Comment : 2

HAMP Program Loan Modifications With High Defaults Hurt The Community But Enrich Servicers.

(Bankruptcy News Source:  “Loan Modification Recipients Redefault in Droves”  by Kate Berry, published in National Mortgage News)

Distressed homeowners are redefaulting in droves on loan modifications received through a government program, costing taxpayers billions and raising questions about the Treasury Department’s oversight of mortgage servicers.

Christy Romero, the special inspector general for the Troubled Asset Relief Program, says in a report to Congress scheduled to be released Wednesday that Treasury failed to analyze its own data to determine which borrowers were most at risk of losing their homes to foreclosure after receiving government support.

The watchdog says 46% of homeowners who got help in 2009 through the government’s Home Affordable Modification Program have redefaulted on their mortgages, while 38% who received loan mods in 2010 have done so.
“This is a real problem,” says Romero. “We want homeowners to get the same help they were promised that was given to banks.”

HAMP has been the centerpiece of Treasury’s efforts as outlined by Congress through the Tarp legislation to “[protect] the interests of taxpayers” and “help families keep their homes.”
Homeowners in default on loans held by banks or investors can apply to their mortgage servicer to reduce their monthly payments. Under HAMP, investors, servicers and homeowners are all eligible to receive incentive payments to make the loan more affordable.

When the Obama Administration first unveiled HAMP in 2009, it made lofty claims that lowering mortgage payments would help up to 4 million homeowners avoid foreclosure. But almost immediately doubts were raised about the program’s effectiveness, in part because borrowers were routinely denied HAMP modifications and were instead put into servicers’ own proprietary programs.

In all, just 865,100 homeowners were active in the HAMP program as of April. Of those, 10% have missed one or two payments but have not yet redefaulted. The overall redefault rate is 26%.

Romero says that the Treasury, which oversees HAMP, needs to do more to help struggling borrowers, especially since the program was extended in May for another two years, through Dec. 31, 2015. She maintains that the Treasury failed to properly structure incentives and penalties to mortgage servicers.

“No servicer has ever paid a penalty for HAMP despite all the misconduct out there,” Romero says. “It cannot just be about the carrot, the incentive payments, but must also be about penalties and it’s been an ongoing problem that Treasury is really not coming down on servicers for misconduct. They have not taken a hardline approach.”

But senior Treasury official said the agency does not have the authority impose penalties.

“We didn’t have the power to fine the way a regulatory or law enforcement agency does,” said the official on a conference call Tuesday with reporters, on the condition that he not be identified by name.

He added that Treasury’s focus has been less on punishment and more on getting servicers to implement the systems needed to process loan modifications.

“The industry clearly was a mess at the beginning. The entire industry was ill-equipped to deal with this crisis,” he said. “They didn’t know how to modify loans, there were no standards on how to do a successful mod and how to outreach to borrowers.”

Though Treasury initially committed to use $50 billion of funds from Tarp for housing support programs, that obligation was reduced in March to $38.5 billion. But just $8.6 billion of those allocated funds, or 22%, have actually been spent on programs aiding borrowers, the report found.

Moreover, taxpayers have lost roughly $815 million in incentive payments made through April 30 on more than 163,000 HAMP modifications that ultimately re-defaulted, according to the Treasury. Though the Treasury has paid $4.4 billion to mortgage servicers and investors to cover more than 600,000 permanent modifications, about 18% of those funds were paid for incentives on modifications that later redefaulted.

Three servicers received more than half of the funds spent on homeowners who redefaulted: Ocwen Loan Servicing, JPMorgan Chase (JPM) and Bank of America (BAC). And 91% of all Tarp funds spent on HAMP permanent modifications that redefaulted were paid to the top 10 servicers.

“Homeowners who receive a HAMP permanent modification but end up losing their how to foreclosure or fall out of the Tarp program are not being helped to keep their homes as Tarp intended, and taxpayers lose the positive impact these funds were to provide for the individual family and community at large,” the report states.

Romero’s own analysis found that homeowners are more likely to redefault if they received a less than 5% reduction on their housing expenses; if they are still underwater on their mortgages, owing more than the value of the property; and if they have subprime credit scores and high overall debt.

She made four recommendations on how to improve the program’s effectiveness. First, she says that the Treasury needs to conduct in-depth analysis to determine the cause of redefaults, should require servicers to provide additional data, and should make the findings public.

Second, the Treasury should also modify aspects of HAMP and the other Tarp housing programs to reduce redefaults. Third, the agency should require that servicers develop and implement an “early warning system,” to actively reach out to homeowners at risk of redefaulting. Currently, servicers have no such system in place, Romero says.

Finally, Romero recommended that the Treasury “should permanently withhold incentives” from servicers that do not provide borrowers with alternatives to foreclosure.

