Less than one million homeowners have received assistance under the Home Affordable Modification Program (HAMP), six years after its creation. HAMP is a federal modification program originally intended to aid four million struggling homeowners. It was launched in the fallout of the decimated Millennium Boom and continues to limp along today.
HAMP stalled at inception and is still plagued with problems, according to a report by Christy L. Romero from the Office of the Special Inspector General for the Troubled Asset Relief Program (TARP).
HAMP attempted to offer aid to homeowners struggling to pay their mortgages and avoid foreclosure by lowering their monthly mortgage payments to sustainable levels.
Mortgage holders receive monetary incentives to boost their willingness to modify mortgages for struggling homeowners. Mortgage holders modify mortgages by:
- lowering the interest rate;
- extending the term of the mortgage;
- forgiving part of the principal amount; or
- a combination of any of the above procedures.
To be eligible for HAMP, homeowners need to be:
- struggling to make monthly mortgage payments;
- in danger of falling behind on their mortgage payments; and
- able to make the modified mortgage payments if the modification becomes permanent.
Eligible homeowners are placed into a trial period plan (TPP) which lasts between three to four months. During the TPP, homeowners must show they can make the new monthly mortgage payments. After a successful trial, a permanent modification is entered into.
However, 72% of homeowners’ HAMP applications were denied by the mortgage holders who owned the loans. The mortgage holders accusingly point their fingers at homeowners, blaming the low HAMP adoption rate on homeowners’ failure to complete paperwork or make the first modified payment under the TPP.
The report by Romero reveals the trouble lies not with the homeowners, but the mortgage holders. The report states HAMP’s two biggest flaws are:
- voluntary participation in the program by mortgage holders; and
- lack of mortgage holder supervision by a third party.
HAMP claims many mortgage holders around the country are actively participating. But, as the report discovers, the mortgage holders are not always playing by the rules, baiting homeowners into an “extend and pretend” situation.
Thus, homeowners are forced to chug along and comply with anything mortgage holders ask them to do in the hopes of getting a permanent mortgage modification — or hire an attorney who will help them fight back.
Homeowners’ HAMP horror stories
For many homeowners, applying for HAMP is a nightmare. Homeowners report troubles such as the failure of mortgage holders to:
- locate and retain the required mortgage documents properly submitted by homeowners;
- keep accurate records of homeowners’ information;
- process paperwork in a timely fashion; and
- give homeowners an accurate report on the status of their application.
Homeowners’ horror stories often include being dragged slowly through the process by mortgage holders who repeatedly lose submitted documentation. These homeowners then face countless processing obstacles, only to end up losing their homes or re-defaulting on their mortgages.
Even when homeowners have completed their TPP, they are frequently denied a permanent modification. Supplemental Directive 9-01 sets the standards and guidelines for HAMP, but mortgage holders are clearly not following them. When many mortgage holders are not following the guidelines, homeowners are left without the aid they seek and the very intent of the program is negated.
However, homeowners are fighting back against mortgage holders’ misconduct by taking them to court.
In recent court cases, mortgage holders attempt to dodge granting a permanent modification by:
- conveniently forgetting to sign and return required documents;
- incorrectly claiming that HAMP only obligates them to reevaluate homeowners’ eligibility after they complete a TPP; and
- falsely concluding the TPP was not a binding contract requiring them to grant a permanent modification.
The courts ruled in favor of the homeowners in each of these cases. So, while mortgage holders are not getting away with their misconduct, it takes a lot more to right their wrongs than these ordinary homeowners ever could have expected.
Not enough incentive for mortgage holders to help
Why aren’t mortgage holders performing? The incentives are simply not large enough to encourage them to step up to the plate. Incentives for mortgage holders participating in HAMP range from $400-$1,600 per permanent modification granted, and may include an additional $1,000 for three years if the monthly mortgage payment is reduced by 6% or more. This remuneration is not enough to compel mortgage holders to train employees on the proper handling of HAMP or induce them to help homeowners out from under their excessive mortgage payments.
As frustrating as it is for homeowners, mortgage holders are profiting from delays (and eventual foreclosures). The delays in granting homeowners a permanent modification means mortgage holders extend the period of time in which they may collect fees and interest.
But when mortgage holders are making more money NOT helping homeowners than helping, they drag their feet as a matter of innate lender hardwiring. Thus, when mortgage holder participation in the program is discretionary, mortgage holders naturally react in a manner that most benefits them, not the beleaguered homeowners as the program intended.
No supervision inevitably leads to lender misconduct
With only minimal government supervision, mortgage holders are free to act for solely selfish ends. Lost documents, inaccurate information about homeowners, insufficient staff, countless obstacles, even denying eligible homeowners are all part of the norm when mortgage holders are playing their own game by governing themselves.
Furthermore, the relationship between mortgage holders and homeowners is historically adversarial. Without policing from a neutral third party, such as the courts or a government agency, homeowners receive no protection from mortgage holders’ misconduct and no assistance from the program designed to provide just that. After protracted delays, homeowners are frequently left worse off than before they started the program.
While the intentions behind HAMP were admirable and aimed at aiding struggling homeowners, it had no internal remedy. It gave homeowners the promise of help, but ultimately, it proved to be more trouble for homeowners than it is worth.
Re: “A Slack Lifeline for Drowning Homeowners” by The New York Times