GUEST POST: Stop HAMP Discrimination Against the Disabled and the Elderly
Stop HAMP Discrimination Against the Disabled and the Elderly
By Rick Rogers, JD/MBA
Discrimination under HAMP is blatant. Here’s how it works:
An able-bodied, young man earning gross income of $2,000 per month, can qualify for a HAMP modification with house payments of only $620 per month.
A Disabled American Veteran “DAV” on a pension, or a 70-year-old retiree on social security, with the same gross income of $2,000 per month could also qualify for a HAMP modification, but house payments would be $775 per month.
The difference is $1,860 per year, nearly a full month’s wages. In this example, as in most cases, the difference is equal to three extra house payments each year (3 x $620 = $1,860) for the DAV or retiree.
When HAMP was introduced in 2009, it defined an “affordable house payment” as 31% of the borrower’s gross income. Later, new rules were added to increase house payments to 39% of gross income for those receiving pension or social security income. The group impacted by the new policy consisted almost exclusively of the disabled, the physically and mentally handicapped, and those over 60 years old.
If one was trying to justify the HAMP rule change, he might point to higher “take home” pay of those on social security or a pension, because recipients don’t pay income taxes. That rationale is defective because wage earning homeowners who earn the same as typical retirees or pensioneers, also don’t pay income taxes. There is little difference in take home pay between typical retirees and wage earners at the same gross pay level.
Retirees and the handicapped also experience higher living expenses, including home maintenance, spiraling healthcare costs, utilities, and other expenses associated with age, disability, and/or deteriorating health. That fact progressively reduces their disposable income and ability to make mortgage payments.
In the past, some mortgage lenders used a similar policy whereby they would increase a retiree’s gross income by an imaginary 25% when qualifying her for a loan. That would allow the bank to lend the retiree more money and, theoretically, stay within its lending guidelines. The key difference is borrowers had a choice of accepting or rejecting the bank’s loan offer. The “optional” feature of that lending program made it a benefit to borrowers, rather than a penalty. Under HAMP, borrowers have no option, and the rule serves only as a penalty; a sizable penalty.
This article is a call to stop the discrimination and to give the elderly and handicapped homeowners a fair and even chance to keep their homes.
The Equal Credit Opportunity Act “ECOA” and the Fair Housing Act “FHAct” prohibit mortgage lending discrimination based on age or handicap. It’s astounding that HAMP mandates discrimination against these protected classes in the face of these Acts.
This must be changed.
About the Author: Rick Rogers, JD/MBA is Executive Director of the Rogers Law Group, a Chicago area Law Firm dedicated exclusively to Home Preservation. For the last 10 years, his practice has been devoted to foreclosure, mortgage default, and related matters. He may be contacted at rrogers@therogerslawgroup.com or through www.therogerslawgroup.com .
Not true.
The wage earner will pay some income tax, but get it back at the end of the year. He will also pay FICA, at a 7% plus rate, and will also be hit for miscellaneous other deductions. These deductions will not be recovered.
The retiree will not make those payments.
Therefore, the wage earner will have less take home income on a monthly basis than the retiree.
These deductions seriously affect the ability of the borrower to repay the loan on a monthly basis, and HAMP must make considerations for that. It goes to the likelihood of re-default, which is always a major consideration in any modification.
ppulatie, it is true. In order to make the article more readable, I refrained from an in-depth discussion of all payroll deductions. Generally, FICA is a retirement savings account, and should not enter into this discussion. Other items that are typically not deducted from pensions, such as health insurance, are paid by pension recipients, but not deducted directly from the paychecks.
HAMP was intentionally designed not to rely on net income to determine size of house payments because net income is easily manipulated by the borrowers. The HAMP methodology for calculating house payment size is held consistent for all but those on pensions. If HAMP were to appropriately use net income to determine size of house payments, it would be done for all borrowers, and not in a prejudicial fashion against only those on pensions.
Sorry, but it is readily apparent that you do not understand the underwriting process.
