The Treasury Department has shifted their thinking on HAMP, their tentpole foreclosure mitigation program. Despite initial estimates of the program being able to keep 3 million people in their homes (to date, just 400,000 have been approved for a permanent loan modification, with only .1% of those actually getting the kind of principal reduction that can really make a difference), Treasury now says that the goal was to delay foreclosures so the market could better absorb the glut of vacant homes, and prices would remain somewhat stable. Treasury claims they couldn’t justify spending the amount necessary to keep borrowers in their homes; however, just $250 million of an earmarked $75 billion has been spent on the program, according to the Special Inspector General for TARP ($50 billion of the $75 billion for HAMP is supposed to come from TARP, with the rest from Fannie and Freddie).
What doesn’t get discussed in this reading is the human face behind the statistics, those whose foreclosures were merely delayed and who now wait for the day when their lender evicts them. For them, HAMP has turned their lives upside down, and in some cases accelerated their problems rather than mitigated them.
Dennis is a middle-aged man living in Long Beach, California. Because he is still negotiating a workout with his lender, Citi Mortgage, I’ve changed his name at his request so this profile doesn’t impede on his chances for keeping his home.
Dennis, an architect and a project manager in housing construction, bought his home, a fixer-upper, in 2007, just after the peak of the market. “The thing was crashing when I was in escrow,” he told me. “There was a guy who bought a house in similar condition across the street who was trying to flip it, he upgraded the place, and I kept seeing them bring the price down, and down, and they couldn’t sell it.”
He briefly considered pulling out of the deal, but ultimately stayed with it. His fixed-rate mortgage was a no-doc loan, where income is merely stated instead of verified (these loans have since been banned by the government, under the new financial reform bill). While the interest rate still reflected the higher rates of the time, without the no-doc status it would climb higher. Dennis’ business is on a freelance, project-rate basis, and without definitive income, it would have been hard for him to purchase a home. Besides, he had plans to put his building skills to work to turn this “piece of crap,” as he affectionately put it, into something he could be proud of.
So Dennis bought the house, and the value predictably dropped like a rock amid the housing crash. He paid $500,000 and sunk close to $50,000 into the home, redoing the layout, upgrading the kitchen and putting in new landscaping. The county assessor just appraised the house a month ago at $338,000.
While Dennis was severely underwater on the home, he wasn’t necessarily thinking about a loan modification. In fact, he was talked into one in the summer of 2009. Dennis, an active Democrat who canvassed in Nevada for Barack Obama in 2008, founded a Democratic club in his area after the elections, and they started to run “Recession Nights,” events for the community that covered topics like how to write a great resume, or how to have fun without spending much money. One of these nights concerned how to get a loan modification. The lady who ran the event told Dennis he was a perfect candidate.
“She was a real nice lady, and she kept saying I would qualify for this Obama Administration program and get to cut my payment,” Dennis said. “It was presented as no risk. What’s to lose?” Dennis gave this lady $2,000 and filtered all dealings with his mortgage lender through her. “She made it seem like she had some magic formula” to ensure a permanent modification, according to Dennis. “It was real casual, she didn’t even provide a written agreement.”
The documentation process took months. “Everything had to be two months current,” Dennis said. “It would pass from department to department.” Dennis kept asking the lady he was dealing with why it was taking so long, but she assured him it was merely a formality, and kept asking for more documents.
Finally, in December of 2009, Citi Mortgage approved Dennis for a trial modification. He was told by the bank, incorrectly, to miss a payment on the loan to qualify for HAMP (an example of the many violations of program rules on the part of the banks). The trial modification would start the following month. The trial modification cut the interest rate and saved Dennis over $500 on his monthly payment. Both the missed payment and this savings, however, would come back to haunt him.
“They never gave any advice to set the difference aside. I didn’t think about it,” said Dennis. “They pitched it as a done deal, they even said ‘Congratulations.’ After two or three months, they said I’d get folded into a permanent modification.”
The trial period lasted five months. During that time, Dennis would get notices from the lender saying he owed money on his mortgage, and that he could face foreclosure if he remained delinquent. He would frantically call his contact at the lender, and they would patiently explain that the trial payments go to a separate account, and everything would get folded in once a permanent modification was approved.
But then, one day Dennis called up his lender for a different reason, and the person on the other end casually mentioned that he had been denied for a permanent modification. This meant that he owed all of the back payments, missed payments, fees and penalties, which came to close to $10,000. His credit took a hit from the missed payment, and the bank could immediately foreclose on his property, a consequence of being the equivalent of 90 days behind on the loan.
Citi Mortgage never officially informed Dennis that he was denied for the modification. “They said they sent a letter, and then they said they don’t send letters unless I call a certain department. So I called the department, and they told me they don’t send letters from there anymore.” At one point, he told his contact at the bank that he was recording the conversation, and she refused to speak with him.
Dennis has whittled it down to being 50 days delinquent. He is in contact with Citi for an in-house modification – which has terms much more favorable to the banks. “Again, they’re making it sound like a sure deal,” but Dennis is skeptical this time. Instead of modifying the interest rate over the life of the loan, the Citi modification would merely lower the rate for five years, with a gradual reset to the original rate. Because it’s in-house, Citi can enact more favorable terms for themselves. And they never had any pressure to use the HAMP program for modifications, so there’s seemingly no reason for them to do so. “They’ve had a year to get around HAMP,” Dennis said.
“I have made every payment I’ve been asked to make,” Dennis told me. “I haven’t defaulted, and I played by the rules. And yet I’m facing foreclosure.” Despite being significantly underwater, Dennis doesn’t want to walk away from the home, a common reaction at this point, because he is proud of what he did to fix it up and the effort that took.
The bank has all the leverage now, especially if they deny the in-house modification. “There’s not enough oversight of the program. The banks seem to do what they want,” Dennis said. A HUD counselor told him specifically that acceptance through HAMP of a permanent modification is completely up to the banks.
“Except for the small percentage of people who have been successful, this makes your financial situation worse,” Dennis concluded. “Maybe it wasn’t intended that way, but that’s what they do.” As for Treasury’s statement that the program helped the markets, delayed foreclosures and gave people a temporary reprieve on their payments, Dennis said, “That’s ridiculous. I don’t see any advantage. They keep track of those reduced payments and if you get denied, you owe it. And that gives the banks a lot of power over the homeowner. They’re trying to paint a rosy picture of this, for political purposes. They’re not telling the participants of the pitfalls.”
Here we have someone, an Obama activist, interfacing with an Obama Administration program that has put him on an emotional roller-coaster for the past year. This is why HAMP hurts liberalism. It’s not a liberal program, but it’s perceived that way, perceived as a lifeline for people in trouble. Instead it just gouges them. And then Treasury calls it a success.
I want to tell more of these stories. If you or someone you know has experience with the HAMP program of any kind, please contact me at david-dot-dayen-at-gmail-dot-com.