Last year I wrote an article about how to spot loan modification scams. Some credit rehabilitation companies were offering to help people sign up for loan modifications, specifically through the Home Affordable Modification Program (HAMP). Like most scams, the telltale whiff of wrongdoing was that the companies were asking for upfront fees before they did anything, even though the process is free of charge. It’s probably still going on.
But reading a recent article in The New York Times might lead one to think that the scammers are the least of the program’s (and homeowners’) problems. Apparently, most homeowners’ HAMP applications have been rejected—often for dubious reasons. A report authored by the government official responsible for monitoring HAMP found that by 2015 at least 4 million out of 5.7 million loan modification applications had been denied. Independent sources suggest the figure could be much higher.
The most frequently cited reason for denying applications has been “incomplete requests,” meaning banks are claiming that borrowers aren’t properly filling out the paperwork, which isn’t so surprising given that HAMP requires four different “application components.” (No wonder there’s so much concern over HAMP scams.) At the same time, the banks are responsible for conducting the process. The Times focused on the high rejection rates at big banks, but it could have just as easily written about some of the worst offenders, such as SunTrust Mortgage, which threw so many unprocessed HAMP applications into one room that the floor buckled.
Surprisingly, the Times didn’t discuss the fact that barely half of HAMP participants who made it past the application stage (1,693,923) remained in the program as of April 2015 (888,358). Nearly 400,000 “fell out” during the trial period and another 333,000 “redefaulted” on their modified mortgages. Another 500,000 either withdrew their applications or rejected the trial modification offer, a category that includes people who failed to make the first payment on time.
These outcomes do not speak highly of the program. HAMP is supposed to help homeowners stay in their homes, and loan modifications are frequently touted as a good alternative for dealing with underwater homes and staying out of foreclosure. Given that 1.2 million HAMP applications were denied on income grounds (possibly wrongly), it’s safe to say HAMP has failed.
The report makes many suggestions for how the Treasury Department can manage HAMP better; the program expires in a year and a half. The Times article can be found here, and the report here (pdf).
As the Times says, legal expertise can help homeowners obtain loan modifications if the servicer is unfairly denying applications. Given how much more arduous the process is than it should be, consulting with an experienced bankruptcy lawyer might help.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced landlords rights in bankruptcy Bruce Weiner for a free initial consultation.