Housing Debt Ratios are determine by taking total Monthly Mortgage Debt and dividing by Gross Monthly Income. This gives the Housing Debt Ratio, of which under HAMP is 31%.
Underwriting for retired people who pay no taxes is different. Income is grossed up by anywhere from 116% to 125%, dependent upon the particular lender's guidelines. Then the Debt Ratios are determined. Under this type of scenario, 31% would be used.
If the retired person's income is not grossed up, then 38-39% Debt Ratios would be allowable.
The truth is that under either of these scenarios, modifying a loan is absolutely absurd. What is not taken into account is the Total Debt Ratio.
The Total Debt Ratio is achieved by taking Total Monthly Debt, Mortgage and Consumer combined. Under HAMP, the mean Total Debt Ratio is currently 64.3%. That means out of every Gross Dollar earned, 64 cents goes to Debt Service. When you factor in all Payroll Deductions, including FICA made by the wage earner, that leaves very little on the table to meet monthly living expenses.
The truth is that unless the Total Debt Ratio of a borrower is 45% or less, the borrower is likely to re-default on the loan. That is because they cannot support the Debt Service and meet monthly living expenses.
Now, HAMP only takes into consideration the modification of the loan and the fixed payment for the first 5 years. After five years, the interest rate and payment begin to increase to the Freddie Mac rate at the time that the modification was done. However, this increase in payment was not factored into the Debt Ratios for the future.
So, the borrower has few options. One is to payoff the consumer debt within the five years so that he can meet the payment increase. Two is to file bankruptcy on the consumer debt to rid as much as possible. This will lower Total Debt Service. Three is to hope that his income rises dramatically.
ppulatie, it is readily apparent you speak for the lending industry and you do not wish to be confused by the facts.
If you wish to defend the lending industry and contrive a rationale for charging the disabled and elderly a significantly higher mortgage payment, 25% higher under HAMP, then feel free to do so. There is no need to insult those who don't accept your inane rationale.
The simple facts of the matter are:
1. Those disabled and elderly on a pension will pay 25% higher mortgage payments under HAMP than the younger, able bodied workers with the same (under every acceptable accounting definition) gross income. To suggest its OK to do so because those people can pay-off the loan in 5 years or start making more money when they're 5 years more into their retirement, or declare bankruptcy before being thrown out of their homes is a bit ridiculous.
2. HAMP wasn't designed to determine house payments by using Net or Disposable Income for many viable, rational reasons. It may be somewhat accurate to suggest many, but not all, on a pension do have marginally more Net Income, that certainly doesn't equate to more Disposable Income or any ability to pay higher mortgage payments than the younger, able bodied workers with equivalent gross income. No matter how you serve up that argument, it is completely absurd.
3. Long after HAMP was initiated, this contrived and discriminatory methodology for calculating house payments was added. Since neither borrowers nor the government would want such a policy, it is a good bet the powerful lending industry successfully lobbied for this change in order to further frustrate and minimize the success of the HAMP modification effort.
Go ahead, now, tell me the lending industry hasn't been trying to frustrate or minimize modifications under HAMP. Then everyone will understand the merits of your argument.
Feel free to contact me directly if you desire an academic discussion about the facts, or if you're interested in doing anything constructive toward eliminating unfair discrimination or assisting distressed homeowners. If your intentions are otherwise, please spare the blog the Banking rhetoric.
Thanks,
Rick
Rick,
You haven't a clue about me. I have worked with homeowners in foreclosure for almost 4 years. Many of the successful arguments that attorneys achieve in CA are based upon my work. Of course, it is easier to accuse a person of being a shill for the lenders, instead of attempting to properly evaluate the arguments.
For a sample of what I have written, read my article entitled HAMP = Foreclosure. I revealed the story of the mean Debt Ratios and the likelihood of re-default for homeowners.
I work with very few attorneys because I find that most of them do not understand what needs to be done, and how to fight their cases. Instead, they take on too many clients, don't do correct work, and the clients end up worse off than before.
