Servicers, White House Point Fingers as Foreclosure Plan Fails

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Monday, January 04, 2010 at 6:00 am
President Barack Obama (WDCpix)

President Barack Obama (WDCpix)

Only a year ago, hopes were high that a big push by the government to stop foreclosures would be a great success, living up to its billing as “Help for America’s Homeowners.”

Last January started out with a foreclosure moratorium, allowing time for the Obama Administration to put the final touches on Making Home Affordable — its $75 billion signature program aimed at helping 3 to 4 million homeowners. After bailing out banks and the financial system, the administration turned its efforts to borrowers on the verge of losing their homes. The program rolled out with fanfare in the spring.

[Economy1] But as 2010 begins, it is already clear that Making Home Affordable has fallen far short of its goals, with only 31,382 permanent loan modifications completed by Nov. 30. Last year, lenders were doing far more loan modifications on their own, before the Obama plan was launched. And although foreclosures show no signs of slowing down — the total number of foreclosures is predicted to reach 13 million during the next five years — no one is expecting a dramatic turnaround in helping people keep their homes. The only way the administration will get significant numbers of loan modifications done will be to bring back failed bankruptcy cramdown legislation, or to put billions of dollars into a mass effort to rework loans — neither of which seems politically feasible.

That means 2010 will likely be another year in which only a small number of loans get modified each month, while administration and mortgage servicers continue pointing fingers at each other for the impasse, some industry experts say. The only bright spot ahead for the government’s foreclosure prevention may be that down the road, foreclosures eventually will slow of their own accord. To use the Vietnam analogy, that will allow the Treasury Department to declare victory and get out of the loan modification business for good.

“I don’t hold out a great deal of hope that the administration will do more” to complete more loan modifications, said Patricia McCoy, a University of Connecticut law professor who studies financial services regulation. “There’s just no political will for that.”

As the program falters, a move to blame borrowers for problems with the effort has grown.

When difficulties with Making Home Affordable became apparent early on, servicers began contending that borrowers were refusing to provide income verification and other paperwork to quality for permanent modifications. Under Making Home Affordable, eligible borrowers first receive a three-month trial modification. In order to convert it to a permanent modification, they need to provide servicers with pay stubs and other documentation, as well as making all their trial payments.

Before the program began, servicers voluntarily completed 120,000 permanent loan modifications per month during the first quarter of last year, according to Alan White, a Valparaiso University law professor who studies loan modifications. Once the Obama administration’s program rolled out, those totals dropped to about 70,000 per month, as servicers worked to switch borrowers into Making Home Affordable. According to Treasury Department figures, nearly 700,000 trial modifications under Making Home Affordable were underway by the end of November. But with fewer than 32,000 converted to permanent modifications, it means a net drop of permanent loan modifications since the Obama plan began.

The voluntary plans by servicers, however, were called “extend and pretend” plans by critics, who said servicers simply were setting up repayment plans with late fees and other charges rolled into them, without ever actually reducing a borrower’s debt. Re-default rates on those loan modifications have been high as a result. Making Home Affordable has been more aggressive about lowering a borrower’s monthly payment, and the government is pressing servicers to switch to using its program — one reason why Making Home Affordable permanent loan modifications are lagging behind. In addition, some borrowers simply can’t qualify for the government’s program because they are too far underwater on their mortgages.

But unless a surge of permanent loan modifications suddenly occurred in December, the New Year will begin with fewer loans permanently reworked than during the same period a year ago. Treasury officials said in November that 375,000 trial loan modifications were scheduled to expire by the end of December, but it was unclear how many would be converted into permanent plans. Then, on Dec. 23, the government announced it would order servicers to give borrowers more time to complete trial loan modifications before kicking them out of the program.

Servicers have responded to the lack of progress so far by suggesting that borrowers are refusing to turn in income and other documentation because they probably lied about their incomes to qualify for their current mortgages. Liar Loans, or loans that required no documentation of income or assets, have been cited as a major culprit in the financial collapse, as some borrowers began defaulting on them just a few payments into their mortgages beginning in 2006.

Guy Cecala, publisher of Inside Mortgage Finance, which covers the lending industry, said the mortgage firms and servicers were skeptical from the start that any loan modification plan would work. “No one ever thought seriously that this would put a dent in the problem,” he said.

Now the industry is likely to fight back against any criticism not by doing more loan modifications, but by blaming borrowers, as well as the Obama administration, for a faulty program. All this may add to a backlash and moral hazard charges of helping out homeowners who may have lied to buy bigger homes than they could afford, while other homeowners who may have lost their jobs struggle to meet their mortgage payments, he said.

“I hear people saying all the time, that all the administration is doing is offering help to the people who deserve it the least,” Cecala said.

Housing counselors and attorneys find that argument infuriating. Already struggling to get servicers on board with Making Home Affordable, they now also face dealing with a shift in a public perception toward blaming the borrower.