Though the Treasury agreed to all the recommendations it still took issue with some of the watchdog’s claims, including that HAMP redefaults increase over time and that servicers are not reaching out to borrowers. Mark McArdle, acting chief of Homeownership Preservation at the Treasury, went so far as to post an article on the agency’s blog Monday to explain redefaults.

Neil Barofsky, a senior fellow at New York University School of Law, and a former special inspector general of Tarp, warned more than three years ago that HAMP’s modest goals would be meaningless if the Treasury did not address the risks of redefault, including the need for a comprehensive principal reduction program.

“Sadly, those warnings went unheeded, with struggling homeowners, taxpayers and the broader economy all needlessly suffering as a result,” Barofsky says.

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Author’s Note: To learn more about how bankruptcy can help with consumer mortgage issues check out our Bankruptcy FAQ.  For more information regarding loan modifications subscribe for our free ebook 10 Secrets To Successful Loan Modification.

About the Author
Rhinold Ponder is the managing partner at Ponder Tuck Ponder, an aggressive firm which emphasizes litigation in consumer issuers and bankruptcy protection for debtors. Rhinold is also an accomplished artist and speaker on issues of consumer rights. He also operated The DIY Lawyer blog which focuses on redistributing justice and democracy by empowering through information sharing and education.
  1. Copes Reply

    Mr. Ponder, I came across your article and was struck by the senior Treasury officials comment.
    The Treasury Department, in particular the Office of the Comptroller of Currency. I do not need any further assistance and I am sure you already know this … so if they dont feel its their job
    1. What do feel is?
    2? Who’s job do they think it is to investigate adn prosecute the misconduct committed by these institutions?

    *********************************************
    “The Office of the Comptroller of Currency is the agency responsible for investigating and prosecuting acts of misconduct committed by institution-affiliated parties of national banks, including officers, directors, employees, agents and independent contractors

    I wrote a letter to several of our Congressmen as well as the Comptroller and the CEO’s of BoA and Everhome… some of which follows

    To The Office of the Comptroller of Currency (OCC):
    Thomas J. Curry, Comptroller of the Currency
    Michael Bronsan, Comptroller Large Bank Supervision

    The OCC is the agency responsible for investigating and prosecuting acts of misconduct committed by institution-affiliated parties of national banks, including officers, directors, employees, agents and independent contractors

    1.) If illegal patterns of activity and practices were taking place (such as the illegal denial of HAMP loans to steer to IN-House Modifications, Misrepresenting (perjury) to Congress regarding the number of HAMP loans, etc) I respectfully demand you do your job by prosecuting Bank of America, it’s officers, directors, and agents involved to the fullest extent of the law, including, but not limited to charges under the Racketeer Influenced and Corrupt Organizations Act (‘RICO Act’).

    2.) QUESTION:
    Reading your oath again and understanding that your job, your responsibility is to investigate and prosecute,
    Would you feel victorious, moral or otherwise if…
    a) At gunpoint your daughter raped and her purse stolen containing $1000 (her world in ruins for the time being anyway) …. The perpertrator was arrested and the Prosecutor signed an Agreement with the Individual admitting nor dening any wrongdoing however paying $0.000001 (% of 1 cent) ?
    b) How about the person responsible for embezzling your Mother’s $300,000 retirement fund. Is it a Victory for you when the criminal finally apprehended after countless man hours and funds spent and you settled with them signing an Agreement stating they neither admit nor deny any wrongdoing, they serve no time in jail, they are however penalized horribly by agreeing to pay the court $30 for your Mother. Are you good with this? Do you see where I’m going? or are you getting a cut of the attorney fees … the ones with the smiles walking out of the courthouse a great deal richer.
    c) What if someone stabbed a family member?
    What do you feel when you find out three months later they are all back in the news for doing this again, DO you make the same agreement, and then they do it again four months after that.
    What they lied? They took advantage of your good nature? Your naivety? ? ?
    3.) This is what Bank of America has been doing FOR YEARS … What many banks are doing.
    WHY ARE YOU MAKING THESE AGREEMENTS?
    4.) Upon a cursory review of your Agreement,
    In the Matter of: Bank of America, NA AA-EE-11-12
    What I do NOT see is Bank of America stating they will NOT continue these illegal practices (double negative…basic math principle applies to grammar… gives a positive. To me it states they will continue these illegal practices). Is this what you meant to have?
    What Bank of America DOES say is the Comptroller can enforce the order when they do (isn’t that nice of them). Is this also what you meant to have?
    Mr. Curry/Mr. Bronsan please email your answers to the simple questions in this items #4.
    I would like to understand the thinking of the men in the positions you are.
    5.) Bank of America Clearly continued with their illegal patterns of activity. In my cursory review I list briefly several of the illegal patterns of activity nationwide, that WE PERSONALLY EXPERIENCE TO THIS DAY (along with thousands if not hundreds of thousands of other homeowners – listed below are just a few), YOU Found to be unsafe or unsound practices in YOUR Findings and Instructed them to Discontinue (which they DID NOT and clearly you did not ENFORCE).
    6.) We personally have had Bank of America violate the following sections under Article IX
    (this was with less than a 5 minute review of the document and disgust and understanding with the Agreement).

