My Year in A-Trance: What I’ve Learned About Loan Modifications
THIS IS A LONG ARTICLE.Â VERY LONG.Â LIKE IT COULD BE A BOOK LONG.
I’VE WRITTEN IT FOR THE PERSON WHO WANTS TO LEARN A LOT ABOUT WHAT’S GONE ON AND IS STILL GOING ON IN THE LOAN MODIFICATION WORLD, AND THEREFORE WOULD SEE READING IT, AS TAKING A LOT LESS TIME THAN THE YEAR AND A HALF THAT IT TOOK ME TO LEARN THE STUFF I’VE WRITTEN ABOUT HERE.
IN OTHER WORDS, WHEN COMPARED WITH TWO YEARS, THIS ARTICLE IS ACTUALLY A SHORT CUT, BIG TIME.Â BUT IF YOU DON’T WANT TO LEARN A WHOLE LOT ABOUT LOAN MODIFICATIONS, I’D SAY PROBABLY SKIP IT, OR SKIM IT FOR THE PARTS THAT YOU’RE INTERESTED IN LEARNING ABOUT.
IN OTHER WORDS, IT’S NOT FOR EVERYONE… I HOPE IT PROVIDES VALUE TO THOSE LOOKING TO LEARN ABOUT WHAT I’VE LEARNED OVER THE LAST TWO YEARS, A SUBJECT THAT HAS CAUSED A GREAT DEAL OF PAIN FOR A HUGE NUMBER OF PEOPLE WHO CONTINUE TO SUFFER IN SILENCE.
ENOUGH DISCLAIMER… IF YOU READ IT NOW, IT’S ON YOU.
My Year in A-Trance: What Iâ€™ve Learned About Loan Modifications
It was roughly two years ago when I first heard the term â€śloan modificationâ€ť.Â Dubya was still â€śthe decider,â€ť Hank was running Treasury and looking older by the day, and it was FDIC Chair Sheila Bair, who was advocating the idea that the banks should be modifying the tens, and then hundreds of thousands of loans that were already defaulting each month.Â With millions more on the horizon certain to default, I thought the idea of loan modifications had merit from day one.
Up until then, I had been focused on the federal governmentâ€™s potential response to the growing foreclosure crisis.Â I was hoping for something along the lines of what we did during the 1930s when the federal government established the Federal National Mortgage Association for the purposes of refinancing mortgages in order to stop the same type of freefall in the housing market we were experiencing then and weâ€™re still experiencing today.
The Federal National Mortgage Association is todayâ€™s Fannie Mae, and it was originally established in 1938 as part of FDRâ€™s New Deal.Â Throughout the 1930s, the federal government continually proclaimed that recovery was just around the corner, only to discover the following year that they had been wrong once again.Â (When you think about itâ€¦ what were they supposed to say?Â But, when the economy fell into yet another deep recession in 1938, it was just too much to handle for many Americans.
During the 1930s, homeowners defaulted on mortgages en masse, which not only led to banks being strapped for cash, but after nine years of economic downturn, they had absolutely no interest in investing in home loans.Â Fannie Mae was established to buy up home loans from banks thereby freeing up capital that could be lent out to other borrowers, and also to provide local banks with federal money to finance home mortgages.Â The goal was to free up capital for lending, stimulate home ownership and increase the availability of affordable housingâ€¦ and it worked.
In the beginning, Fannie Mae was run like a national savings and loan that allowed banks to charge significantly lower interest rates on mortgages to those purchasing a home.Â Eventually, this would lead to the creation of what we now call the secondary mortgage market.
Fannie Mae, because of it received financial support from the federal government, borrowed money from foreign investors at very low rates.Â Because Fannie Mae could borrow at such low rates, it offered fixed rate mortgages with low down payments, making its profit from the difference between the interest rates homeowners paid and rates charged by foreign lenders.
Fannie Mae began operating as a Government Sponsored Enterprise or â€śGSEâ€ť after being â€śprivatizedâ€ť by President Lyndon B. Johnson, in 1968.Â Taking Fannie off the books was just one of the ways Johnson reduced the budget in order to make it easier to pay the bills for the war in Viet Nam.
As a GSE, Fannie was a private company in the sense that it generated profits that could be distributed to shareholders, but remained exempt from taxation and continued to be able to borrow at exceptionally low rates because of the implied backing of the United States government.Â And because Fannie Mae had always functioned as a monopoly of sorts, Freddie Mac was established in 1970 to create at least the impression of competition.Â Freddie went public in 1989.
Today, Fannie and Freddie raise money to purchase mortgages from pension funds, mutual funds and foreign governments.Â They are so large, both in terms of assets and debt that alone they can influence our economy and the economy of foreign nations, and as a result, neither will ever be allowed to fail.
This past Christmas Eve it was announced that going forward the Federal Reserve along with the U.S. Treasury would provide unlimited funding for the â€śtwins,â€ť should give us some idea of just how important these two mortgage giants really are to our economy and its recovery.
We can debate whether or not we are facing another Great Depression, but the government lifting the caps on financial support for Fannie and Freddie is a very definite indication as to just how concerned our government is about whatâ€™s ahead.
So, back in 2007, although I was focused on another federal government funded solution to the growing housing crisis, I also saw clearly that President Bush simply wasnâ€™t going to have the government step in with what would have been seen as a bail out of the very homeowners, that at the time, were being blamed for the crisis. Â So, when Sheila Bair brought up loan modifications, I thoughtâ€¦ Wow, a Bush appointee with a brainâ€¦ go figure.Â (Kidding, Iâ€™m just kiddingâ€¦ Iâ€™m a kidder.)
Paulson, however, wasnâ€™t having any of it, at least not until months later into the crisis.Â It always seemed to me back then that Sheila would walk into a meeting on the crisis with Treasury, wait for her moment, bring up loan modifications, and then Hank would say something like, â€śThanks for your input, Sweetie,â€ť and then ask her to go get him coffee, or whatever he drinksâ€¦ green tea, perhaps.Â I donâ€™t actually know what their relationship was like, and I donâ€™t really think he was a hold out from 1955, but I do know from reading several books about those days that Paulson was no fan of hers, and he certainly wasnâ€™t supporting anything she had to say publicly.
Then, after months of fighting between Barney Frank and POTUS, July of 2008 rolled around, and President Bush finally signed the bill that would create the infamous Hope-4-Homeowners program that I knew didnâ€™t have a prayer from day one, but sure was fun to make fun of later.Â In case you donâ€™t remember it, it had that crazy equity split kicker clause, that said if your house went back up you had to split it with the bank or with the government or some such nonsense, and there was no way it was going to fly.Â Wrong plan, wrong time, wrong political climateâ€¦ simple as that.
Six months later, when it would be announced that the $320 billion program had only modified one single solitary mortgage, after I stopped laughing of course, I wrote a couple of scathing articles about the sheer stupidity of the program.Â Meanwhile, I decided to find out how loan modifications worked.
The first family I interviewed had tried to get their loan modified on their own for eight months without success.Â At just about the end of their proverbial rope, someone in the family heard a radio ad for a company that said they could helpâ€¦ they made the call, hired them by paying $3,500 up front by the way, and within 60 days they were granted a loan modification.Â They were happy as clams once their loan had a modified payment, but the process they described wasnâ€™t pleasant in the least.Â They told me about their bank, Washington Mutual, losing their paperwork more than once, treating them very rudely on numerous occasions, and months spent not knowing one way or the other whether theyâ€™d be keeping their home.
They had three young children, and they told me about the sleepless nights, his increased drinking, both of them fighting, the impact on the kids and the family as a wholeâ€¦ it sounded awful, even though they were very happy now that it was over and had ended with them being able to stay in their home.Â They lived out past Hemet in a place called Menifee, California, that I had never heard of before, even though Iâ€™d lived in California for twenty years.Â I remember thinking, why would anyone build such a nice housing development way out in the middle of nowhere.
