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Lenders Flagrantly Violate HAMP – With No Repercussions

An excellent investigative report by Paul Kiel and Olga Pierce at Pro Publica reveals that mortgage services rarely follow the rules of HAMP, the government’s foreclosure-mitigation program.

For example, all homeowners who are rejected are supposed to receive a formal denial from their mortgage servicer, according to the program’s rules. But 136 homeowners reported that they had been rejected from the program without receiving a formal denial. Additionally, homeowners reported more than 1,000 instances of mortgage servicer errors, including losing documents and giving false information.

ProPublica received detailed responses from 373 homeowners — all of whom applied to get a modification through the administration’s foreclosure prevention program — and they tell a consistent story. Seeking a modification has been an infuriating, stressful nightmare: a black hole of time lost repeatedly calling an 800 number, faxing and mailing the same documents over and over, and coping with the ramifications of errors made by poorly trained bank employees.

Here’s what those homeowners told us:

• On average, they’d been seeking a modification for more than 14 months. The process is designed to last only a few months.

• Homeowners seeking modifications reported having to send the same documents nearly six times on average.

• 175 homeowners say they were advised, incorrectly, to fall behind on their mortgage in order to qualify for a modification.

The only difference between the information Pro Publica acquired and what I’ve heard from folks anecdotally since writing about HAMP is the volume. This tracks precisely with my discussions with borrowers. The servicers ask for the same documents over and over, give false information designed mainly to string the borrower along, leave those seeking help hanging for months if not years to hear a response, and basically violate the guidelines of the program. In some cases, the servicer denies a permanent loan modification due to lack of documents that they never even asked for. In others, the servicer never sends an actual rejection letter – just leaves the borrower in limbo, not knowing if they’ll ever get a permanent modification.

And here’s the money quote: “Despite violations of the program guidelines such as the extended trials, the Treasury Department has not penalized any servicers.”

Not only have the servicers not been penalized, but HAMP and the additional programs put in place to stop foreclosures and save homeowners from losing their residences actually reward the lenders more than anyone else.

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure.

Housing experts expressed concern that banks, not homeowners, will be helped by the White House’s $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.

“Giving money to the banks isn’t what the government should be doing right now,” said Dean Baker, co-founder of the Center for Economic and Policy Research.

While the no-interest loans are better than the predatory lending schemes that HAMP and other programs have turned out to be, the borrowers cannot use the loan money on anything but paying off their mortgages, making it a pass-through to the banks.

The types of programs that would force banks to take haircuts, or write down the principal (lest someone else writes it down for them), haven’t materialized.

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David Dayen

David Dayen