    UNITED STATES OF AMERICA
    DEPARTMENT OF THE TREASURY
    COMPTROLLER OF THE CURRENCY

    In the Matter of:
    Bank of America, N.A.
    Charlotte, NC
    AA-EC-11-12

    CONSENT ORDER

    ARTICLE IX
    MORTGAGE SERVICING

    Section G:
    5.) (g) procedures and controls to ensure that a final decision regarding a borrower’s loan modification request (whether on a trial or permanent basis) is made and communicated to the borrower in writing, including the reason(s) why the borrower did not qualify for the trial or permanent modification (including the net present value calculations utilized by the Bank, if applicable) by the single point of contact within a reasonable period of time before any foreclosure sale occurs;

    6.) (j) procedures for the prompt review, escalation, and resolution of borrower complaints, including a process to communicate the results of the review to the borrower on a timely basis;
    7.) (k) policies and procedures to ensure that payments are credited in a prompt and timely manner; that payments, including partial payments to the extent permissible under the terms of applicable legal instruments, are applied to scheduled principal, interest, and/or escrow before fees, and that any misapplication of borrower funds is corrected in a prompt and timely manner;

    8.) (m) policies and procedures to ensure that foreclosure, Loss Mitigation, and loan modification documents provided to borrowers and third parties are appropriately maintained and tracked, and that borrowers generally will not be required to resubmit the same documented information that has already been provided, and that borrowers are notified promptly of the need for additional information;

    ARTICLE II
    STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER
    ARTICLE II
    AGREEMENT

    (1) The Bank, without admitting or denying any wrongdoing, consents and agrees to issuance of the Consent Order by the Comptroller.

    (2) The Bank consents and agrees that the Consent Order shall (a) be deemed an “order issued with the consent of the depository institution” pursuant to 12 U.S.C. § 1818(h)(2), (b) become effective upon its execution by the Comptroller through his authorized representative, and (c) be fully enforceable by the Comptroller pursuant to 12 U.S.C. § 1818(i).

    In the Matter of:
    Bank of America, N.A.
    Charlotte, NC AA-EC-11-12

    Settled with Bank of America with the following terms

    Article II AGREEMENT

    (1) The Bank (Bank of America), without admitting or denying any wrongdoing,
    consents and agrees to issuance of the Consent Order by the Comptroller.

    (2)The Bank consents and agrees that the Consent Order shall (a) be deemed an “order issued with the consent of the depository institution” pursuant to 12 U.S.C. § 1818(h)(2), (b) become effective upon its execution by the Comptroller through his authorized representative, and (c) be fully enforceable by the Comptroller pursuant to 12 U.S.C. § 1818(i).

    As mentioned Above What I do NOT see is Bank of America stating they will NOT continue these illegal practices (double negative…basic math principle applies to grammar).
    What Bank of America DOES say is the Comptroller can enforce the order (isn’t that nice of them).

    Hmmm… Thomas/Michael, maybe you have something here… {wink ; wink ;}
    Do you think any of the Attorney Generals will grant Federal Transactional Immunity (a ‘Get out of Jail Card’) and provide a signed written Agreement stating with regard to any bank robbery that takes place, IF _(fill in name here)_ was caught all they have to do sign the document, stating they are “without admitting or denying any wrongdoing” consent and agree to pay 0.01% of what was taken from the bank if someone comes to collect it and has proof of ownership.

    Of course this isn’t quite the same as the bank would be insured and received 100% of the funds stolen…. But… Do you think there would be a rise in Bank Robberies if there were ‘Get out of Jail Cards’?

    You have given Bank of America their ‘Get out of Jail’ card many times over with the Agreements you have made with them.

    7. RESIGN – Because if you feel in heart you are morally and virtuously and with conviction honoring your Oath. You need time to realign your Moral Compass.
    And if you know you are not, gain an ounce of dignity by taking the first step … Down!

    8. While you are at it… Before you resign do you think you can send me a few of those ‘Get out of Jail Free cards!’ … It would be much appreciated!

    ********************************************************
    Mr. Ponder. to no surprise I received no response from the Treasury department. Good luck in your endeavors ~ your clients seem to be in great hands.

  2. Rhinold Ponder Reply

    Mr. Copes, thank you for your comment. I would not expect the Treasury department to do much because it does not have the authority and it maintains an incestuous relationship with the major lending institutions in this country.

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