I provide the only unbiased work in the country, telling the full story of any loan. The good, the bad, and the ugly gets revealed. If the homeowner also committed fraud, I reveal it, because it certainly must be a consideration of how the attorney fights the case, or whether to even take the case.
Yes, I work with both homeowner attorneys and with lender attorneys. The work with lender attorneys is essentially lender against lender. I will not work directly with a homeowner. The homeowner attorney must have valid reason for me to enter the case. ( I will also enter a case of a lender against a homeowner, if the lender is correct, and the homeowner is in the wrong. But there has not been much of that yet.)
The problem with the people that attempt to do what I do is that they approach everything with a biased viewpoint. They only present one side, and ignore the other side. In fact, they do not even know how to argue the other side.
To be good at what I do, one must know both sides of the argument. And one must be able to successfully argue both sides. If not, the findings mean nothing.
BTW, I have just started the patent on a new method of scoring loan default risk. This method will revolutionize underwriting. Lenders are already approaching me about it.
I also have a variation of this for loan modification re-default. It provides the homeowner attorney a methodology for showing what terms of a loan modification will result in less risk.
I also provide the only OCC Consent Decree compliant exam in the country. This can be used by both lenders and homeowners to ensure that the foreclosure process was lawful.
BTW, I have spoken with Martin several times. He knows what I am about. In fact, I was the first person to reveal to him about how servicers must make "advanced payments" to the Trusts.
Aaron knows me as well.
Ppulatie, you seem like a relatively intelligent person. It’s amazing to me how the lending industry has manipulated and misled even its relatively intelligent minions into swallowing such whoppers. The facts on HAMP are quite simple. The Gross Income calculation for the disabled and elderly is fictitious, inflated, and discriminatory under any acceptable accounting standards. The rationale for the resulting higher house payment is based on higher Net Income, a flawed, incomplete, and discriminatory methodology used in HAMP only against the disadvantaged.
I heard today from a retired woman with two disabled children. She receives pension income for the two children and SSI for herself. Notwithstanding the fact she pays taxes on all of the income, the servicer is grossing up all of her income. This is unfair by any rational standards, probably even yours.
I’m recently seeing servicers grossing up income on any portions of untaxed income within a taxed paycheck, e.g., 401 K contributions, Pre-Tax Contributions, FSAs. That means those borrowers will have to stop any pre-tax contributions in order to get the correct house payments, or in some cases, even to qualify for HAMP. This is all outrageous non-sense, but at least not discriminatory. It is simply further efforts by the lending industry to frustrate the purposes of HAMP.
Ppulatie, I believe we’ve sufficiently bored the readers, so I’ll not respond further. Please feel free to respond to me directly if you have anything to add, as I’ve posted my contact info.
Thanks,
Rick
I could not find your personal information, so I will respond here, not that it would matter.
First off, thank you for the condescending statement "you seem like a relatively intelligent person...." Just what I would expect, a "back-handed compliment".
Now, to the meat.
1. Go back to underwriting in the 1980's and early 1990's, and you will find that the VA, FHA, and other lenders regularly used Residual Income for loan approval purposes. It was discontinued in the 1990's for easier approvals for loans, just like Debt Ratios were increased, and FICO scores became the norm.
The HAMP Program returns to this method because it is a much better method for determining default.
Attorneys and others argue that the lender has a Fiduciary Duty to a borrower. If true, and courts have ruled against this time and again, then the only method to actually approve a loan to meet the Duty, would be to use the Residual Income process. Everything else is defective.
2. Prior to HAMP, actually going back to the early 1990's, income for retired persons was regularly "grossed up", usually by 116% and later, to 125%. Check any old underwriting guideline in the income section, and you will find that this is factual.
3. Yes, there are errors at times in when to gross up income or not, but that is the fault of the underwriter or processor. But that does not mean that it is the norm.
4. You appear to be attempting to make a legal argument for court action claiming ECOA and Elder Abuse allegations with your article. Here is the anti-thesis to your argument.......