I remember them telling me that they had paid $450,000 and had monthly payments of $1800 not including taxes.Â A year later, give or take, it was worth 225,000 at most, and the monthly payment had doubled.Â Nice loan, I thought, in a snapping turtle sort of way.
I remember her telling me that they didnâ€™t go to college, didnâ€™t know anything about mortgages, and trusted the bank â€śto tell us what we qualified for,â€ť she said.Â I told her that I did go to college, and to graduate schoolâ€¦ twiceâ€¦ but that I also didnâ€™t know anything about mortgages, and that I had trusted my own bank the same way she did.
Anyway, luckily they found a company that helped them get their loan modified, advance fee and all, and everything eventually worked out fine, so I asked for the companyâ€™s number so I could call and interview someone there.Â And thatâ€™s how it started.
Before you caould say â€śnon-judicial foreclosure state,â€ť I had spoken with dozens of people involved with helping homeowners get mortgages modified, and they all had very similar things to say.Â For one thing, it very quickly became abundantly clear that that the banks didnâ€™t want anyone to have help when applying for a loan modification; they obviously wanted homeowners to show up alone and unarmed.
The lawyers I interviewed, none of whom knew each other, all told me identical stories about how their clients would call the bank when it was taking a long time to get their modification, and the bank would claim that theyâ€™d never heard of or from the attorney, which would cause all kinds of problems.Â They told me about how the bank would repeatedly lose the paperwork being submitted, or refuse to work with any third party representing a homeowner for no apparent reason, even when the third party was a licensed attorney legally representing the homeowner.Â They all spoke of how the banks would keep calling the homeowner even after the bank had been notified in writing that the homeowner was being represented by legal counsel.
And they didnâ€™t just say these things, many of them invited me to their offices to listen in when they called various banks, with their clientâ€™s permission, of course.Â Iâ€™ll never forget one specific call I witnessed being made to IndyMac.Â After waiting on hold for what seemed like forever, the woman at IndyMac answered and immediately said that the attorney calling would have to get the borrower on the call as well.Â He agreed and conferenced the homeowner in, and as soon as the homeowner identified herself and said hello, the woman from IndyMac said: â€śYou know, you donâ€™t have to pay him.â€ť
I have to say, I was shocked.Â I couldnâ€™t help but say something, so I stepped forward and said: â€śExcuse meâ€¦ Iâ€™m a writer doing a story on loan modifications.Â How did you know that she was paying him?Â How do you know heâ€™s not her brother-in-law doing her a favor?Â Are you trained to say that to anyone who calls and is represented by a third party?â€ť
The line went dead.Â The woman at IndyMac had hung up on me just for asking a question.Â We called back, but another 40 minutes went by with no answer and I had to leave for another appointment.Â It was obvious that something was seriously wrong here.Â Iâ€™d never heard a bank act that way before, and I could not understand why a bank would not want someone to hire a lawyer to help them get their loan modified.Â At 47 years old, and after owning my own consulting firm for over 15 years, I had hired lawyers on quite a few occasions, and frankly, no one had ever cared one way or the other.
I wrote an article about my experience with IndyMac and a lot more people read it than I had been expecting.Â Apparently, this sort of thing was not an isolated incidentâ€¦ this sort of thing and worse was happening routinely, and nothing was being said or done about it by anyone.Â The more I wrote about what I was seeing and hearing having to do with loan modifications, the more people wrote in to share their own experiences.
Lawyers, mortgage brokers, real estate agentsâ€¦ as well as homeownersâ€¦ from all over the country started contacting me each day by email.Â I realized very quickly that, from a qualitative research standpoint, I was in a very unique positionâ€¦ and the more I wrote about what was happening, the more people reached out to me and wanted to talk.
From the beginning, it seemed to me that getting a loan modification was, to large degree, a random event.Â There didnâ€™t seem to be any discernable pattern in what was happening.Â On any given morning, one lawyer or other industry professional would call and tell me that Chase, for example, was greatâ€¦ that they were getting easier to work with and had granted a series of modifications with really good terms.Â An hour later, Iâ€™d get another call telling me that Chase was impossible to work with and that they were foreclosing left and right.
Wells Fargo is easy to work withâ€¦ Wells Fargo is impossible to work withâ€¦ Bank of America is doing some principal reductionsâ€¦ Bank of America never does principal reductions.Â IndyMacâ€¦ well, noâ€¦ IndyMac was always terrible by all accounts.
The calls and emails from homeowners would then verify the random nature of how the banks were behaving when it came to loan modifications, as would all of the reading I would do both online, and on the rare occasions when the press would run a story about the bankâ€™s bad behavior, as opposed maligning the those offering to help homeowners with their banks and servicers.
The media had started referring to anyone who offered to help a homeowner obtain a loan modification a â€śscammerâ€ť.Â Automatically, no matter whatâ€¦ end of discussionâ€¦ if you were charging a homeowner for your services and attempting to get that homeowner a loan modification, then you were a â€śscammer,â€ť plain and simple.Â It never sat right with me.Â How could it be ALL of them?
The media would run a story, I remember one on the news magazine show, 20/20, in particular, that would show some guy who didnâ€™t want to be filmed, being chased around by a camera crew, as the voiceover explained that the guy had promised a handful of people he could get their loan modified but had failed to do so, or perhaps, they said, had not even tried.Â I remember the guyâ€™s office was in some strip mall in some rundown part of some nowhere town.
But the numbers they reported were always so small.Â One guyâ€¦ a handful of homeownersâ€¦ accusations that wouldnâ€™t normally make anything but the most local of news broadcasts were now being aired as feature stories during prime time on national news programs.Â And meanwhile, I was interviewing homeownersâ€¦ hundreds of homeowners from almost all 50 statesâ€¦ who each told incredibly similar tales of how they had tried to get their loan modified on their own but failedâ€¦ and finally hired a firm to help themâ€¦ and soon after got it done.Â The contrast between what I was watching on television, and what I was hearing from homeowners each day was positively surreal.
To make things that much stranger, the media didnâ€™t seem to be even the least bit interested in hearing about what I was being told by hundreds, or by that time perhaps thousands of homeownersâ€¦ they just wanted to find another â€śscammerâ€ť who they could make look like a representative sample of the entire field.Â It seemed very Y2K to me.
After all, to-date weâ€™ve lost seven million homes to foreclosure in this country, so at the time that number was probably something close to half that number.Â And if 3.5 million people were hiring firms to help them obtain loan modificationsâ€¦ and they were all scammers as the media clearly wanted me to believeâ€¦ then it stood to reason that there should be some fairly large number of the scammed and the scammersâ€¦ and yet there simply was not such a number being published anywhere.
I contacted an editor at one of the major business magazines who shall remain nameless because I donâ€™t want to make him look bad, and I asked him what the heck was going on.Â He replied that the banks were his and everyone elseâ€™s largest advertisers, and that he thought it unlikely that I would find anyone who wanted to run a negative story about the banks as a result.Â Call me naĂŻve, but I was shocked by that answerâ€¦ back then.Â Today, nothing I hear about the banks and their influence on our government and the media comes even close to shocking me.Â Had I heard that same sentence today, I would have replied with something to the effect of: â€śYeah, so what else is new.â€ť
This was all happening during the fall of 2008, when the foreclosure crisis was well underway, and I had given up on any meaningful response from a government that on either side of the isle was only interested in one thing: Election Day, 2008.
Meanwhile, however, I was noticing another fascinating thing about our nationâ€™s foreclosure crisis: It was a silent crisis, not unlike AIDS in the beginning.
