The IML Real Estate Blog

Loan Modification - Making Home Affordable (HAMP) Warning

August 13th, 2010 2:15 PM by Dave Gubler

Making Home Affordable Is Providing A False Sense Of Security Too Often.

Admission into the trial modification phase of MHA does not mean you are in the clear! Unfortunately less than 25% of all trial modifications initiated under the program have resulted in permanent loan modifications. (Don't take my word for it either, verify the facts by reviewing the latest MHA Servicer Performance Report.) This fact alone is frightening enough but it does get worse...

More and more often I am encountering homeowners that applied for and were admitted in to a trial loan modification under the Making Home Affordable (HAMP) Program only to be turned down for the permanent modification after making 6 or more payments. I have verified one case in which the homeowner made 12 trial payments (on time and in the full amount) only to be turned down and referred for foreclosure by his lender. His trial payment was $638.00/mo lower than his original monthly payment and this cumulative difference was now added to his delinquent balance.

Even more bizarre, I have encountered numerous homeowner's that were never late on their monthly payments but were at imminent risk of default (due to income curtailment) that were admitted in to the trial phase of the program and had made all of their trial payments (usually 6 or more) only to be declined in the end for a permanent loan modification. In a cruel twist, they were now delinquent by the number of trial payments they made and the cumulative difference between their normal monthly payment and the trial payment was considered a delinquent balance.

HAMP, whether by design or by accident, has become a cruel mechanism that benefit's the servicer's to the utlimate detriment of the homeowner's. If homeowner is capable of making 6, 7, 8 or more trial payments then they should be granted the final modification. It does not take that many months to accurately assess a homeowner's income, NPV, etc and draw a conclusion. The conversion rate from trial mod to permanent mod is dismal which indicates the servicer's intake methods are weak at best.

Based on the MHA Servicer Performance Report through April 2010 (a report generated by the MHA program) there are some appallingly low conversion rates from trial to permanent modification:

Aurora - 30%, Litton - 29%, Saxon Mortgage - 28%, Bank of America - 25%, Chase - 22%, just to list a few.

I empathize with homeowner's fighting to keep their homes. In simple terms, though, the MHA program has failed to do so and has unfairly added to the misery by providing homeowner's with false hope. Be prepared to examine your other options or foreclosure is the most likely outcome.

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Posted by Dave Gubler on August 13th, 2010 2:15 PM

We know that the majority of Mods are ignored and intentionally lost by underwriters at the direction of bank administrators. New rules require that all supporting documents be submitted along with the original application. Maybe that will help. A credit score will recover after two years of a successful permanent modification. If ones' credit score is that high a priority, then the mortgage distress probably isn't that big.
Posted by on August 14th, 2010 5:59 AM

The "new rules" requiring all documentation to be submitted up-front are not really new. Prior to the HAMP program all modifications were done this way. If one really looks in to loan modification there is ample evidence that neither the government nor the banks has any real committment to success. Just watch the video of the interview done by ABC news with a bank president. He reveals that they (the banks) do not have a sincere committment to loan modification.
Posted by Dave Gubler on August 15th, 2010 10:55 AM



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