It is no secret that the Obama administration has a lot vested in the success of the Loan Modification Program, also called the Home Affordable Modification Program (H.A.M.P). In order to help the program along the government has provided a long list of incentives, bonuses and other methods in order to encourage lenders and banks to do their part in making the program work.
First it was financial incentives in the form of cash payments for every completed loan modification of up to $4,000 over three years. This didn’t have the result they hoped for so the administration started naming and shaming tactics where underperforming banks or lenders were published on a list of the worst loan modifiers in the industry while the better performing banks were prized with kudos and positive publicity for “helping troubled homeowners”.
Recently the government has also added to the prize generous capital risk-weightings for banks that perform well with their loan modification application to completion rates.
Those tactics didn’t really lift the program off the floor, of the 750,000 applicants that have entered the loan modification program three month trial only 31,000 have to date actually received a permanent modification to their loan.
This is why the administration started to show its meaner side. Banks and lenders that did not support the cause have been threatened with fines, increased government scrutiny and recently even lawsuits.
Blown Mortgage readers will remember the lawsuit Ohio Attorney General Richard Cordray filed against New York based Barclays Capital Real Estate, doing business as HomeEq Servicing.
The lawsuit details that HomeEq / Barclays has been accused of issuing unfair loan modification agreements and providing inadequate and incompetent customer service to Ohioans who were at risk to losing their homes to foreclosures. HomeEq is accused of forcing troubled homeowners to sign one sided agreements that were unfair and deceptive. Homeowners were required, for instance, to realease HomeEq of all liabilities (which you can’t really do), pay extra fees (not supposed to that either) and waive their own right to defense (not a very popular measure with the Attorney General).
In addition to this Barclays was accused of breaking Ohio’s Consumer Sales Practices Act (CSPA) through their unsatisfactory customer service by not returning calls or responding to enquiries.
The question is this the real reason Ohio Attorney General is suing Barclays. I would say no. If you read carefully the statement of Mr. Cordray it is clear that the main complaint is “unfair” and “indadequate” customer service with loan modifications. Cordray is further reported to say:
There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures,” Cordray said. “Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses.”
If you check the latest servicers loan modification performance lists you will quickly see that HomeEq was way down there with 657 trial loan modifications and zero completed permanent loan modifications.
It doesn’t take a leap of imagination to see that the Obama administration has decided to start suing underperforming servicers and has started with a British company that has recently entered the industry. Targeting a foreign company could be seen as a warning shot to big banks like JP Morgan and Wells Fargo that have a measly conversion rate of 3 to 4 percent on their loan modifications.
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The Loan Modification Program is not exactly 2009 success story. Out of the 750,000 trial loan modifications around 31,000 have become permanent, not great odds even if you are a betting man (or woman).
What makes things worse is that in order to manage such a volume of trial loan modifications for HAMP (Home Affordable Modification Program) servicers are employed to do the paperwork and provide advice for the borrower. However some of these servicers have been known to provide bad advice, ask for illegal contracts to be signed and other examples of malpractice.
Keeping away from bad egg servicers is important if you are to be successful in your loan modification. This article will provide some pointers on what to look for to set apart the good from the bad and the ugly of HAMP servicers.
Unfortunately bad HAMP servicers are a uncomfortable reality. Just this week Ohio Attorney General Richard Cordray filed a lawsuit against Barclays Capitol Real Estate working as HomeEq Servicing.
Why was Barclays sued? Although the complaints filed against Barclays are still to be proven and we all like to think we are innocent until proven otherwise, it will prove a good example for the point this article is making. Which is, choose your HAMP servicer wisely.
HomeEq was accused of:
1) Violating Ohio’s Consumer Sales Practices Act (CSPA) through incompetent and inefficient service. More specifically HomeEq failed to return customer calls or reply to inquiries, lost borrowers paperwork and more importantly failed to provide timely and affordable loss mitigation options to their customers.
2) Not reacting to repeated warnings by the Attorney’s office. According to the Attorney General Richard Cordray, ample time has been provided to servicers in Ohio and elsewhere to change their ways and stop their negligent behavior.
HomeEq services more than 10,000 subprime loans in Ohio alone, becoming a HAMP participant in August. HomeE q is not exactly overachieving in the loan mod department being one of the lowest performing servicers.
Not surprisingly HomeEq feels the complaint is groundless and that they are commited to quality customer service and to work with financially distressed borrowers… bla,bla, bla.
What signs identify Roque Hamp Servicers?
There are many, too many to number but some big ones stand out.
- For instance if your mortgage servicers asks you to sign one sided agreements that obviously are biased toward the lender the alarm bells you are hearing are not imaginary.
- Upfront fees. It is illegal to ask for fees for servicers that have not been supplied.
- If you are asked to waive your right to defense by a HAMP servicer, run, they are trying to take your for a ride.
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Obama’s Loan Modification Program is a nice idea with good intentions. A superficial look at the program, what it does and how it does it, would make you think it might or even should work. However the reality is different, unfortunately only a very small number of borrowers are benefiting from this program. This article will explain what the Loan Modification Program tries to do, what are the facts and figures of the last year and why the program is not working.
The Loan Modification Program was created by the Obama administration in 2008. The idea was to help out homeowners that were having trouble paying their mortgages to modify their loans to more affordable monthly payments.
The program aimed to reduce the payments by three main methods:
a) Reducing the interest rate of the mortgages to as low as 3%.
b) If reducing the interest is not enough then banks could extend the tenure or term of the loan to 40 years.
c) If that didn’t solve the problem then the lender would be encouraged to reduce the principal amount of the loan.
If you ask me that sounds pretty good, reducing interest rates, lowering the principal of the loan, even extending the tenure of a loan is acceptable if it stops you from losing your home. The idea was also that banks and lenders would benefit from this program because it would be cheaper for them to modify the loan than the alternative, foreclosure. Foreclosures are expensive for lenders and a loan modification that allowed an otherwise delinquent borrower to faithfully pay his mortgage does make sense.
Fewer foreclosures would stabilize communities, stop prices from dropping and save entire neighborhoods from slowly dying.
Unfortunately none of the above is actually working. Or is it? The Loan Modification Program did meet its short term goal of 500,000 trial loan modifications some months ago. That does sound kind of good, right?
However, of the 760,000 borrowers that have currently signed up only 31,000 have qualified for a permanent loan modification.
To illustrate, Bank of America, one of the U.S leading banks has only completed 98 loan modifications from the160,000 that have applied. That success rate is so low you need four decimal points to even see it on a calculator.
Why are things not working? Well for starters, borrowers are not paying their side of the bargain and often don’t make the three month trial payments. Banks also complain that although borrowers apply they do not fill in the necessary paperwork.
Of course the borrowers’ side is rather different, they claim they never speak twice with the same person and they are sent on a goose chase with conflicting and confusing instructions that are changed as the process goes along.
This brings us to the last reason loan modifications are not working, banks. Banks often simply don’t care if loan modifications happen or not because it is not worth their money. The incentives provided by the government are in many cases a joke compared to the losses involved in reducing interest rates and loan principals. Think like a bank. If you play along and help your clients to get a loan modification you might get $4,000 after 3 years. Great news. How does that compare with the tens of thousands of dollars you are going to lose in the long run? Exactly.
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