While the banks had their PR machines in full gear, and the government had their bully pulpitâ€¦ homeowners at risk of losing their homes had no lobbyists, no PR firms on retainer; no voice to be heard.Â And those in the fledgling field of helping homeowners with loan modifications, whether lawyers or licensed real estate or mortgage professionals, having been told ad nausea that the entire industry was made up of nothing more than unscrupulous scammers, didnâ€™t communicate with each other, simply because by now they too didnâ€™t trust each other.Â Each new firmâ€™s owner that Iâ€™d meet would begin by telling me how they, and perhaps they alone, were â€śdoing it rightâ€ť.Â All others were something less, and worse.
I decided that, in the best interests of my readers, there was a need to clearly define what was a scammer in my way of thinking, and what wasnâ€™t, and so I stated in numerous articles that a scammer was one who took your money under false pretenses and delivered nothing in return.Â If someone was in fact modifying mortgages, then they could not accurately be branded a scammer.
I felt the need to distinguish what was a scammer in this way because I realized that there were always going to be homeowners who could not get their mortgages modified no matter what they, or anyone else tried, which made total sense as the government officials were saying the same thing during interviews.Â Clearly, not everyone would qualify for a loan modification, there were a myriad of reasons that this might be the case, and I had already bumped into a few homeowners who were all to ready to blame their lawyer for their situation, instead of their bank.
It was fascinating to me, for example, that roughly six months later, when CNN/Money asked readers to write in and tell their stories of dealing with their lenders and servicers as related to attempting to get loan modifications, how so many of the letters read.Â Over one weekend, I read 600 letters written by homeowners who DID NOT HIRE anyone to help them, choosing to go it alone as the government had told them they should, and they were all furious at the outcome, with the majority having lost their homes to foreclosure.
These homeowners complained of the same behaviors that the lawyers and others complained ofâ€¦ banks losing paperwork multiple times, waiting on hold for hours only to be disconnected, and banks treating them like they were, wellâ€¦ dirt farmers from The Grapes of Wrath.Â They were all angry at their bank, they were all angry at their government, because they hadnâ€™t hired anyone to help them, they didnâ€™t have anyone else with which to be angry.
Then I started looking online and reading the complaints written by homeowners who claimed to have been scammed by a company that had promised to get their loan modifiedâ€¦ and didnâ€™t.Â Some of them seemed unquestionably legitimateâ€¦ they were robbed and it was sickening read about.Â Who in the world would scam a homeowner at risk of losing their home out of their last few thousand dollars?Â That takes a special kind of scumbag, no question about it.Â Scam the rich?Â I understand.Â But to intentionally scam a middle class family who is trying desperately to hold onto the familyâ€™s home?Â Seriously?Â What does one do after that, set up a company that systematically robs the blind?
But many of the complaints I read were not about scammers, using my definition anyway.Â They were people that paid a lawyer who failed to get their loan modified, but they were not cases where someone took the money and ran, they were cases where the given bank refused to modify the loan.Â I was able to tell the difference because by that time Iâ€™d read, interviewed, and heard so many others, that now my perspective provided clarity that others wouldnâ€™t be able to share.
Some homeowners said that they had called their bank and been told that their lawyer had not been in contact with the bankâ€¦ which I knew from experience happened all the time and, in all of the instances I had followed up on, never true.Â Some directed their anger at a law firm not modifying their loan, which left me wondering why they werenâ€™t voicing their anger at their banksâ€¦ lawyers donâ€™t modify loansâ€¦ banks and servicers doâ€¦ or donâ€™t, as the case may be.
The most interesting thing was that the homeowners that complained about the firm they had hired wrote complaints that were essentially identical in content to those complaints written by homeowners who DID NOT HIRE anyone to assist them.Â I followed up on more than a hundred such complaints by calling the homeowners who had complained, and found that my suspicions were largely correct.
When one loses his or her home, one complains, and understandably so.Â The only consistency in the way the banks have behaved has been that theyâ€™ve behaved horrendously and dishonestly towards distressed homeowners at every turn.Â If one has hired a lawyer or other professional to help them, then they are angry at that individual or firm.Â If one has attempted to get their loan modified alone, then the anger is directed at some combination of the bank and the government.Â But, over a sample of hundreds from across the country the nature of the complaints is very near identical.
Back in 2006, when the foreclosure and economic crisis was just beginning, the country was told that the problem was being caused by â€śirresponsible sub-prime borrowers,â€ť people who had bought houses they never should have been allowed to buy, or people who were trying to flip the homes at a profit and been stung when their risk-taking went bad.Â It was never the case, but it sure sounded right to a lot of people.Â Many still believe it to be the case today, although I would tell youâ€¦ fewer and fewer and not for long.
Back then I wrote an article about the sub-prime borrowers that poked fun at the idea that such a group were capable of causing such a widespread economic collapse.Â In that article, I pointed out, with a healthy dose of sarcasm thrown in, that borrowers simply didnâ€™t have the economic clout to cause what they were being accused of, and that it was the banks that were behind the meltdown that would soon spread far beyond the sub-prime universe.
Many people have continued to resist the idea that it was not the poor judgment, excessive risk taking and irresponsible debt levels of borrowers that had caused the crisis.Â After all, by 2006 they could see evidence of those excesses all around them.Â And itâ€™s certainly true that many people did take on more debt than they should have, and that many made less than prudent decisions.Â But, itâ€™s a bit like saying that it was the flooding that caused so much damage in New Orleans during Katrina.Â Itâ€™s certainly true, but I still think it was the hurricane that was the proximate cause, right?Â Yes, there was floodingâ€¦ but it was more the hurricane, donâ€™t you think?
By allowing the misconception that borrowers caused the crisis to take hold, we divided the nation between responsible and irresponsible homeowners, and once we discovered that it was really not borrowers fueling the economic collapse, we didnâ€™t have the political will to do what was needed to stop the carnage.Â Who would possibly want to bail out a bunch of irresponsible sub-prime borrowers, after all?
So, I waited for our new president to announce his program to address the housing crisis, which he did on February 18, 2009 (and you can watch again by clicking that link).Â There was no question in my mind that the Making Home Affordable program never had a chance of succeeding and my article published immediately following his speech that evening said it in plain terms: â€śIâ€™m Sorry Mr. President, Thatâ€™s Simply Not Enough.â€ťÂ Barack Obama was a new president, however, and a very popular one with most of the countryâ€™s voters anyway.Â Additionally, he was seen as being smart, and having surrounded himself with people considered even smarter. Â Soâ€¦ we would have to wait and see, before weâ€™d be willing to criticize his plan to stem the foreclosures that were dragging down our economy, whether we wanted to admit that fact or not.
The Treasury Department, in conjunction with a myriad of supporting federal agencies and other experts collaborated very quietly on the Home Affordable Modification Program, or HAMP, as we know it today.Â Treasury Secretary Tim Geithner was under a lot of pressure to roll out the program, and although it was supposed to be ready in April, it was late in May and into June before most of the banks were talking about it with homeowners.Â The problem from the beginning was that while qualifying for most government programs is a fairly transparent process, qualifying for HAMP was from the beginning, anything but.
It would seem that, in creating the Net Present Value (NPV) formula that would be used to qualify a homeowner for the HAMP program, they had set out to build a car and ended up building the Space Shuttle, only to discover that they had no astronauts.
Right out of the gate, HAMP was a mess.Â First of all, as yet another voluntary program, it was up to the banks as to whether they would or would not participate.Â Secondly, the requirement that a borrower enter a trial modification period during which he or she be required to make trial payments, led many to believe that they were approved for a modification when in fact they were not.
