The Truth about Loan Modifications – Are You Sure You Want to Look Behind the Curtain?

You think Bernie Madoff pulled a con?  The government may have pulled a huge "con" on American homeowners & taxpayers to save the banking industry.

HAMP, HARP, HASP, NSP, FHFA, HAFA, etc, are all brought to you today by the letter "F", as in failure.

Don't read on if you like to live in the fantasy that our government is here to protect us and knows what's best for us.

A Timeline of Government Efforts

Let's go over a brief history of the government's efforts to address the worst housing crisis since the Great Depression.

November 11, 2008, Veterans Day (with all the banks closed), the HOPE NOW Streamlined Loan Modification program is announced under President George W. Bush.  To qualify a homeowner must be 90 days behind on their mortgage payments which must exceed 38% of their income.

On February 18, 2009, after only a month in office, newly elected President Obama announced his yet unnamed plan to address the growing home mortgage crisis from Arizona, one of the hardest hit states.  In his speech, Obama stated his goal was to help 3-4 million homeowners modify their mortgages to a lower payment.

That announcement had few details, as it was rushed for positive press purposes.  It wasn't until March 4, 2009 that the full details were released of his Home Affordable Modification Program (HAMP).

July 28, 2009 senior officials from the Treasury Department and HUD, concerned about the slow implementation of Obama's HAMP program,  met with top banking executives to press them to complete 500,000 loan modifications by November.

September 9, 2009 the Obama administration releases its first MHA report to grade lender execution of HAMP and to push lenders to do more modifications.  The report only covered trial modifications as permanent mods weren't really happening yet.  Only 12% of eligible homeowners had been offered a trial modification up to that point.  By September the number was up to 16%, by October it was 20%.  The December report included permanent mods for the first time, but less than 1% of those eligible had gotten one.

By the March 2010 report, only 6.7% of eligible homeowners had been approved for a permanent mod.  The government starts changing what's reported on the reports in an apparent attempt to obscure how bad lenders are implementing the program while shifting the blame to homeowners.  The HAMP Program starts to be called a dud by media and numerous experts.

Lenders Going Through the Motions

When HAMP was first announced it was hailed as the cure to the housing woes caused by rising foreclosures.  Lenders were supposed to help homeowners reduce their payments so they could afford to stay in their homes and not become another foreclosure statistic.

Like anything else when first starting out, delays and snags were expected.  After 18 months though, the problems with HAMP are only getting worse, not better.

One of the biggest reasons lenders give for not doing more modifications is that they claim homeowners don't send them the requested information needed to process a loan modification.

Hundreds of thousands of homeowners on the other hand, claim that they send their documents numerous times only to be told they can't be found.

Who do you think is telling the truth - a homeowner desperate to keep their home for their family or large institutions dragging their feet to follow federal regulations?

Let's take a look at some interesting numbers from a couple of top lenders.

Bank of America (an oxymoron if I've ever heard one) has its 2010 3rd quarter results online.

There are some very interesting numbers in that report:

• Bank of America funded $72 billion in first mortgages, helping over 342,000 people either purchase a home or refinance their existing mortgage in the quarter.


• They completed more than 80,000 loan modifications in the same quarter.

See any contradictions here?

How could they have the staff to "help" over 342,000 people purchase or refinance in the third quarter, but only modify 80,000 loans in the same period?

Wells Fargo also publishes it's financial reports online, but doesn't break its numbers down as well as BOA.  With a little sleuthing though, the following can be found in its 2010 2nd quarter report:

• Funded $81 billion in first mortgages, helping over 384,000 people either purchase a home or refinance their existing mortgage in the quarter.


• From January 2009 through June 30, 2010 completed 505,043 loan modifications.  That's an average of about 84,000 per quarter.

Again there's a bit of a discrepency - 384,000 new mortgages versus only 84,000 modifications.

Bank of America and Wells Fargo are two of the top 4 mortgage lenders in the country.  Chase & CitiMortgage are the other two, but their online financial reports don't break down mortgage originations or modifications.

Anyone that's gone through the process of getting a purchase mortgage knows that it requires a lot of documentations - appraisals, credit checks, proof of income and assets.

