Given the horror stories I’ve heard about HAMP, I’m surprised at how low this number actually is. And since it’s based on self-reporting, we can certainly assume that. According to the Congressional Oversight Panel, over 29,000 Americans in “trial” HAMP modifications with servicers have been stuck in this limbo for over a year. The HAMP rules dictate that trial modifications last only 3 months. But for (at least) 29,000, those trial mods have lasted four times as long, with no end in sight.
Now, let’s understand how this helps the servicers. They get to increase late fees for homeowners paying reduced mortgage payments. They also get to store up thousands of dollars that they can demand from the borrower if they reject a permanent modification. This buildup gets tacked on to the unpaid principal balance for accounting purposes, and can actually move the servicer against a permanent modification, when the servicer runs the formula to see if the borrower can afford to stay in the home. In other words, they’re creating a situation where the borrower cannot afford the payments, based on their own delays.
When the modification gets rejected, this places the borrower in an impossible position of owing thousands of dollars immediately, making them vulnerable to agreeing to whatever the servicer wants in order to save their home. And the servicer reports them to credit reporting agencies as delinquent for this whole time, ruining their credit score.
So, the Treasury Department has the ability to sanction servicers for not following the rules in this fashion. But do you know who actually handles the policing of HAMP? The mortgage industry.
American Banker’s Kate Berry uncovers a stunning factoid today: the nonprofit Homeownership Preservation Foundation, the official body charged with resolving disputes over HAMP modifications, was founded by ResCap and to this day is run by GMAC and other finance officials from within the mortgage industry.
No one involved even bothers to dispute the conflict of interest, one of many that have plagued the Treasury Department’s Home Affordable Modification Program, or Hamp.
“Because we’re supported by the industry, are we really working for the homeowner?” asked Bruce Paradis, the foundation’s chairman, who retired as CEO of ResCap in 2007.
The CHAIRMAN of the foundation questions the conflict of interest for his own organization. The Homeownership Preservation Foundation barely even resolves disputes at all; it provides “counseling” and attempts to “escalate” complaints from homeowners. But the escalation, a byzantine process, eventually just goes to the servicer, who makes their own judgment on whether they want to pursue a new solution. In other words, after a homeowner complains about mistreatment in HAMP, “it’s escalated all the way back to the very entity which was being complained about in the first place.”
You can read about the whole sad process over at Felix’ place. The point is this – there’s basically no process where a homeowner can satisfy a complaint for servicer abuse in HAMP. The Treasury Department, to date, has sanctioned no servicer for their conduct in HAMP. If you enter the program, you’re basically on your own. Al Franken has tried to create an Office of Homeowner Advocate, but for the time being the entity taking that position is literally owned by the mortgage industry.
No wonder people are looking at strategic defaults as a more viable option.