Third, the HAMP guidelines, as I wrote in an article at the time, carry the weight ofâ€¦ well, guidelines.Â When theyâ€™re broken or otherwise not adhered to by lenders and servicers, homeowners found that they had little recourse.Â And fourth, the president told everyone that â€śloan modifications are free,â€ť that all you had to do was call your bank directly, or call a HUD counselor, neither of which worked most of the time for most of the people.
Had the government told everyone the truth about the program, had the regulators developed a methodology for qualifying borrowers that utilized the power of the private sector, what weâ€™ve seen transpire over the last year might have been avoided.Â But they didnâ€™tâ€¦ to tell the truth, I mean.Â And the mess thatâ€™s gone on, and continues to go on (as I wrote about again here) as a result is nothing short of breathtakingly and shockingly tragic.
To give you an idea of just how ineffective the HAMP program is to-date, almost one year after its launch, the latest Making Home Affordable Servicer Performance Report shows Wells Fargo Bank N.A. as having completed 30,014 permanent HAMP modifications, and the same report shows that Wells has 378,480 eligible borrowers who are 60 days or more delinquent through March 31, 2010.Â Do the math and rounding up, you get 8%.
I wasnâ€™t sure whether to call that good or bad until I recently saw a quote from Nancy Bush, a well-respected banking industry analyst, who made the statement that Wells Fargo has 15,000 people processing nothing but HAMP loan modifications.Â So, 15,000 people and 30,000 loan modifications?Â That would be, and correct me if Iâ€™m wrong on my numbers here, but that would be TWO EACH at the end of year one of the program.
Whatâ€™s the dealâ€¦ are we talking about doctoral dissertations or HAMP loan modifications?Â Because Iâ€™m thinking that 15,000 people should be able to get more than two done in a yearâ€™s time, unless Iâ€™m missing something here.
There is a silver lining thoughâ€¦ Wells also reports having just over 9,000 â€śpending permanent loan modifications,â€ť which I just had to mention, not only because it still makes for an irrelevant total, but because the category itself is funny.Â Pending permanent?Â As in â€śtrialâ€ť?Â Apparently not.Â LMAO! (And ask your teenager if youâ€™re unsure what that stands for, I learned it from mine.)
Bank of America has roughly 32,000 permanent modifications as of March 31, 2010, but thatâ€™s out of 1,085,894 eligible loans more than 60 days past due.Â So, thatâ€™sâ€¦ oh, hellâ€¦ letâ€™s just call it a tiny percentage and leave it at that.Â BofA does have an additional 38,000 and change in the pending permanent category, so that would make itâ€¦ I donâ€™t knowâ€¦ still, a tiny percentage of those eligible.
I could go over every servicer whose performance is shown in the latest report from Treasury, but what would be the point?Â There are no stars, only underachievers, and these numbers are coming in months after the program started to receive the intense criticism that is commonplace today, so you have to assume these numbers are after they fixed a few things.Â Hereâ€™s a link, in case youâ€™re interested in seeing an inefficient and ill-conceived government program as reported on by the Treasury Department: Click here for the latest HAMP Report.
Obamaâ€™s First Yearâ€¦
So, HAMP guidelines finally started showing up in banks last June, and even though I was still convinced that the program would not fly, the rest of the media was taking a wait and see attitude.Â It was like they wanted to believe, so they clicked their heels together and said: â€śThereâ€™s some chance of home.Â Thereâ€™s some chance of home.â€ť
Throughout the summer of 2009, I talked with more and more homeowners and law firms helping homeowners and there was simply no good news to reportâ€¦ the program was a bust for sure, even if most people didnâ€™t know it yet.Â At the same time, the â€śeveryoneâ€™s a scammerâ€ť campaign was kicking into high gear.Â It seemed as if the bankers were controlling everything, the media and our government, while servicers were tossing homeowners out of their homes like there was no HAMP at all.
The summer of 2009 was when I learned a couple of key things about the crisis by looking into the excuse-of-the-month club that banks were participating in whenever the subject of loan modifications, or the lack thereof, came up.Â (I wrote about it in my article â€śLies and Damned Lies About Getting a Loan Modificationâ€ť.)
Straight out of the gate the banks went with the â€śweâ€™re overwhelmedâ€ť defense.Â Apparently, they wanted us to believe that they were trying their absolute hardest but just couldnâ€™t handle the volume of requests.Â Bank of America, with its 40 million credit card holders who can call a toll-free number 24/7 to find out where they purchased gas last Friday or how much interest they paid in 2005, now was having a hard time answering the phone for homeowners seeking a loan modification.Â Chase simply could hire anyone, because the financial sector was, I supposed, running at full employment on whichever planet they lived on, and Wells Fargo was having the darndest time stopping their employees from losing paperwork over and over again.
I wasnâ€™t buying any of it.Â Those excuses had been moderately interesting to me the year before, when I wrote the article titled: â€śWhy Banks Are Better at Making Loans Than Modifying Them,â€ť but not now, a year later.Â If BofA wanted to answer the phone by now, it seemed obvious that theyâ€™d be doing so.
Next up was the very confusing, â€śweâ€™d-like-to-but-the-investors-wonâ€™t-let-usâ€ť argument, which generated quite a few articles and actually caused me to make an attempt at reading an actual Pooling & Serving Agreement, or PSA, which was 700+ pages long, and might have damaged my brain, leaving me with the intellectual capacity of a butternut squash.Â PSAs are the agreements that govern how the servicer is to service the mortgages that are owned by a securitization trust, which in turn has investors who hold certificates that entitle them to some percentage of the cash flows generated by those mortgages.Â Itâ€™s all part of the whole securitization scheme that Wall St. had become convinced had eliminated riskâ€¦ LMAO, again.
The argument was that somewhere in these 700+ documents, it said that the servicer wasnâ€™t allowed to modify the mortgages owned by the trust, so if the banks did so, theyâ€™d be sued by these investorsâ€¦ blah, blah, blah.
The problem with this argument was that it required reading a document that no mere mortal could possibly readâ€¦ and live to tell the tale.Â And it sounded like it could be right, or hold some degree of merit anyway.Â Luckily, before I had to read more than a couple hundred pages of one PSA, several other people, much smarter than I, were able to debunk the theory stating that was why banks werenâ€™t modifying loans.
Berkeley published a study that showed only 6% of PSAs actually prevented servicers from modifying loans, the vast majority said that servicers were responsible to maximize the profits of the investors, and placed some restrictions on the modification of mortgages, things like they had to be delinquent before you could modify them, and common sense stuff like that.
But it was attorney, Diane Thompson, testifying in Congress about the whole loan modification nightmare that really saved the day.Â She explained that servicers NEVER get fired, and that they can modify loans when it makes sense to the investor to do so, but that they donâ€™t because their interests arenâ€™t aligned with anyone elseâ€™s.Â (My article about Dianeâ€™s wonderful testimony can be found here.)
Servicers, I learned, make 25 basis points or one quarter of one percent to service a prime mortgage, 50 basis points or one half of one percent to service a sub-prime loan, but 125 basis points to service a delinquent loan, so it was in their best interests if the loan just stayed in default for a year before they foreclosed.Â Not only that, but I learned that servicers have to make the payments to the trust or investors on behalf of delinquent borrowers and the only way they get that money back from the trust, was to forecloseâ€¦ or make it a performing loan.Â Foreclosing was a guarantee of being reimbursed.Â Attempting to create a performing loan was not.
Next there was the very interesting question of whether servicers actually have incentives to foreclose, and IndyMac was the first case study.Â It came to my attention that IndyMac, which had been sold to One West Bank, had arranged with the FDIC to have something referred to as a â€śloss sharing agreementâ€ť.Â My friend, a longtime banker and fairly brilliant mathematician who was at IndyMac when the FDIC took control of the bank pointed it out to me, and I proceeded to write a couple of articles on the abomination.
