I wanted to resurrect the Portrait of HAMP Failure series because of an interesting data point on HAMP modifications I recently came across. First, our story, which is so depressingly normal for a borrower seeking help with HAMP that it can almost be seen as a template. Todd Karwowski of South Plainfield, New Jersey, wrote in to tell me his story.
He first applied for a HAMP modification with Chase Home Finance in May of 2009, 18 months ago. He was approved for the 90-day trial period after being told not to pay his mortgage for two months to qualify for the program (this is just not true, and it’s a servicer-driven default that is a violation of not just HAMP guidelines but many state laws). Karwowski received a trial modification that lowered his payment by about $500 (which is the average reduction). At the end of the 90-day trial, he asked Chase about the outcome, and they just him to keep paying the reduced rate. This went on for 17 months, as Karwowski, who works for an electrical supply company, kept paying his modified payment and updating his income statements.
Here comes the bait and switch: Chase told Karwowski in a demand letter, after denying him a permanent modification, to either pay $14,000 to reinstate the loan, or to go on a “repayment plan” to pay it back. The only other alternative would be foreclosure. So the goal was to push borrowers into some sort of alternative payment schedule, if not to take the home.
This lines up with what Calculated Risk uncovered from the latest batch of HAMP data released by the Treasury Department. It turns out that, contrary to common opinion, borrowers rejected from HAMP have not lost their homes in big numbers. In fact, the most common recourse for rejected HAMP borrowers, by a wide margin, is a private “alternative modification program.”
Only 3.9% of borrowers have lost their homes in foreclosure, and another 8.5% have lost their homes through a short sale or deed-in-lieu of foreclosure.
About 13% of borrowers are in the foreclosure process, and another 1.9% in bankruptcy.
So what has happened to the borrowers in all of those canceled trials? The largest percentage of borrowers (41.3%) are in alternative modification programs (lender programs). The next largest group is in “action pending”. Some have paid off their loans (probably sold their homes), and another 7.7% have managed to become current.
The big bank servicers basically push the borrowers up against the wall, demanding immediate payment, foreclosure, or some alternative modification scenario. The alternative mod is attractive to the servicers, especially if they tack their late fees or principal forbearance onto the unpaid principal balance. This jacks up their servicer fees, which are a percentage of unpaid principal balance. They get to put the borrower in a less-attractive alternative mod, which has no transparency or safeguards, and could easily be another predatory lending scenario. The private mods are far less generous than HAMP mods, and expose the borrower to a far greater potential for default. As banks have learned how to navigate the HAMP system and use it for their own ends, this has become the default mode. 147,000 borrowers received modifications last month, only 28,000 through HAMP.
This conflicts with the claims from the banks that borrowers in delinquency are “deadbeats” who would surely have to give up their homes no matter what. In fact, these people are desperate to keep those homes, and often find a way to do so, accepting whatever modification they can. And for the most part, they’ve stayed current on those modifications. The point is that a legitimate government program for loan modifications would be successful and not result in mass defaults. As it is, many borrowers get shuffled off into these private modifications, and are probably getting abused by them.
I don’t want to suggest that all borrowers behind on their payments are somehow getting modifications; the data shows that banks are only modifying a small percentage, either through HAMP or private mods. And there are definitely a subset of borrowers who won’t be able to afford mortgage payments of any kind.
The main point is this: banks are justifying their fraudulent foreclosure operations by saying that most borrowers would default anyway. But borrowers who have sought help through HAMP are proving that wrong. They’re either getting a HAMP modification, get pushed into a private modification, or somehow move heaven and earth to pay off the loan. People are extremely attached to their homes and will do what it takes to stay in them, if they get the chance. The big bank servicers foreclosing on them in a grab at short-term profits, helping to sink the economy in the exchange, are not engaging in the inevitable. And the bias toward private mods over the HAMP mods show merely that the servicers aren’t as interested in modifying loans as they are in juicing their profits.
UPDATE: I should add that the most widespread action on delinquent mortgages has been no action at all. Often servicers take over a house in foreclosure without then putting it on the market. This is known as “shadow inventory,” and it’s been growing, up 10 percent in the last year to 2.1 million units, about 1/3 of all unsold housing inventory nationwide.