A loan modification though, only requires income.  No appraisal is required, credit doesn't matter and neither do assets.  So if loan modifications are so much easier, why are so few approved?

Something else to think about - all those mortgage loans require a lot of documents to be faxed to the lenders.  How come hardly any of those documents get lost, but so many loan modification documents end up missing?

The Government Admits the Truth

Responding to increasing criticism of the pitiful results all the government efforts on loan modifications has produced, a spokesperson for the Treasury Department, Andrea Risotto, spoke to TheStreet in August. Andrea of course defended the program, stating:

The mortgage lenders weren't set up for loan modifications at the beginning

• That the government's modification model led to lenders adopting it and using it on their own private loans


• The top reasons why homeowners aren't able to get permanent modifications - they don't get their paperwork in, not able to sustain trial payments, & they're payments are already less than 31% of their income so they don't qualify.


• The best place to go for help is HUD approved counselors and to work with their lenders.

Wow, can Andrea sell ice to Eskimos or what?  Does she work for our government or the banks?  Is there any difference anymore?

Oh, but it gets better.

On August 16th & 18th, Treasury Secretary Tim Geithner invited several financial bloggers to visit the Treasury Department.  One of the several topics covered was the performance of HAMP.  I was unable to find any press release from the Treasury Department regarding these two visits, but all the bloggers invited reported it.  Here's a few links where you can draw your own conclusions:

• Kid Dynamite - A Sit Down With Senior Treasury Officials - Part I


• Accrued Interest - Financial Regulation: How would you have it work?


• John Jansen - Bond Market Opening November 03 2009


• John Jansen - Bond Market Opening November 04 2009


• David Merkel - My Visit to the US Treasury, Part 1


• David Merkel - My Visit to the US Treasury, Part 2


• Michael Panzner - A Few Observations of My Own


• Yves Smith - Curious Meeting at Treasury Department


• Felix Salmon - The Cruelty of HAMP


• http://www.huffingtonpost.com/2010/08/19/obama-foreclosures-tarp_n_688355.html


• http://www.interfluidity.com/v2/933.html


• http://www.marginalrevolution.com/marginalrevolution/2010/08/afternoon-at-the-treasury.html

Here's a disturbing excerpt from one of the posts:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of "extend and pretend", but I don't think that's quite right. This was extend-and-don't-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with "the system", "the economy", and "ordinary Americans". Treasury officials are not cruel people. I'm sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

Wow and wow again.

It appears the truth about HAMP was that it was meant to help banks stem foreclosures.  Any benefit realized by homeowners was an afterthought.

In that context, the whole struggle for homeowners to actually get permanent modifications makes sense.  No one really cares if a homeowner gets one.

All the pressure on lenders by the government to approve more modifications, has been done to slow foreclosures and the number of properties banks take back, not keep taxpayers in their homes.

Disgusting isn't it?

Failure was not an Option

If this is the truth about loan modifications and HAMP what other options did the government have?

If we all knew when we were going to die, the world would be a mess.  People would stop going to work, stop paying their debts and start borrowing everything they could to live up their last days.  Chaos would result.

I hate to defend the government on this matter, but if they had told the truth, the foreclosure mess would have been so much worse.

Already Strategic Walk-Aways, are a  rising problem.  Upside down homeowners that can afford their mortgage payments are walking away instead because they owe so much more than their homes are worth.

Imagine what would happen to our economy if all the estimated 25% of upside down homeowners walked away from their mortgages and homes.  It would decimate home values and cause even more homeowners to be upside down and then walk-away, which would cause a never ending spiral down for housing.

Summary

I would not want to be person in charge of fixing the housing mess.

You'd be damned if you told the truth and damned if you fooled everyone to address the problem.

One thing that does amaze me is that with the instantaneous communication of the internet, so few people realize that this could be the truth.

TV and now the internet, truly are "opium for the masses".

BTW: For a great timeline of the financial & housing crisis check out this link.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

_______________________________________________________________

If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!

"Referrals are Sending Someone You Care about, to Someone You Trust!"
So, forward this blog post to someone that'll appreciate it!

_______________________________________________________________

Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP
Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com