The way a loss sharing agreement works is somewhat complicated, but basically it says that the FDIC will pick up 80-95% of the bankâ€™s future losses depending on some other factors related to overall losses.Â The point being that if IndyMac forecloses, which at that time they were doing with alarming frequency and consistently, the loss sharing agreement would likely make what appeared to be losses, into profits.
The whole question revolved around whether it was in the best interests of the bank to foreclose or whether it was better to modify, from a strictly financial perspective, and because of things like loss sharing agreements, and some now allowed accounting abuses courtesy of the Treasury Department et al, that was a much more difficult question to answer than one might have otherwise thought.
This past year, 2009, was also the year that FASB, the Financial Accounting Standards Board, could have hung out a sign that read â€śGone Fishing,â€ť for all the good they contributed.Â Treasury Secretary Geithner basically, in laypersons terms, allowed the banks to write in all of their deposits but not deduct any of the checks they had written.Â Foreclosed homes that went unsold for â€śan extended period,â€ť whatever that meant, were not written down until they were sold, regardless of their market value at the time, so banks had homes in Las Vegas that today were worth maybe $30,000 on their books for $250,000â€¦ Iâ€™m guessing at those numbers, but Iâ€™m also guessing that Iâ€™m not that far off.
Itâ€™s Report Card Timeâ€¦
Up until late July of 2009, I had certainly felt like the only writer who was talking about what a failure the presidentâ€™s Making Home Affordable program was, and especially HAMP.Â One prominent journalist told me that we had to wait and see before condemning the plan, and when Treasury issued the report cards in late July, which reported on servicer performance for the first time, my gloves came off, but so did the gloves of others.Â All of a sudden what I had been seeing at the street level, could be seen clearly by millions, and Treasury was admitting that the program was â€śa dudâ€ť.
The reports cards made it abundantly clear that banks simply werenâ€™t modifying loans under HAMP, in fact the numbers were so small that the whole thing just looked ridiculousâ€¦ and sad.
I remembered the presidentâ€™s words months before: â€śJust call your bank directlyâ€¦ You donâ€™t need to pay anyone to get a loan modificationâ€¦â€ťÂ Oh yeahâ€¦ right.Â You very clearly did need to hire someone to help you, unless you didnâ€™t really want your loan modified, which admittedly as home prices continued falling, fewer and fewer people did.
But the FTC, the California Attorney General, the California State Bar, and the California Department of Real Estate, along with similar governmental agencies from across the country, remained committed to telling us that everyone offering to help homeowners for a fee, obtain loan modifications was somehow scamming those homeowners by virtue of charging that fee.Â It really didnâ€™t seem to matter how much the fee was, or who was doing the charging, it was cut and dryâ€¦ charge a fee to help a homeowner get their loan modified and you were going to be branded a scammerâ€¦ case closed.
What I didnâ€™t understand was why, even after the report cards came out, no one stopped to question the whole â€śeveryoneâ€™s a scammerâ€ť diatribe.Â I mean, now we could all see that it was the banks that were failing to follow the rules of HAMP, it was the banks that were refusing to modify loans even when it was clearly in their best interests to do so.Â I would have thought that such news about bank behavior would have vindicated at least some in the legal profession, as inâ€¦ maybe it wasnâ€™t you who was failing to obtain a loan modification on behalf of your client, maybe it was the bank who was at fault here.Â But alasâ€¦ no.
In the fall of 2009, I attended the California State Barâ€™s Annual Conference, which was held in San Diego.Â I went as a guest of Julie Greenfield who was chairing a committee on loan modification compliance, and I attended the symposium on loan modifications.Â There was a panel of 4-5 so called â€śexperts,â€ť including Julie, but with the exception of Julie, no one had the foggiest idea what they were talking about.
The panel members tried to explain what had caused the economic meltdown, and didnâ€™t even get close to being right, they stumbled around trying to explain credit default swaps and collateralized debt obligations (CDOs) and it was painful.Â I interrupted the speakers 3-4 times.Â I didnâ€™t want to, but I can only take so much.Â For a while, I wished for a fork on the table where I was sitting I could stab it into my thigh in order to distract me from the pain.Â Finally, I gave up and put my headphones in, and thanked God for the iPhone.
That meeting, which was part of the California State Barâ€™s annual meeting, was embarrassing for the Bar, and for lawyers everywhere.Â Had that been a medical convention sponsored by the AMA, the doctors in the audience would have returned home to start killing their patients as a result of what they had learned.
So, more than a year into the foreclosure crisis, and I had learned almost nothing about why things were going the way they were.Â If it wasnâ€™t the investors saying no, and it wasnâ€™t the banks not being able to handle itâ€¦ the incentives angle was interesting, but didnâ€™t explain all 104 servicersâ€¦ so what was it?Â Why werenâ€™t the banks modifying mortgages in any acceptable number?Â Did they simply want the loans off of their books and onto the books at Fannie or Freddie?Â Did they simply not care?
I continued my reading and found several academic studies that started to fill in some of the blanks.Â My article on â€śHow the Banks View Loan Modifications,â€ť certainly got quite a few people understanding things that much better, but when the numbers of modifications just stayed essentially flat month after month, and the lies being published by banks and even the government just kept comingâ€¦ I knew there was more to it, and I had to find out what that more was.
Greed?Â Sure, but not consistently across the board.Â Incompetence?Â Sure, but also not so consistently across the board.Â Corruption?Â Okay, but really?Â Conspiracies arenâ€™t generally possible, especially with so many people looking at the situationâ€¦ someone would have come forward and spilled the beans.
My article titled: â€śMy Swanâ€™s Song: Diane Thompson Testifiesâ€¦â€ť was a turning point of sorts.Â Diane is an attorney who helps people negotiate with their banks for things like loan modifications, and sheâ€™s works for a nonprofit legal aid type place, so sheâ€™s considered eminently credible.Â Whatever you think, sheâ€™s wicked smart in my opinion, so when her testimony included many of the things that I had been saying in my articles for the past year, I decided that there was no questionâ€¦ I was right, and the world would simply have to catch up at some point.
It was at about this time that I got a call from a senior executive at a software company that had created the platform that would be used by banks and servicers to determine whether a borrower was eligible for the HAMP loan modification program.Â He was frustrated that servicers hadnâ€™t readily embraced his companyâ€™s platform, which would make handling loan modifications dramatically different as compared with the experience to-date.Â He had read my articles on servicers being unwilling, unable, or just plain uncooperative when it came to loan modifications, and he was calling to tell me I was right.
I learned about how HAMP and the infamous NPV analytic had come to be, the product of numerous federal agencies each weighing in as to what should go into the qualifying criteria for what would become HAMP.Â And he was able to tell me about how the NPV worked and what it was trying to calculate beyond its published â€śwaterfallâ€ť analysis that was used to qualify the borrower based on simple calculations related to gross income and mortgage payment, certainly not a net present value calculation by any means.
A net present value calculation, in case you werenâ€™t a finance geek in school, is simply a way of comparing the value of money today with the value of that money at some point in the future.
Money today is worth more than money in the future, right?Â Because money today can be invested to grow into larger amounts in the future, while the money in the future wonâ€™t buy as much because inflation will have decreased its buying power.Â But the problem with calculating the NPV is that you donâ€™t know what â€śdiscount rateâ€ť to use in the calculation.
Hereâ€™s a simple example: The NPV of $2,000 ten years from today is $1227.83, if we assume a discount rate of 5%.Â So, if someone said theyâ€™d give you $1,000 today or $2,000 in ten years, you should take the two grand because itâ€™s worth more than the NPV of $1,000 today.Â The problem is, how do you know that 5% is the appropriate discount rate for the calculation.Â When I was in business school, they taught us to use the rate being paid on the 30-year Treasury bond, but who the heck knows what Treasury or the banks are doing these days.