If a lender does not approve a loan modification at 31% for a borrower, and they did not gross up income to account for the lack of paying taxes, you can bet an enterprising attorney would be filing a lawsuit for the practice. Either way, a lender "loses".
You are right about one thing. This probably bores readers. However, it would likely not mean much to speak personally because you and I have completely different views. My viewpoint has been formed based upon thousands of loan documents reviewed for homeowners, conversations with thousands of homeowners, and hundreds of attorneys. Additionally, my viewpoints have been reached through the never ending court rulings coming down, whether for the homeowner or the lender.
I have undergone a complete revision of my beliefs, based upon what I have seen, heard and read. I find that no one was innocent in what occurred, except in a limited amount of circumstances. Yes, many elderly were victimized, but as is the usual case, an argument can be made that most were aware of what they were doing, and were willing victims.
The lenders were also at fault, as was Wall Street, D.C and anyone else in the chain.
Now, the goal, at least for me, is to create a situation whereby the US can move forward out of this mess. To do so, systems must be developed whereby risk can be properly evaluated, and underwriting to be more effective.
Methods must be developed whereby the purchasers of loans will have faith that the loans have been properly underwritten, and the default risk is readily apparent. That is where my primary focus is now.
First off, thank you for the condescending statement "you seem like a relatively intelligent person...." Just what I would expect, a "back-handed compliment".
Now, to the meat.
1. Go back to underwriting in the 1980's and early 1990's, and you will find that the VA, FHA, and other lenders regularly used Residual Income for loan approval purposes. It was discontinued in the 1990's for easier approvals for loans, just like Debt Ratios were increased, and FICO scores became the norm.
The HAMP Program returns to this method because it is a much better method for determining default.
Attorneys and others argue that the lender has a Fiduciary Duty to a borrower. If true, and courts have ruled against this time and again, then the only method to actually approve a loan to meet the Duty, would be to use the Residual Income process. Everything else is defective.
2. Prior to HAMP, actually going back to the early 1990's, income for retired persons was regularly "grossed up", usually by 116% and later, to 125%. Check any old underwriting guideline in the income section, and you will find that this is factual.
3. Yes, there are errors at times in when to gross up income or not, but that is the fault of the underwriter or processor. But that does not mean that it is the norm.
4. You appear to be attempting to make a legal argument for court action claiming ECOA and Elder Abuse allegations with your article. Here is the anti-thesis to your argument.......
If a lender does not approve a loan modification at 31% for a borrower, and they did not gross up income to account for the lack of paying taxes, you can bet an enterprising attorney would be filing a lawsuit for the practice. Either way, a lender "loses".
You are right about one thing. This probably bores readers. However, it would likely not mean much to speak personally because you and I have completely different views. My viewpoint has been formed based upon thousands of loan documents reviewed for homeowners, conversations with thousands of homeowners, and hundreds of attorneys. Additionally, my viewpoints have been reached through the never ending court rulings coming down, whether for the homeowner or the lender.
I have undergone a complete revision of my beliefs, based upon what I have seen, heard and read. I find that no one was innocent in what occurred, except in a limited amount of circumstances. Yes, many elderly were victimized, but as is the usual case, an argument can be made that most were aware of what they were doing, and were willing victims.
The lenders were also at fault, as was Wall Street, D.C and anyone else in the chain.
Now, the goal, at least for me, is to create a situation whereby the US can move forward out of this mess. To do so, systems must be developed whereby risk can be properly evaluated, and underwriting to be more effective.
Methods must be developed whereby the purchasers of loans will have faith that the loans have been properly underwritten, and the default risk is readily apparent. That is where my primary focus is now.
AS someone who has been in lending for a very long time, I want to congratulate you on this excellent response. You are 100% correct.
I am sure rogerrl has his heart in the right place, advocating for the disadvantaged, however, the rules are in place for a reason.
The one thing that bothers me about rogerrl's argument is that the individual originally qualified for their home with all their debt, under similar rules. Yet now when those rules (somewhat modified) are applied today, somehow it is discriminatory?