THE JURY IS IN: Obama’s Foreclosure Program Run by Morons… and Trial Modifications are the Biggest Loan Mod Scam Ever

Wasn’t it fun this past weekend to read and hear the flurry of teaser stories that were all over the news media about how the Obama Administration was going to take some new type of very serious action related to the abject failure of the HAMP program?  There was supposed to be a new sheriff in town… again.  Well, to be honest… this time I didn’t even try to kick the football.

I heard Lucy call me out: “Come on Charlie Brown… kick the football… you can do it!”

Only this time I said: Bite me, Lucy.

So, no… I wasn’t the least bit surprised when I heard what the Obama Administration had proposed to do in response to the banks and servicers appalling performance related to loan modifications, which, by the way, was basically nothing.  Why would anyone be surprised?

I do have to admit that I was surprised by one thing… very surprised, actually.  You see, I’ve been watching this whole trial modification scam thing pretty closely, and waiting for Treasury to announce the number of permanent, or one could say “actual” modifications that have been completed to-date.  Treasury, of course, has a hard time counting things, so I understood that it would take some time for them to report the numbers, numbers not being their strength and all.  So, I was figuring that out of like 650,000 trial modifications the government would report maybe 10-20,000 actual modifications.  Boy-oh-boy was I wrong.

According to Treasury… as of September 1, there were something like 1700 permanent modifications, and NONE of the trial modifications through October had been moved from trial to permanent.  NONE.  Not a one.  Damn.  Now that’s entertainment.

It’s hard to fathom.  You have to realize that I knew from day one that the plan wouldn’t work.  The night of Obama’s speech last February introducing the program, I ran the headline “I’m Sorry, Mr. President… That’s Just Not Enough“.

But who would have ever thought that these callous, colossal clowns managed to create a program less successful than the always-funny “Hope-4-Homeowners“ program!  That’s not easy to do when you stop to think that after 6-7 months, and with a budget of $320 billion, Hope-4-Homeowners only got one modification done.  To under-perform that program takes a special kind of idiocy.  It occurs to me that you could have created a program that fined banks $1,000 for doing modifications and come out about the same.

I don’t know about you, but 1700 out of 650,000 makes me want to believe that the 1700 were mistakes that slipped through.  It makes more sense to think that the HAMP program was designed to create foreclosures… and only 1700 of 650,000 slipped through and got modified by accident.

As a side-note, I recently learned from an executive inside Bank of America, who of course asked to remain anonymous, that B of A has only offered 9 principal reductions.  Nine.  Number 9… number 9… number 9.  When I heard the number 9, I responded by saying: “How did they pick the 9… some sort of drawing?  Or am I going to find out years from now that the nine were all related to Kenny Lewis?”

It’s also funny, or monumentally sad, to think that I’d be writing the exact same story were the number 17,000 out of 650,000… or even 170,000, for that matter.  At 170,000, the program would be failing to modify loans 75% of the time!

In the immortal words of Casey Stengel: “Can’t anyone here play this game?”

Well, Monday finally came around, I sat patiently awaiting the news.  What would the administration do about this embarrassment?  I mean, here you have the President of the United States, and a whole cadre of Harvard pals, designing a program to be implemented by the banks, and basically the banks responded by saying… “Um, no thank you.”  What would they do in response?

Michael Barr, the Assistant Treasury Secretary for Financial Institutions, came out with quite a few laugh-out-loud statements, which I included in an article I wrote yesterday.  In one of his comments he said, I assume in a tough talk kind of voice, that the banks wouldn’t get a dime of HAMP money for modifying loans until they issued permanent modifications.  That line caused me to spit my Fresca all over my desk.

I’m not going to bother looking up the exact numbers, but HAMP offers banks either $1,000 or maybe its $1,500 in year one, for modifying a loan.  Then they get a grand a year for the next four years, assuming the borrower continues to make his or her payments as agreed, and if memory serves, will receive a total of $4,500 from the program if everything goes as it supposed to go.  People… I’m sorry, but $4,500 over five years isn’t even enough money to get me to go out of my way to do anything, so it’s hard for me to imagine Wells Fargo doing back-flips over the potential to receive such an amount.

Another component of the administration’s response on Monday was to say that they were going to “shame” the banks into compliance, and the media actually reported this like it was something new.  Wasn’t “shame” the strategy last July?  Remember?  Weren’t the report cards supposed to “shame” the banks and servicers into modifying loans?  I could have sworn.

And besides… hasn’t it become abundantly obvious that these guys aren’t capable of shame?  Goldman Sachs, as just one example, announced that it had a banner year and would be using $17.6 billion of the $39 billion in taxpayer dollars they’ve received this past year, to pay year-end bonuses, and they didn’t seem the least bit ashamed.  I hope I wasn’t the only one who, upon hearing of the administration’s new plan to shame banks, thought: “Again? Who thinks that’s going to work… besides Michael Barr, of course?”

Okay… enough.  The administration’s response on Monday was a waste of time, right?  Can we all agree on that?  I’m getting tired of making fun of it, frankly.  They’re making it too easy.  I feel like Barry Bonds hitting balls off a “˜T’.  For the record, I didn’t ask for their charity.  I’m capable of digging in and finding stuff to be sarcastic about without it being handed to me.  I’ve got skills.

After a year of watching this mess unfold every single day, I’ve only got one question:

Was HAMP designed for homeowners… or was it designed for banks?  I’m serious here.  President Obama said it was for homeowners, but it sure worked out nicely for banks, didn’t it?