HAMPâ€™s NPV formula, however, involves a lot more than what they teach in business school because, for one thing, the Treasury refused to release it, and thereâ€™s nothing secret about what I just explained above.Â I learned that the HAMP NPV, among other things, was attempting to ascertain the re-default risk of the borrower, and to do so it was using factors such as property address, credit score, and numerous others that were not being made available to the public.Â Now, thatâ€™s transparency for you, was all I could say.
Understanding the complex nature of the NPV, and the process that lenders and servicers were using to ascertain whether a given borrower was or was not qualified under HAMP, was all I needed to come to grips with the whole trial modification mess.Â As of the end of 20009, we had some incredibly large number of trial modifications and some incredibly small number of permanent modifications.Â And although everyone wanted to know why, I knew why.Â Not to the penny, perhaps, but I knew why.
Unless a borrowerâ€™s information is entered into the complex rules engine in the platform developed by my fans at the software company, no one could know who is and isnâ€™t qualified for HAMPâ€™s loan modifications, not even the lenders or servicers, until the Treasury Department tells them.Â And because Treasury only says â€śyesâ€ť or â€śno,â€ť no one
In other words, with only a handful of servicers running the software in question, and the balance all using the spreadsheet method through which the lender or servicer only receives a yes or no answer in response to submitting a borrowerâ€™s application to HAMP, not only did no one know who qualified and who didnâ€™t, but the servicers werenâ€™t even getting better at it.
Was HAMP designed for the homeowner or the banks?
As 2009 was coming to a close, whatever positive spin HAMP had been enjoying throughout the year had come to an abrupt end, and the program was fast becoming a flop in the eyes of, wellâ€¦ everyone.Â The Obama Administration would undoubtedly continue to make attempts at making the program better, but for the moment, it wasnâ€™t accomplishing much of anything as far as stemming the tide of foreclosuresâ€¦ they were at an all time high as of the first quarter of 2010.
The position of the banking lobby remained unchanged: Lenders and servicers have the right to foreclose whenever and for whatever reason they chose if youâ€™re not make your payments and they would support nothing that would impinge upon that right in any way.Â It was a slippery slope, as far as the bankers were concerned.
I spoke with dozens of attorneys from across the country that had been involved in loan modifications and they were united in the view that obtaining loan modifications before HAMP was much easier than after the governmentâ€™s new program was made available.Â HAMP actually started to appear as if it was better for the bank than the borrower.
HAMP requires the borrower to enter into a â€śtrial modificationâ€ť phase prior to a permanent modification being granted, and this allowed the banks to receive monthly payments while the modification was in process, but because those trial payments were always a lesser amount than the borrowerâ€™s normal payment, the bank could allow the foreclosure timeline to continue as if no payment was being made at all.Â If the borrower was ultimately approved for the permanent loan modification under HAMP, fine.Â If declined for the modification, the bank was free to move to trustee sale within a matter of days.
Qualifying for HAMP was supposed to be based on criteria described in the programâ€™s guidelines as â€śtransparent and disclosedâ€ť.Â The reality of the program turned out to be anything but.Â I learned fairly quickly that no one was able to tell you with any certainty whether you qualified for a HAMP loan modification or not, and the only way you would find out was to apply, make months worth of trial payments, and then hope like crazy that you received a final approval.Â If not, you could likely find yourself with 30 days to move.
The reality of HAMP has been that it has helped the banks more than borrowers.Â While it was supposed to provide borrowers with a set of objective standards by which they could qualify, it has only released a partial listing of those requirements, which although not the same as releasing none, has certainly proven to be woefully inadequate.
The fact is, not a single homeowner that applies for a HAMP modification today has any idea whether he or she will or wonâ€™t qualify for the program.Â Assuming the homeownerâ€™s income meets the published guidelines, the amount of the mortgage fits within the maximum, and they have not be granted a modification under HAMP within the allowable timeframe, they will be placed into a â€śtrial modification,â€ť but as hundreds of thousands of learned, that plus something like $3.75 will buy you a tall-decaf-skinny-mocha latte at Starbucks.
These unfortunate souls, many of whom believe that they are on their way to a loan modification that will allow them to avoid foreclosure and remain in their homes, soon find out that the only difference between them and someone whoâ€™s renting, is that renters have more rights and are given more time to move.
I would soon find an answer for homeowners that would allow them to know with certainty whether they qualified for HAMP before they even applied to the program, and that would become my mission for 2010â€¦ to seek out ways to let borrowers know that such a solution really does exist, even though it exists in an ocean of fakers and scams.
2010â€¦ I Learn Enough to Put the Pieces Togetherâ€¦
When I first started my journey into the housing crisis and loan modifications Iâ€™d learn something more than every day and some days it definitely felt like it was an overwhelming amount to know.Â But, as 2010 arrived, things really started to change for my learning abilities.Â Each new piece of information was now adding to the substantial amount that was already there, as a result off the last two years of investigation, and as a result, I finally felt like I was gaining on it.
It was sort of like when youâ€™re doing a jigsaw puzzle that didnâ€™t come with the box lid. and in the beginning youâ€™re just turning over pieces and looking to separate corners from edges.Â But once you have the border in place, and have started to complete the picture, you reach a point where you know instantly where almost every new piece you examine fits.Â Youâ€™re in the homestretch, at that point, and itâ€™s exciting again.
So, thatâ€™s how I felt as of December 2009 when the country learned that we had 650,000 plus trial modifications and something like 1,711 permanent ones.Â Abysmal performance by any standard, but to me it was more than that.
While I agreed that the banks were being difficult and in fact didnâ€™t want to modify many of the loans they perhaps could, it when I read the numbers for the program in late November, it occurred to me that whether you as a bank wanted to modify loans in general or notâ€¦ NO ONE wanted to look this bad.Â I mean, 1,711 out of more than 650,000?Â That gave underachiever an entirely new meaning.
Then, around the first week of December, Treasury Geithner, or perhaps it was Assistant Treasury Secretary Michael Barrâ€¦ or maybe it was just the Treasury Departmentâ€™s spokes-spinnerâ€¦ made the statement that the HAMP program would have 350,000 permanent modifications completed by the end of 2009, which at that moment was less than a month away.
When the end of December came along, however, the Treasury Department could only announce 30,000 permanent loan modifications, a far cry from the 350,000 promised as the month began.
So, even when the heat was on, and the programâ€™s poor performance was plaguing the Obama Administrationâ€™s popularity and credibility, and even after Treasury was shooting its mouth off about how many permanent HAMP modifications would be in the can by monthâ€™s endâ€¦ they STILL COULDNâ€™T get it done, so something wasnâ€™t right at all.Â I sensed a government inspired SNAFU was in the mix somewhere.
In January of 2010, I was invited to come speak at the American Bar Associationâ€™s Annual Conference on Consumer Financial Services, which this year was being held to discuss topics related to the economic meltdown, the resulting foreclosure crisis, and specifically loan modifications.Â I was asked to speak from the homeowner perspective as part of a panel on foreclosures and loan modifications.Â (I wrote about my thoughts of the time here.)
The conference was to be in Park City, Utah, at the world famous ski resort, The Canyons, and I was looking forward to getting away for a couple of days in addition to speaking to the conference attendees about what had become my favorite subject.Â But, since those attendees were several hundred lawyers that worked for the banks and servicers, I was also worried that, having written at least dozens of articles severely criticizing the banks, those in attendance would be thinking about burying my body in the snow so I wouldnâ€™t be found until the spring thaw.Â (I wrote about the conference here.)
