Part I of this series
Part II

The biggest problem with HAMP, the Obama Administration’s mortgage modification program, is the leeway it gives to the banks to set the terms of the negotiation. Even when they violate the guidelines of the program, they face little recourse. We can see this in the story of David Justian of Muskegon, MI. He purchased his home for $245,000 that has recently been appraised for $154,000 (He currently owes about $220,000). Justian has been chronicling some of his HAMP experience at a personal website, with all the attendant twists and turns, but the turning point of what was a pretty pleasant process came recently.

Justian was immediately approved for a trial modification from Chase, which was supposed to last three months. And then:

2.5 months into the trial period I was informed by Chase that they transferred my file that they serviced (my loan is owned by Fannie Mae) to IBM Lender Business Professional Services and that my 3rd monthly trial period pmt had to be paid to them, which I did. I have since been contacted by IBM LBPS via a note taped to my door that I was in default and that I had to re-apply for HAMP with them. Everything I had going with Chase, they said, was of no consequence. I called the HAMP Hotline and was told that any file that was sold or transferred had to start all over again. That’s the rule. When I noted that my file could be transferred every 2.5 mos. and it wasn’t fair, they said, “well, that’s business, don’t expect them to be fair.”

Why, if only there was a government agency who could try to force some fairness on the process! This endless loop of selling the loan to extend the trial process is nothing new; Justian has heard from others who had their Chase loans sold to IBM LBPS and had to restart their modifications. This is despite assurances at the time of the sale that any transfers would not change mortgage terms and conditions. “My position is that a mortgage modification” signed by both the borrower and the loan servicing company modifies the mortgage terms and conditions which cannot be changed simply
because of a transfer,” said Justian, though IBM obviously begs to differ.

Where it stands now is with IBM re-evaluating the modification, which could drop the payment as much as $900 a month. HAMP Hotline told Justian that the bank must “determine if the file can be be profitable with the mortgage modification.” They can deny the modification if it makes no financial sense for them.

This is ultimately the Achilles heel of the program. The mortgage servicers make decisions in their own interest, despite the program being sold as in the interest of the homeowner. This story from Hampton Roads, Virginia is indicative of that:

Michele McBeth was not behind on her house payments and never had been. But money was tight for the Norfolk elementary school teacher in 2009. She hadn’t seen a raise in years, and her son would soon be starting college.

McBeth was looking for any way to relieve some of the strain on her budget, so she contacted her mortgage company to see whether it could lower her payments.

The company offered help through the U.S. Treasury Department’s Making Home Affordable program, and McBeth signed on to a trial loan modification.

Now, almost a year later, McBeth is facing foreclosure.

The story is honestly disgusting, and reminiscent of many I’ve told – borrowers denied for a permanent mod, with the lender trying to force them into an in-house mod with less favorable terms, or threatening immediate foreclosure. The mortgage companies achieve this by ignoring the guidelines, lying to their customers (like telling them to miss a payment on purpose, or accepting them into the program when the savings are modest) and basically running over people just trying to save their homes. As McBeth says in the article (which I urge you to read), “Initially, I thought they were looking to help me out. Eventually, it began to feel like they wanted to take my house.”

People are just being chewed up by the banks with this program. It’s unconscionable.

UPDATE: See also this new Pro Publica profile of a dissatisfied HAMP user.