Loan modification: A bad report card

HAMP, the government-sponsored entity put in place to help troubled borrowers, is not doing its job for homeowners facing foreclosure.

Loan modification logo fedsThe Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has issued a report sharply criticizing mortgage servicers for failing to keep up with the volume of applications for mortgage modifications through the Home Affordable Modification Program (HAMP) — as well as the Treasury Department for failing to do a better job of overseeing servicers’ HAMP activities.

JPMorgan Chase, CityGroup and Ocwen Loan Servicing allegedly are the biggest offenders, processing only a fraction of applications they receive a month. The number of borrowers waiting for a response rose 65 percent from November 2013 to November 2014.

We know banks will sit on loan modifications — it is not in their best interest to push them through. Yet every situation is a co-creation. Borrowers often derail their chances by not completing applications.

Problems most often seen on applications are:

  • Rental income: Borrowers say they get paid in cash and don’t have verified rental income.
  • Social Security income: Borrowers can’t locate their receipts.
  • Bank statements: Borrowers don’t send all bank statements when requested.
  • Document “Request for Mortgage Assistance” is often not fully completed.
  • Borrowers fail to complete income/assets portion of form.
  • Hardship is overlooked.
  • Borrowers fail to sign documents.
  • Request for Mortgage Assistance form is often not fully completed.

The SIGTARP report states:

Overall, only one in six homeowners (who) applied for HAMP received a permanent modification (since the program was launched). Additionally, the number of homeowners entering HAMP has steadily declined from 512,712 in 2010 to just 141,920 in 2013.

Another big concern outlined in the report is the high default rate among borrowers in the program:

Already, 398,222 homeowners have not been able to keep up with their mortgage payments even though payments were lowered by HAMP. Overall 29 percent of homeowners in HAMP have already fallen out of the program. However, the bulk of homeowners in HAMP who started participating in the program in 2009 and 2010 are falling out of the program at ever more alarming rates. Approximately half of all homeowners who entered HAMP in 2009 have fallen out of the program. Homeowners who entered the program in 2010 have re-defaulted at a rate of 40 percent.

Banks and servicers don’t provide an early warning system for troubled borrowers in danger of re-default. They don’t care if you kill your credit by not making payments. All they want is your money. While you go down the credit rabbit hole, you are negatively affecting your family’s future.

Angry loan modification consumerAlthough the Federal Housing Finance Agency recently announced that it is extending HAMP through 2016, the SIGTARP report says an extension “is not enough on its own to bring about meaningful change, particularly as hundreds of thousands of homeowners who got into HAMP, fell prematurely out of the program.”

Servicers get incentives from the government for processing a loan modification application. Banks continue to make money while you “think” you are getting a loan modification. You make the payments you can’t afford, not knowing that you won’t be getting that loan modification.

The truth is the loan modification system has set up the homeowner to fail.

There is a huge communication problem for people who are trying to get into loan modification programs. Servicers don’t communicate with homeowners upon denial of a HAMP modification. Homeowners who would have moved on with a short sale are now facing foreclosure because they waited so long.

Just because you apply for a loan modification, it does not mean that you are going to be approved for one. Even if you are approved, your chances of re-defaulting are 40 percent to 50 percent.

Homeownership is an emotional decision. If you are facing foreclosure, it is time to think about your financial future. Get your head into a realistic state, cut your losses, do a short sale. Do you really want to be another statistic on the feds’ bad report card for mortgage servicers?

Call me, Cindy Marty. (310) 663-9427. I’ll help you find solutions.

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