Also on my panel would be Tom Pahl, of the Federal Trade Commission or FTC.Â Tom was an experienced FTC attorney who was involved in the regulatory agencyâ€™s attack on loan modification scams.Â I listened to his talk, as I loaded by metaphorical shotgun for bear, and when it was my turn, I blasted holes in much of what he had just finished saying.
Noâ€¦ everyone who wanted to help homeowners obtain a loan modification wasnâ€™t a â€śscammer,â€ť as they were so fond of saying.Â Noâ€¦ the banks werenâ€™t overwhelmed, having trouble hiring people, or unable to stop losing paperwork over and over again.Â It wasnâ€™t the investors that were preventing modifications in the overwhelming majority of instances, and donâ€™t get me started on HAMP qualifying criteria or the lack thereof.
At one point the banking PR machine actually made the statement that the problem with HAMP modifications was that 99% of borrowers had completed the firms inadequately or incorrectly, and I remember thinkingâ€¦ Wowâ€¦ if 99% of homeowners applying for a loan modification under HAMP really did fill out the paperwork that way, then it sounded to me like filling it out properly was simply impossible.
When I finished speaking, Tom came back to the podiumâ€™s microphone and said he wanted a rebuttal.Â I rose to say something television-lawyer-like, such as, â€śI object!â€ť or â€śThat lacks foundation.â€ťÂ The next words out of Tomâ€™s mouth shocked me, he said: â€śBasically, I agree with everything Martin just said.â€ťÂ Had I been sipping my coffee at that moment I would have spit it across the room.
He went on to say that while he agreed that not everyone was a scammer, it was difficult for the FTC to tell the difference between the good guys and the bad one, and I had to concur that it wasnâ€™t easy.Â The firms helping people with loan modifications were almost always to scared to poke their heads above ground, for fear that the FTC, the State Bar, the Attorney General or the Department of Real Estate would shoot it off, and as a result there was no easy way of finding the legitimate firms.
But my point had been made and supported by the FTC: Not every law firm was scamming homeowners just by virtue of charging a fee in advance of services, but the FTC needed to know how to figure out who was who, fair enough.
I had in fact tried throughout the year to get the legitimate firms to come together as part of what I called â€śThe Commission on Homeowner Representation,â€ť but frankly I had only moderate success at best.Â Although there were a few dozen firms that understood the importance of the new field coming together to represent itself to the nation and differentiate itself from the scammer hype, too many of the firms involved were either too myopic, too skeptical, too hard to find and reach, or too cheap to support such an endeavor.Â The Commission continues to limp along today, but limping isnâ€™t like to win many races.
The FTC Sets Out to Make a Ruleâ€¦
One of the things I learned at the Park City conference was that the FTC would be making a rule that was to govern how firms that offered to help homeowners obtain loan modifications would operate.Â The FTCâ€™s position seemed reasonable to me, and they would be asking for commentary before the final rule would be announced in early June.
When I returned home from Park City, however, an FTC press release said that the proposed rule would preclude anyone, including a law firm, from receiving any fee or compensation until a loan modification had been obtained on behalf of the homeowner.Â So much for reasonable, was my first thought.Â This proposed rule could not be allowed to be codified, because if it did become the law of the land, no attorneys would offer to represent homeowner seeking loan modifications and the result would be nothing short of disastrous.
The same type of thinking had influenced the California legislature in 2009, and since I had been instrumental in helping California lawyers who helped homeowners obtain loan modifications find a workable compromise so that could continue their operations under the new bill known as SB 94, I set out to try and influence the FTC and others, so the new rule would be one that made sense.Â We will have to see how that plays out in the months ahead.
Here Comes the Judgesâ€¦
In April of 2010, I was again asked to speak on the topic of the foreclosure crisis and loan modifications, only this time, instead of lawyers in the audience there would be judges from the 9th Circuit.Â In audience there would be judges from the bankruptcy, district and appellate courts, and as a bonus it was held in Santa Barbara at the beautiful Four Seasons Resort, which is right on the beach.
I decided that I would give the judges a crash course on the causes of the economic meltdown that led to the foreclosure crisis in an attempt to provide the judges with context and perspective that I hoped would be helpful in their courtrooms.
I was also part of a panel that included my close friend, Julie Greenfield, who has been a mortgage banking attorney for many years, but now helps homeowners save their homes, and a lecturer from Stanford University, who was simply wicked smart and covered securitization and how it changed the banking system.
The whole event was truly fabulous.Â The judges reacted very favorably to our panelâ€™s presentation, and many came to the stage when we finished our 90-minute presentation to ask questions.Â I learned that judges are smart people, and I like smart people.Â I also learned that they donâ€™t know everything, and they do need to and appreciate hearing from perspectives outside their own.Â At the end of the day, I felt sure that most of the judges got something of value from what I talked about, and I am hopeful that it will make even the smallest of differences for homeowners.
HAMP Todayâ€¦ and Tomorrowâ€¦
So, as I write thisâ€¦ this admittedly incredibly long treatiseâ€¦ HAMP is still the problem itâ€™s been since the New Year began.Â There are hundreds of thousands of trial modifications and far too few permanent modifications.Â And far too many homeowners are still reporting that they find out that they donâ€™t pass the undisclosed NPV testâ€¦ and then days later they find out that theyâ€™ve lost their home to a trustee sale when they find the investors that purchased their home standing on their front porch looking in their homeâ€™s windows to see what theyâ€™ve already bought.Â And that simply cannot be considered even remotely acceptable to me or anyone else, for that matter.
Part of the problem, truth be told, lies with Congressâ€¦ and part of that problem lies with homeowners, although I donâ€™t want the reader to take that statement the wrong way.
The fact is that modifying a mortgage is a voluntary proposition as far as lenders and servicers are concerned.Â And thatâ€™s a matter of the law, or rather the lack of a law, in this country.Â There simply isnâ€™t a statute that allows the government to make the modification of a legally binding mortgage contract mandatory.Â The government can say they want it modified, and they can provide incentives to encourage lenders to modify, but thatâ€™s about the long and short of it.Â Thatâ€™s why HAMP has â€śguidelinesâ€ťâ€¦ not rulesâ€¦ â€śguidelinesâ€ťâ€¦ not lawsâ€¦ â€śguidelinesâ€ť.
The reason I say that it falls to homeowners is that Congress is responsive to large and powerful special interest groups, and itâ€™s hard to imagine a larger and more powerful special interest group than that of the 20 million or so homeowners who have either already lost homes to foreclosure, or will lose a home to foreclosure in the next couple of years.Â You heard me rightâ€¦ 20 million American homeownersâ€¦ certainly one of the largest special interest groups to ever wield influence in our democracy.
Do the mathâ€¦ weâ€™ve already lost seven million homes to foreclosure, and this yearâ€™s estimates show another four or five million all but certain to be renters by yearâ€™s end. In fact, Goldman Sachs, who I canâ€™t stand for many reasons, but has proven to be nothing if not prescient in these matters, forecasts 14 million homes lost to foreclosure in the next three years.Â And 14 plus 7â€¦ yep, thatâ€™s 20+ million sure as shootinâ€™.
Twenty million homeowners all focused at the House of Representatives is the sort of thing that gives our elected representatives nightmares that lead to panic attacks.Â Can you imagine the power of thatâ€¦ or of half that numberâ€¦ or of half that number againâ€¦ or even half againâ€¦ why, we could write our own ticket in the groundbreaking legislation department.Â Those Honorables in Washington would be scrambling to pass laws that would curry to our fancy faster than you could say â€śSynthetic CDO,â€ť and a damn sight faster at that.
