HAMP


Ever wonder why it was so difficult for people to get permanent loan modifications a couple of years ago? Maybe it’s because some employees were allegedly paid to make sure they were denied, at least at one bank.

According to a June 14 Bloomberg.com article, Bank of America provided employees with incentives including cash bonuses and gift cards for meeting quotas linked to sending homes into foreclosure. The allegations were revealed by past employees as part of a lawsuit filed against the banking giant earlier this month by homeowners who were denied modifications. Many who were denied loan modifications eventually lost their homes to foreclosure.

Apparently employees in the loss mitigation department were instructed to delay review, ask homeowners for items they already had in the file, and do whatever was necessary to deny permanent loan modifications. Former B of A loan servicing specialist Theresa Terrlonge said that they received restaurant gift cards and cash rewards for denying loan modifications. “I witnessed employees and managers falsify information in the systems of record, and remove documents from the homeowners’ files to make the account appear ineligible for loan modification,” said Terrelonge.

But the big rewards came for actually pushing a borrower into foreclosure. According to Simone Gordon, a loss-mitigation representative who left the company in 2012, specialists who put 10 borrowers into foreclosure, including those in a trial modification, received a $500 bonus. Bank of America insists that the allegations are inaccurate and will file an opposition to the motion to make this a class action case.

Unfortunately, I’m not terribly surprised by these allegations and find it difficult to believe that B of A was the only bank involved in this type of behavior. It’s no wonder that there have been so few successful loan modifications; the very people charged with creating positive outcomes were apparently paid to do otherwise.

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It was just announced that the Obama Administration is making some significant changes to the Home Affordable Modification Program (HAMP). I noted 3 key points:

1. Homeowners who are struggling financially will be eligible for a 2nd evaluation with a less stringent debt-to-income ratio.
2. The program will be extended to include investor owned properties that are used as rentals.

And ….(drum roll)…

3. The  Administration will triple incentives for lenders who write down principal balances for underwater homeowners, AND they are extending this principal reduction incentive to Fannie Mae and Freddie Mac!

It’s this last item that has me excited as I’ve been a proponent of principal reduction for a long time, as noted in my blog post back in 2010. What impact all of this will have of course depends on how quickly the new rules can be put into effect and how well all participating lenders adhere to the new guidelines.

All that being said, I’ll take any good loan modification news that we can get!

What is a Loan Modification?

Watch this short video to learn the truth about mortgage loan modifications.

For those of us in the industry, it hardly comes as any surprise that Bank of America has failed to help thousands of Americans receive a permanent loan modification through the Home Affordable Modification Program (HAMP).  And it now looks like they might have some explaining to do:  A judge has denied the bank’s request to dismiss a case involving tens of thousands of homeowners who claim they were refused help through the HAMP program.

As you remember, HAMP uses federal funds to help struggling homeowners.   Under the program, Bank of America is required to provide foreclosure alternatives and permanent loan modifications to eligible homeowners.

However, according to Steve Berman, managing partner of Hagens Berman, the firm representing the homeowners. Bank of America has refused to permanently modify the loans of thousands of borrowers, even after successfully completing a Trial Period Plan (TPP).  “The vast majority tell us the same thing: Bank of America claims to have lost their paperwork, failed to return phone calls, made false claims about the status of their loan and even taken actions toward foreclosure without informing homeowners of their options,”  said Berman.

In the lawsuit, Berman seeks to prove that Bank of America “intentionally postpones homeowners’ requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure.”

“The bank ends up reaping the financial benefits provided by taxpayer dollars financing TARP-funds and also collects higher fees and interest rates associated with stressed home loans,” Berman added.

The case will be limited to homeowners who entered a TPP, but were denied a permanent modification.  Judge Rya Zobel also ruled that homeowners in nine state, including California could pursue claims in their states where consumer protection laws are stronger. 

So if you’re a homeowner in the middle of trying to get a HAMPmodification form B of A, the outlook is not encouraging.  The federal government has cut-off HAMPfunds to Bank of America until they make improvements in how they administer the program, which could mean more foreclosures and short sales on the horizon for Bank of America borrowers.

During a town hall meeting last Thursday inWashington,D.C. the President took a comment from a woman in the audience who explained that her loan modification expires in January, 2012.   Despite having excellent credit, she can’t refinance because she owes more than the house is worth.  Without a new loan mod, or principal reduction she will not be able to make her payments and could lose her home.

The President agreed that the banks need to take a more aggressive role in protecting homeowners.  He commented to the banks, “We were there for you when you got in trouble, then you’ve got to be there for the American people when they’re having a tough time.”  (I think he just forgot to add the part about the banks creating this problem in the first place.)

“We want to see if we can get longer-term loan modifications. And in some cases, principle reduction, which will be good for the person who owns the home, but it’ll also be good for the banks over the long term,” President Obama said.  “You know what,” Obama continued, “speaking to the banks…you’re going to be better off if somebody’s still paying on their mortgage than if they get foreclosed on and you end up not only having to go through all those legal processes, but you also end up…selling the home at a fire sale price.”

Excuse me, but isn’t that stating the obvious?  Is there anything new here?  Under the current government Home Affordable Modification Program (HAMP), borrowers may receive a modification that is valid for 5 years, and under some non-HAMP programs the modification period is as short as 2 years.  But then what?  Like the woman in the town hall meeting who was fortunate enough to even get a loan mod, what happens when it expires? 

President Obama concluded by adding that his administration is working with banks to expand loan modifications.  “We’re going to be talking to the banks. And I mean, on a regular basis,” he said.

Well, I bet that has the banks shaking in their boots!  “Talking on a regular basis”, what does that mean and how is that going to change anything?  If we are ever going to see an end to the real estate depression that continues to drag down our economy we need an effective plan, not lip-service.  Someone needs to lean on the banks to make permanent, meaningful modifications that include (as I’ve been saying for over a year), principal reduction.  Come on Mr. President….you’ve shown you’ve got the muscle.  Let’s see some action!