Fox Business Reports: Leaked Document Shows Obama Considering Changes to HAMP Loan Modification Program

Fox Business has exclusively reported that it has obtained a confidential document said to have been prepared by the Treasury Department, that may indicate that the Obama Administration is considering several changes to the Making Home Affordable loan modification program.

Fox also said that the changes being considered by the administration may result in a nationwide freeze on foreclosures for some period of time for some homeowners, but that’s a bit of a reach and a misinterpretation of what the proposed changes actually include, as you’ll see in a moment.

Now, before I tell you what the proposed changes are, according to this leaked Treasury document, I think it’s very important that I stipulate to two things:

A. Yes, the Mortgage Bankers Association, the American Bankers Association, and every other lemming in the long line of groups that represent the financial services industries is going to oppose every single word in every single one of these proposed changes. Obviously. So there is no need to write to me saying stuff like: “These new rules are never going to pass, blah, blah, blah.” I know all of that, and none of it has anything to do with the point of this article.

B. I would like to remind everyone that rules are only proposed in response to some group’s unwanted or unwarranted behavior. If it didn’t matter to anyone, or to our society, how fast cars were driven on public roads in this country, we wouldn’t have a speed limit. No one cares how fast you ride your horse out on the wide open prairie, so I’m guessing that we don’t have anyone proposing a speed limit on horse riding on the wide open prairie. (Look, I know that wasn’t my best analogy ever, but you get the point so just go with it, okay?)

I offer this reminder because Fox reported this story saying that the Obama Administration is proposing these new rules in an effort to “slow down” the foreclosures on homes in this country, and that’s just ridiculous. The proposed rules that follow were certainly not the result of someone saying: “Gee, how can we slow down the foreclosures in this country?”

Clearly, these proposed rules are being considered, assuming that they are in fact being considered, in response to our nation’s lenders’ and mortgage servicers’ flagrant and total disrespect and disregard for the federal government’s Making Home Affordable Program, most commonly referred to as HAMP, the Home Affordable Modification Program.

I find this to be a critical distinction because I believe that merely the fact that these new rules were written down for consideration should provide every citizen who has the capacity to connect words into sentences with incontrovertible proof that it is the lenders and mortgage servicers that have caused the multitude of problems related to foreclosures and loan modifications. What follows should further provide proof that, based on the behaviors that these rules were obviously created to stop, the lenders and servicers participating in the Making Home Affordable program cannot be trusted by our society… period.

In simpler terms, you don’t need to propose the types of rules as stated below for a group of individuals or organizations that are behaving in an ethical fashion now. These rules are the type that are only proposed when there is a need to stop some group from behaving badly.

According to the document obtained by Fox, the changes being considered include:

1. A 30-day “borrower response period” if a person gets rejected for a modification under HAMP, during which time a foreclosure sale would be prohibited.

Wow… 30 days to respond if you’re rejected for a HAMP loan modification before they can sell your house out from under you? That seems pretty harsh… and when I say “harsh,” I mean eminently reasonable and fair. I mean, considering we have roughly 900,000 trial loan modifications under HAMP, and something like 100,000 permanent modifications completed at latest count, it’s clear that the approval and denial process is anything but rock solid, and it’s perhaps the lease transparent government initiative since Iran-Contra.

So, if you do get turned down it would seem perfectly reasonable that a borrower be allowed 30 days to respond, if for no other reason than it would give borrowers a chance to correct any mistakes or assumptions that may have led to the denial prior to losing their home as a result. You might even think that the lenders and servicers would favor this rule too. No one could possibly be in favor of someone losing their home due to a mistake in their application for a modification under HAMP.

2. Prohibit foreclosures before borrowers are evaluated and found to be ineligible for the HAMP program.

Okay, here’s one of those “new rules” that would seem to be redundant with at least the intent of those already in place. Before you foreclose, Mr Mortgage Servicer, you have to at least offer the homeowner an alternative to foreclosure, and evaluate whether that given borrower qualifies for that alternative. I’m not positive, but I could swear that is the same kind of language already found in the HAMP documentation.

3. Require lenders to suspend all foreclosure actions after borrower has been approved for 90-day trial modification under the HAMP program.

I liked this one in particular, because I always tell people that in my view, the most dangerous time in a loan modification is when you’ve been granted a “90-day trial modification” under HAMP, because that’s when the bank may do anything from sell your home without notice, to paint your home without notice.

The proposing of this rule is proof that the lenders and servicers participating in the HAMP program cannot be trusted. HAMP requires a trial period, and it says in the HAMP guidelines that once a borrower is approved for a trial modification, assuming that borrower makes the trial payments on time and as agreed, that person will receive a permanent loan modification. If lenders and servicers were ethical organizations operating within the law and looking out for the interests of our society, as well as their own, we wouldn’t need such a rule.