Diane Thompson, an attorney with the National Consumer Law Center, said the situation has gotten so ridiculous that servicers are simply looking for excuses to deny loan modifications.

“I met with a woman who oversees a counseling program in St. Louis, and she told me that the most common reason for denials now is that the borrower’s hardship isn’t permanent — surely at some point in time the borrower will get a new job,” she said. “And of course servicers continue to lose documents at an astounding rate.  Any counselor I talk to is almost seething with frustration.  I’ve had counselor after counselor in recent weeks tell me, “They’re just stalling.”

“I think there’s a bit of a face-off developing between the administration and servicers.  My impression is that servicers find the program burdensome and so would like to see it fail, but would prefer not to be held accountable for that failure.  And the administration, of course, would prefer to see the program succeed.  Whether this results in a scrapping of the program or a major reworking of it, I have no idea.”

White, of Valparaiso, thinks the situation is even more dire.

“I would give it another month or two to see if they can do any better, but if not, it is definitely time to try something else,” he said of Making Home Afforable loan modifications. “As far as blaming the homeowners, that is really sad.  From all reports I hear from housing counselors and legal aid lawyers, the servicers are losing the documentation.  It is hard to believe that 75 percent of borrowers on temporary mods are making their payments but that they can’t come up with two pay stubs and a hardship statement.  I think we are dealing with a massive failure and breach of contracts by the servicers.”

The administration will handle this by continuing its current tactic of singling out for public condemnation servicers who aren’t doing enough loan modifications. But that approach hasn’t worked so far, and it’s not likely to be any more successful this year, said Kathleen Engel, a Suffolk University law professor and expert on mortgage securitization.

“A shame list may work when country club members don’t pay their dues, but I don’t think it works with servicers and lenders,” Engel said. “If it did, they wouldn’t have been making and financing abusive loans all these years.”

What might work would be a massive, multi-billion dollar effort to get loans modified on a large scale, said Cecala, of Inside Mortgage Finance. But there would be little political support for spending that kind of money on troubled homeowners. Since the Obama administration sat back last year and declined to throw its weight behind mortgage cramdown legislation that ultimately failed, the White House is not expected to suddenly turn around and once again push for legislation to let bankruptcy judges modify mortgages to keep borrowers in their homes.

And not everyone agrees on the right approach to jumpstart the program. McCoy, for example, said she considers loan modifications a “one size fits one” option that can’t be done a mass scale.

As a result, Cecala sees an entirely new direction in 2010 — lenders will enlist debt collection agencies to aggressively go after homeowners who walk away from their underwater mortgages. Or lenders will move to ensure a borrower’s credit remains impaired for a decade or more, should they walk away. In the meantime, the Obama administration will likely talk a good game, and keep criticizing servicers, while only small numbers of homeowners end up with lower payments.

In the end, Cecala said, the only thing that will become clear is that “there’s plenty of blame to go around” for a program that began this time last year with lofty expectations, and then fell painfully short.

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Sharon
Comment posted January 5, 2010 @ 12:35 pm

I just got a letter saying I passed the trail period but they DID NOT lower the principle. Monthly payments stay the same for five yrs then they start going up. The excate same houses in my area have been selling for $30,000-50,000 if they sell at all. I'm upside down on my mortgage by $90,000. My mortgage company (who went under and are now owned by somone else) is not following the orders of the President and I want to file formal complaint. Who do I contract?


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Comment posted January 6, 2010 @ 3:39 am

We need to defeat this rise of the liberal activist. Who want to change America by education indoctrination. One of the first ever transgender appointed by a President, Amanda who used to be called Mitch, began work at the Commerce Department. Amanda Simpson will be senior technical adviser in the department's Bureau of Industry and Security. Simpson worked in the aerospace and defense industry and Simpson made history in 2004 by becoming the first openly transgender candidate to win a primary in a race for the Arizona House of Representatives that Simpson lost in the general election. Thank God well maybe not if you lose an election you can become a Czar but you have to be a left wing progressive activist. Check out this video.

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fly1
Comment posted January 6, 2010 @ 8:25 am

No, we need to get rid of faulty thinking such as yours that the religious right wants to tell us how to live our lives based on your rules. Please. You didn't even get the topic which is the failure of housing loan modifications..


davephx
Comment posted January 6, 2010 @ 11:50 pm

Other than losing the paperwork many servicers are simply refusing to follow the HAMP directives and making up their own rules to assure borrows will not get a decent affordable modification.

HAMP if followed is a good program and fully funded but its under TARP with no enforcement authority without Congress acting to make a law.

Massive foreclosure sales if HAMP fails will further drive down home values and continue to hurt the economy – and could take down many larger banks with the huge losses on very underwater foreclosure sales.

Many underwater homeowners want to keep their homes as long as the payments can be reduced as under HAMP.

