s spokesperson, John Gallagher who said, “Servicers are solely responsible for deciding all modifications.” according to his interview with for ProPublica. This would soon change once HAMP was approved.
Obama’s administration at the time, tried to address the concerns of servicers, by creating the “Safe Harbor” provision. This provision was set up to protect servicers from being sued by their investors. But after serious lobbying by investors, Congress removed the provision, opening the floodgate for investors to refuse modifications and blame HAMP for not allowing them to do so.
In October, letters were sent out by Indymac Bank, to homeowners, some who had been waiting for modifications for almost a year as to why they were denied. In this letter, from Brandon Latman, First Vice President of Indymac Mortgage Services, the blame was placed on HAMP.
Within the letter it states, “On March 4, 2009 the Department of the Treasury launched the Home Affordable Modification Program(HAMP). The program was adopted by Indymac Mortgage Services on August 11, 2009. By signing up for HAMP, Indymac Mortgage Services has agreed to follow the rules and guidelines that have been established by the United States Department of Treasury. While the program is designed to help borrowers who are experiencing a financial hardship, not all borrowers will meet the eligibility qualifications established by the Department of the Treasury and therefore, not all borrowers are eligible for a HAMP loan modification. HAMP requires the servicer to comply with the terms of their servicing contract with the owner of the loan. This requirement prohibits us from modifying the loan.”
For many homeowners, this was a stunning revelation. Basically the blame for the lack of modifications was not being blamed on the usual, such as income, employment, debt ratios, but instead on a program developed by our government that has given investors a “get out of jail card” when none of the other reasons apply to deny.
When contacted earlier this week, Mr. Gallagher, of Deutsche Bank Media Relations, stated in a email regarding the letter sent by Indymac Bank, that quote, “The agreement, is made for the benefit of the mortgage securities investors and typically cannot be amended materially without their approval vote, which is difficult and a uncertain process. Accordingly, unless and existing pool and servicing agreement allows particular types of loan modifications, the servicer cannot grant the modifications.” Quite a change from the interview response given prior to HAMP’s approval.
With HAMP in its current condition, many homeowners’ who would have qualified for a modification will be shut out, as investors who hide behind their servicers, use the trump card provided by our Congress. Homeowners in danger of losing their home, are not able to get access to those so called agreements which would provide them with the proof of their so called demise nor do they have the finances to seek a lawsuit. Many more homeowners will lose their home and the foreclosure cycle will continue since HAMP has now given the lenders the green light to simply do nothing.