4. Written certification that a borrower is not eligible for a HAMP modification by an attorney or trustee before a foreclosure sale can be conducted.

And here’s one that basically says that we will need lawyers to represent homeowners in order to make sure the banks haven’t lied and turned down a borrower who should not have been turned down. We sure as heck can’t trust the banksters, so we should have lawyers representing homeowners to make sure their rights aren’t being ignored and abused by those that have obviously ignored and abused them in the past and in significant number.

So… let’s sum it up in four key points, all pertaining to the HAMP loan modification program:

1. Give borrowers a month to respond to being turned down, in case a mistake caused the denial.

2. Don’t foreclose until borrowers have been evaluated and found ineligible.

3. Don’t foreclose on a borrower once that borrower has been approved for a loan modification.

4. Have a lawyer who represents the interests of the homeowner certify that the lender or servicer has followed the first three rules.

Does that about cover it? Of course it does, that question was rhetorical. Are any of these new proposed rules in anyway egregious, Draconian, or otherwise unreasonable or objectionable to the common man or woman. Nope, rhetorical again. In fact, nothing proposed in this leaked document should or would ever have to have been raised, if the lenders and servicers hadn’t already proven beyond any reasonable doubt that they will not follow rules they find inconvenient for whatever reason.

I called an IndyMac executive some months ago to inquire as to why it was that the bank only forecloses and never agrees to modify under HAMP guidelines, even though by the date of my call IndyMac/One West was in fact signed on to receive funds from the federal government under HAMP.

The executive at IndyMac/One West explained that HAMP only requires them to offer a loan modification, but not grant a loan modification. I fired back, I think that depends of what the definition of is, is… and I hung up.

Treasury is not the only governing or regulatory body considering these very same types of rules. At the state level, California and Maryland each have similar rules or legislative proposals under consideration.

In Maryland, Governor George O’Malley is proposing several new rules that essentially mirror those in the document leaked to Fox Business. And maybe because Maryland is on the way home for a bunch of banking industry lobbyists, we already have a window into the views of those that would oppose such benign provisions.

One Dean Caplan, a mortgage loan consultant from Bethesda, Maryland has already been quoted in the Washington Examiner as saying that the new rules “could drive mortgage lenders from the state,” as the rules would be a “disincentive to do loans in the State of Maryland.” He closed with the phrase: “It sounds horrific.”

A guy named Jeff Hawk who is Vice President of Maryland Mutual Mortgage LLC, and I would guess a triple digit SAT score recipient at best, referred to the proposed rules as “reverse discrimination”. In the Washington Examiner Hawk was quoted as saying: “You’re just keeping borrowers in homes they cannot afford. You gotta’ let nature take its course.”

Well, Jeffrey my intellectually deficient friend. You really are quite the pant load, aren’t you my boy. I must make a mental note to make sure to blog about you a lot more in the future, Hawk-boy.

Apparently, Maryland is not new to this way of thinking. A similar measure was introduced back in 2005 by the Montgomery County Council, and more than 40 lenders indicated that they would pull out of the county if the bill took effect before a circuit court killed it, ruling that it violated the state’s constitution.

And rounding out the trifecta of idiots representing the mortgage lending industry in Maryland is Tom Shaner, the Director of the Maryland Association of Mortgage Professionals.

Obviously incapable of generating an original thought on his own, Mr. Shaner simply parroted the line about pressuring lenders to modify loans that people cannot afford could put a strain on the sanctity of contracts in Maryland. He went on to say:

“Maryland is getting a horrible anti-business image. If contracts in this state are null and void when its politically advantageous … people are not going to do business in this state.”

Hey Tommy boy… you want to know another time when people won’t want to do business in Maryland? How about after imbeciles like you have ensured that the State of Maryland remains deep in its recession for decades to come… that might be a bad time to do business in Maryland. Or how about when the banking and mortgage industry players that you no doubt represent, all decide to bankrupt our nation’s and in fact the entire world’s financial markets through behaviors and practices that should land you in jail.

Governor O’Malley’s spokesperson, Shaun Adamec responded intelligently to the cacophony of fear-mongering morons from the mortgage industry when he said:

“It’s the companies that are forcing the Governor’s hands in introducing this legislation.”

Nice job, Shaun, but I think we’re going to need a bigger boat. These guys are incapable of feeling shame, obviously. I pray O’Malley just calls their bluff and stops listening to the members of the banking lobby as being the smartest guys in the room, when they are so clearly anything but. Let them pull out of wherever they claim to want to pull out of, and then let’s watch to see how they are replaced… overnight.