But most of the servicers are trying to avoid HAMP directives and they make more money by foreclosing, managing the property, and selling it even at huge losses for the investor (not servicer). And what about 70% of 1st mortgages are GSE owned or guaranteed (Fannie/Freddie/GINNE) so the servicers make money and the taxpayers lose from the huge losses while the borrow desperately wants to keep their homes even if underwater.


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Tami6
Comment posted January 9, 2010 @ 6:55 am

We were told we did not qualify for a HAMP by B of A because the “investor” of our loan is not doing any modifications for anyone. Who is our investor you ask? Who knows. The only thing they did for us was roll the arrears back into our mortgage to make our payments go up $150 a month. This is by far a modification, but we took what we could get. I hope the government puts some more pressure on these servicers to help people with true hardship cases.


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Comment posted January 16, 2010 @ 10:25 am

Come on President Obama!!!!! Man up!!! I'm getting sick and tired of you blaming everyone and thier dog for your mistakes.


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Comment posted February 1, 2010 @ 12:01 pm

We have been trying to work w/WAMU for so long and can't seem to get anywhere with them then JP Morgan bought them –they get a $1000.00 a month for ever loan they have that is in default so they are getting something-they put us in a Modification back in Aug 09–with a reasonable amount to pay-then turned around and slapped us after three months with a payback plan of $ 2100.00, we can't aford it–now we just got forecloure papers on Friday 1/29/10 stating they were selling our house as soon as 2/16/10–why aren't you helping with these banks and loaners since you are paying them already.


Name
Comment posted February 1, 2010 @ 5:01 pm

We have been trying to work w/WAMU for so long and can't seem to get anywhere with them then JP Morgan bought them –they get a $1000.00 a month for ever loan they have that is in default so they are getting something-they put us in a Modification back in Aug 09–with a reasonable amount to pay-then turned around and slapped us after three months with a payback plan of $ 2100.00, we can't aford it–now we just got forecloure papers on Friday 1/29/10 stating they were selling our house as soon as 2/16/10–why aren't you helping with these banks and loaners since you are paying them already.


bofalawsuit
Comment posted April 18, 2010 @ 9:56 am

I do not blame the President, I blame the Piggy Banks!

If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!

BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits.

http://www.youtube.com/watch?v=sXdKlpBOvs0&feat…

Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.

Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.

In their ties with all their backing
They don't care what goes on around
In their eyes there's something lacking
What they need's a damn good whacking.

Everywhere there's lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.

Wright vs. Bank of America Lawsuit at: unitedlawgroup.com


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bofalawsuit
Comment posted May 10, 2010 @ 10:27 pm

When gas went up in the 90s, President Clinton responded “It looks like someone is playing politics.” Who knows, maybe that was the day that a law being passed that stipulated they had to pay more than 75 million. Maybe they rose the gas rates to remind the President that they have the power to create and economic crisis, with one stroke of a pen. HOW DARE THESE OIL PIGGIES HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!

Piggy Banks:
But there is a bigger spill on the horizon my friend. This spill is going to effect every coast line in America. It is called the GREAT FORECLOSURE SPILL! It will also keep bubbling and bubbling and bubbling foreclosures. It is still going to happen, even though the American Tax Payer funded TARP with a potential 581 BILLION DOLLARS as BAIL OUT money to the piggy banks. I mean if the government is in the lending business, why not have just loaned it to the American homeowner directly? I mean these piggy banks caused the whole mortgage crisis in the first place. TARP gave one bank $45 BILLION DOLLARS! Just like Clinton said with the oil companies, it now looks like Bank of America is “playing politics with the modification process.” While dealing with the piggy banks, President Obama and Bush had the same look of fear on their face, as President Clinton did with the oil companies. HOW DARE THESE PIGGY BANKS HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!

I dedicate to both the Piggy Oil Companies and Piggy Banks the following song by George Harrision and John Lennon. Appropriately titled “Piggies” I invite you to listen to it on youtube as you read the words

http://www.youtube.com/watch?v=NTmeHM-Hojg&feat…

Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.

Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.

In their ties with all their backing
They don't care what goes on around
In their eyes there's something lacking
What they need's a damn good whacking.

Everywhere there's lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.

I AM FIGHTING BACK!

You can read my story or show your support in your comments at: Unitedlawgroup.com
under the John Wright vs. Bank of America Lawsuit

Please send an email to BofA CEO with “I SUPPORT JOHN WRIGHT VS. BANK OF AMERICA”: brian.t.moynihan@bankofamerica.com

Divided we may have fell America. But UNITED WE WILL STAND!

Sincerely,
Johns-wright@hotmail.com


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[...] 4.Servicers, White House Point Fingers as Foreclosure Plan Fails « Last January started out with a foreclosure moratorium, … “I met with a woman who oversees a counseling program in St. Louis, and she told me that the most common reason for denials now is that the borrower’s hardship isn’t permanent — surely at some point in time the borrower will get a new job,” she said. [...]


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