In my view, a “trial modification” is the biggest loan mod scam in history.  All those people that have gotten in trouble for scamming homeowners out of three grand… you’re off the hook, as far as I’m concerned.  I don’t like you, or anything, but what you did is petty theft compared to what HAMP is accomplishing.

Here’s what it says… word-for-word… on Freddie Mac’s Website about HAMP’s trial modifications:

“If you’re eligible, your lender will offer you a three-month trial period at a new mortgage payment amount. To successfully complete this trial period, you will need to make three monthly payments on time at the new payment amount.  Once you’ve successfully completed the three-month trial period, your mortgage lender will permanently modify your mortgage.”

Really, Freddie… you lying sack of garbage… is that what you think happens?  What… are you stupid, or a scammer, because you’re understanding and presentation of the HAMP program isn’t even close to reality.  Which is it… sheer idiocy or intent to defraud?  “˜Cause those are the only options available at this point, wouldn’t you say?

It also says, and again word-for-word, on Freddie’s site:

“Freddie Mac has directed its lenders/servicers to suspend foreclosures on mortgages we own for all homeowners who are being evaluated for or are currently in a trial period for a Home Affordable Modification.”

Has this EVER happened?  Has a lender EVER suspended foreclosure because a borrower was being evaluated for a HAMP modification?  EVER?  Even once?  Because I happen to know of several instances in which attorneys have gone into court to try to get a judge to enforce this point, and none have ever done so to my knowledge.  In fact, here’s my article on one such instance: “California Superior Court Judge Says HAMP Has No Teeth”.

Look, I know to successfully sue a lender for fraud requires proving intent on the part of the bank being sued.  And I understand that’s no easy thing to do.  But, I’ve come to believe, and I think it’s quite obvious, that certain banks have absolutely no intention of modifying loans, yet they allow borrowers to think there’s a possibility that their loan could get modified.

Let’s take a quick peek under the covers at IndyMac.  Pat Pulate, a brilliant guy when it comes to the whole mortgage mess, and a friend, by the way, wrote a terrific article on IndyMac’s inner workings just a day or two ago and you can find it here.

But, without getting into any detail, just understand that the FDIC has entered into an 80/20 “loss-sharing” agreement with IndyMac, so 80% of future losses will not be born by the bank.  In addition, the new owners of IndyMac, paid a discounted amount for the mortgages on the bank’s balance sheet, so in addition to only having to shoulder 20% of any future losses, they only paid a percentage for the loan, so even though it may look like they’re taking a loss… they’re actually not.

The fact is… IndyMac, as just one example, should NEVER modify a loan… NEVER.  If they act in the bank’s best interest, they should foreclosure on every single delinquent loan as fast as possible, sell them for whatever as REOs, and thereby put any future risk of re-default onto the taxpayer via Fannie, Freddie or FHA.

Here’s a quote from an email I received from a homeowner this morning:

We were awarded a “temporary loan modification” for three months. Just the other day, we received a letter stating we were denied a permanent modification. No further instructions were given about what to do going forward. After many calls, I got in contact with someone who told me I need to reapply and that because I was denied, my mortgage has actually increased by $1,500!!! That’s actually $3,000 more than our temporary modified amount was. It’s beyond criminal what the banks are doing.

Here’s another also from this morning:

I have an Indymac mortgage and I applied for the program in March 2009 according to their website specifications.  After a few letters from Indymac saying they were reviewing my papers, I stopped hearing from them. Thereafter,  I contacted them by phone and by fax for a status of my loan modification from June 2009 through August 2009.  They have no records of my phone contacts.  Although I requested by fax on four occasions that they send me a status of the modification on my home loan, they never contacted me but confirmed they had my faxes.  In September I hired a lawyer to take over the process when Indymac discovered I was late on my property taxes and established an impound account where I needed to pay them $8,505.20 or my monthly payment would increase from $2612 to $3696.  My current payment is $2988 with tax impounds.  Because I hired a lawyer, I am behind one month on my mortgage, which inspired Indymac to contact me, not regarding the modification, but regarding the money I owe.

Their records still reflect I owe them the $8505.20 impounds even though I paid this on October 13, 2009.  I continue to get the form letters from Indymac regarding their offer for me to apply for a home loan modification.  I have submitted all the applicable paperwork three times to them through myself and through my attorney.  It is now December 2009 and I still have not heard a thing from them regarding my modification nor has my attorney.  It would simply be nice to know one way or another if my loan will be modified or not.  The whole process has been really pathetic and I think it is a big scam.

And that’s just IndyMac.  As of August 2009, the FDIC has entered into 53 loss-sharing agreements with banks.  And, although I don’t know the details of every bank that was acquired by another, I do know that JPMorgan Chase bought Wamu’s loans for roughly 2¢ on the dollar.  Go ahead, you do the math… I’m tired.  And I’ve got meetings to attend.

Please keep those emails coming.  I won’t publish your name if you don’t want me to.  You can reach me at mandelman@mac.com.

Oh, and one more thing… Barack… you and I… we’re done.  I don’t care if it’s Sarah Palin and her cousin that’s running in 2012… if you don’t do something about this, you are done as far as I’m concerned.  What a waste of time you have proven to be.  What a disappointment.  I suppose the only bright side to your presidency is that at least we don’t have to worry about you accomplishing anything, so whew… dodged a bullet there.