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Portrait of HAMP Failure: How HAMP Connects to Foreclosure Fraud

Part I of this series, Part II, Part III, Part IV, Part V, Part VI, Part VII, Part VIII.

Now that the foreclosure fraud scandal has deepened, I wanted to show how it connected to the problems with HAMP, using some reader stories as an illustration. While I’ve put this project into the background in recent weeks, I still receive personal stories about struggles with the servicers almost every day, and the problems they’re having are consistent whether you’re talking about modifying a loan or preventing foreclosures. They still feature document flim-flammery, double-talk and a clear violations of established rules, whether in the legal foreclosure process or the rules set up by Treasury for HAMP.

Tina Kimmel is an epidemiologist in California who saw her salary cut by Arnold Schwarzenegger to balance the budget, and this reduction in income put her in trouble with her mortgage. She tried to get into the HAMP program in June 2009, when it began, through her lender, Citi Mortgage. I’ll reprint the follies from there from her email:

Meanwhile I heard about the HAMP program, which was to begin June 2009. I asked Citi to consider me for it. They asked me for dozens of documents, which I submitted. They then said I qualified for HAMP, and put me on the trial program for October – December 2009. My payments were only $1350, which was a great relief. In January, they told me me to keep paying that lower amount while they finished processing my paperwork, which I did.

Then suddenly in April, they said I was in default, and that I owed them $13,000. They said that I was no longer in HAMP, so I owed the difference between what they had asked me for and I had paid ($1350), and what they were saying I actually owed them ($2800), for those 7 months, plus interest and late fees.

Citi’s explanations for why I didn’t qualify for HAMP were first, that I hadn’t submitted the right documents (but they couldn’t find any that were missing), then, they claimed that *I* had turned *THEM* down (but had no evidence of that), then, they said my credit was bad (but my credit was perfect when I applied, plus there is no credit requirement for HAMP). So in other words, I totally qualify for the program.

In May, I received an odd statement from Citi, where buried among the $13k “past due amount” and various fees, was an indication that my mortgage amount was now $2100, NOT $2800 as it had been. I found one lone person at Citi who said that inexplicably, my mortgage had been permanently modified. The only thing I can figure is that NACA got to someone there, which was great. But it didn’t stop the foreclosure train.

BTW I made, and continued to make, these mortgage payments, despite Citi saying they would have no place to put my money if I sent it in, since I was in the foreclosure process. (Huh??) But they did cash the checks anyway.

I contacted my congressperson, who put me in contact with the federal HAMP office. They told me to request Citi to give me a traditional modification (in-house) while they figured out what was going on. Citi spent all of July and August supposedly working on this new modification, which they said would “catch me up”, as well as lower my payment to around the $1350 HAMP payment.

But instead of hearing back from Citi, I was notified that on September 2, Citi had sold my account to a subprime lender, Carrington Mortgage Services (which seems to be associated with something called Quality Loan Service Corp).

I called Carrington, who told me that they had received no paperwork with my mortgage, that they were only told that I had over $16k “past due” at that point and that I was in foreclosure. I told them I had never missed a payment and had no plans to leave my house.

They then asked ME for copies of my HAMP agreement, all my qualifying docs, CitiMortgage statements, and bank statements showing all my mortgage payments, which I supplied. I asked to be considered for any in-house modification and/or forbearance and/or deferral of the “past due amount”, and they agreed to look into it. I got Carrington to accept September’s payment from me.

BUT on Sept 21, someone from the County taped an auction notice to my door: Carrington/ Quality Loan had set an auction date for my house, October 12.

That’s today. Kimmel eventually borrowed the $13,000 from friends needed to stave off the subprime lender, and saved her home.

Now, let’s count the violations in this all-too-typical account:

1) Trial modifications are supposed to be 90 days only, according to HAMP policy. This stretched more than twice that long.

2) Per HAMP, the lenders are not supposed to include late fees and interest onto the amount owed if the borrower doesn’t qualify for a permanent modification. This is part of an epidemic of extra fees tacked onto the mortgage that don’t follow the specific instructions of the note. Too many homeowners accept what the banks tell them is the total amount owed to stop a foreclosure, and the terms of the note would provide that information very clearly.

3) The bank falsely accused the borrower of having bad credit when the credit would only have been damaged by the trial modification program, which is seen as a partial default on credit reports.

4) Citi improperly informed the borrower that she was denied a permanent modification when she actually succesfully received one. This is basically document fraud, designed to extract a higher payment out of the borrower.

5) Per California law, Citi must make a reasonable effort to modify the loan to prevent a foreclosure, and that does not include selling the loan to a subprime lender. In addition, Citi sold the loan without giving the new lender the paperwork, which is at the hub of the foreclosure fraud scandal.

6) Instead of getting back in touch with the borrower to notify her of the outcome of the effort to modify the mortgage, Quality Loan Service/Carrington just had the county tape a foreclosure notice to the door. I believe this also violates California law under the Foreclosure Prevention Act.

All of these casual violations of accepted standards, state and federal law, and the terms of the HAMP program, mirror exactly the violations of the the legal process governing foreclosures. The servicers would rather foreclose at this point, after a period of extending the borrower and squeezing out some more payments, because they extract fees on a successful foreclosure and have every incentive not to help modify the loan. Add to this that no federal regulator has oversight specifically over the servicers (though they do over the parent companies) and what you have is a Wild West Show, where the servicers can put borrowers through hell, trap them using HAMP, and foreclose with impunity.

In both cases, the lender could ask for their note and determine what they actually owe, and whether they would quality for a short sale, have more equity in the home than they think, etc. Homeowners are being taken advantage of by being in the dark, and allowing the servicer to have all the balance of power in the transaction. This is true in foreclosure fraud and it’s true in HAMP.

This is why we need to stop the evictions for now.

For years, mortgage loan servicing companies have engaged in shoddy business practices, ranging from misapplied payments to evicting homeowners who have never missed a payment. Now employees of these companies have admitted to falsifying thousands upon thousands of affidavits used to toss families out of their homes.

The fraudulent documents indicate a problem well beyond the “technical glitches” that the industry describes. If servicers had accurate records, there would be no need to invent paperwork. The entire system is rife with unfairness, and the mistakes and omissions have serious consequences in terms of unnecessary or even mistaken foreclosures.

Document fraud. False statements. Misplaced notes. Value to the servicer over the borrower. This distinguishes both HAMP and foreclosure fraud.

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David Dayen

David Dayen