Why the banking lobby starts to look downright puny next to millions of American homeowners all shouting at the same timeâ€¦ â€śCongress better take note!Â We intend to use our VOTE!â€ťÂ Yep, after that the foreclosure crisis would be going on maybe as long as another twenty or thirty minutes.Â Zip-bangâ€¦ by gollyâ€¦ problem solved.
You see, the Founding Fathers set up the House of Representatives to be elected every two years so theyâ€™d always be responsive to the electorate.Â The House has the power to override a Presidential Veto, while the Senate gets to approve the Presidentâ€™s cabinet appointeesâ€¦ big deal.Â And thereâ€™s only one thing more important than money to our elected representativesâ€¦ and thatâ€™s getting reelected.Â Money may be important to those in the House, but compared to getting reelected, wellâ€¦ fuggataboutit.
And thatâ€™s all the financial lobbyists can offer our Honorable Members of the House of Representativesâ€¦ moneyâ€¦ campaign cashâ€¦ nothing more.Â But millions of homeowners across this country that are united by purpose can not only throw together a few million drachma just by checking under the cushions of their couches at home, but they can threaten to throw every single incumbent out of politics for goodâ€¦ and how do you think those in congress think about those apples?
So, although Iâ€™m pro-homeowner every single step of the wayâ€¦ and youâ€™ll never hear me utter a disparaging word about someone who is at risk of losing his or her home, I have seen the enemy and it is us, the American homeownerâ€¦ well, less me than you, truth be told.Â Yeah, I said itâ€¦ so what are you going to do about it?
Of all of the many things Iâ€™ve learned during my year plus inundated by the foreclosure crisis, the one thing I know more assuredly is that this crisis has been allowed to go on as long as it has because too many American homeowners either feel too helpless to even attempt to affect change, or theyâ€™re too damn lazy to try.Â I donâ€™t know which is the more accurate statement, but I do know this:
Too many American homeowners are living bound by the shame of losing a home or being at risk of losing a homeâ€¦ and itâ€™s wrongâ€¦ damn wrongâ€¦ they should not feel as they so obviously do, because where they find themselves today is not their fault.
Itâ€™s our financial institutions that have caused our nationâ€™s and in fact the worldâ€™s economic downfall.Â You didnâ€™t do it because you decided to refinance your homeâ€¦ I donâ€™t care if you took the money to pay for a college education, a new car, or a trip to Hawaii and a new roof.Â Youâ€™re just not important enough to have caused the end of American prosperity as weâ€™ve known it for some 70 yearsâ€¦ only the bankers of Wall Street have that kind of economic clout.
Theyâ€™ve done awfully well as weâ€™ve watched trillions in consumer wealth go up in smoke, have you noticed that?Â The banks had their best year ever last year, in terms of bonuses.Â The top six banks set aside $120 billion for 2009â€™s year-end bonuses, and frankly that should make you angrier than a wet hornet.Â A year ago we were told that we had to bail the banks out with untold trillionsâ€¦ thatâ€™s right, TARP isnâ€™t all there was to itâ€¦ and a year later theyâ€™re rolling in dough?
We know theyâ€™re not lending.Â What are they doing to make all this money if theyâ€™re not lending?Â Renting out their conference rooms for AA meetings in the evenings?Â Charging those recovering drunks for coffee, cause that might actually make them a few billion in cold hard cache.Â (Itâ€™s a joke peopleâ€¦ have you ever been to an AA meeting?)
I donâ€™t care what theyâ€™ve been doing.Â Thatâ€™s right, Iâ€™m not even going to go look it up.Â Doesnâ€™t matter a bit, itâ€™s still wrong, wrong, and then some, wrong.Â You donâ€™t break the financial market to such a degree that you bring the entire world to the brink of total disaster, get bailed out by the tax payers, and then start throwing around billions in bonuses the following year, as you offer to pee in the hair of a few million homeowners who you claim had no business buying their home in the first place.
Boy, this is one of those areas where every time I think about it, I miss the unabashed violence of High School.Â You pull this kind of crap where I went to High School, and you get your Aunt Fannie kicked from here to next St. Patrickâ€™s Day, simple as that.Â Open and shutâ€¦ thatâ€™s ball fourâ€¦ take a hikeâ€¦ you are all done here, young manâ€¦ the showers are on.
This is the year of our Lord, two thousand and ten, an election year, and in case youâ€™re not entirely sure why thatâ€™s significant, it means that even the slightest rift in our electoral fault line can leave our elected representatives feeling like Christian Scientists with appendicitis.Â In other words, this is it peopleâ€¦ itâ€™s our time.Â Weâ€™re the body politic, and we will be heard.Â This is the year to shake, rattle and roll our congressional representatives.Â Homeowners are in the House.Â Sing it with meâ€¦ Heyâ€¦ Hoâ€¦ Heyâ€¦ Ho.
Itâ€™s time to wake up people.Â Itâ€™s time to speak up.Â Could I make it any clearer?
A Hundred Thousand Homeowners â€“ Voices of Hope and Change is my attempt to bring together a movement of homeowners in this election year, in order to have a voice thatâ€™s heard in the halls of Congress.Â Hereâ€™s my thinking on this:
A. Homeowners arenâ€™t more vocal because they are ashamed, they feel powerless, and to some degree they are just plain tired, but mostly they are ashamed.Â They donâ€™t want anyone to know that theyâ€™ve lost their home to foreclosure, or that they are at risk of losing their home to foreclosure.Â As a result, there is no voice in Washington D.C. representing homeowners and demanding that our elected officials do more to help those that are being tormented by the economic catastrophe that was caused by the lack of regulation over the practices of Wall Streetâ€™s bankers.
B. Seven million people have lost homes to foreclosure.Â Another 14 million are at risk of losing a home to foreclosure in the next three years, according to Goldman Sachs.Â If I could recruit just 100,000 homeowners to each contribute one dollar and sign on to the project, I would use that money to produce a â€śVideo Documentary Messageâ€ť that would be deliveredâ€¦ on DVD in high-impact, oversized, brightly colored packagingâ€¦ ALL ON A SINGLE DAY, to:
- Every member of the House of Representatives
- Every member of the United States Senate
- The White House
- 4,000 Major Media Outlets, including television, radio, and print
- The CEOâ€™s Office of the roughly 8,000 Banks in this country
- Every major non-profit housing agencyâ€™s Director or Executive in Charge
- Others To Be Determined
Each packaged DVD would be addressed as follows:
â€śA Video Documentary Message for: The Honorable John Q. Senator
From:Â A Hundred Thousand Homeowners â€“ Voices of Hope & Changeâ€ť
C. The video documentary message would showcase the real life of whatâ€™s happening to homeowners in this country every single day.Â How they are being treated by the bankers who have promised to participate in the Presidentâ€™s Home Affordable Modification Program.Â Why they are where they are, and that they are not there as a result of being irresponsible.Â What American homeowners want from their government, and why it is that what we want, is whatâ€™s best for America.
The message would ask for the following:
A. We want Congress to act to strengthen the HAMP program by adding hard and fast rules under which banks MUST write down a mortgage. Â The program is funded by tax dollars and is NOT WORKING on a voluntary basis. Hereâ€™s how banks view loan modifications.
B. We want the Treasury Department or Congress to impose penalties on lenders and servicers who break the rules under HAMP. Â Hereâ€™s what a judge said about HAMP rules.
C. We want Congress to allow judges to modify mortgages in bankruptcy court, just like what President Obama spoke of in his speech introducing the program that would allow for judicial loan modifications. Â The threat alone wold motivate banks to do it themselves. My article on the subject: WE NEED JUDGES TO MODIFY THE WAY BANKS BEHAVE.
D. We want HAMP to require principal reductions under appropriate circumstances. Â Itâ€™s not fair for banks to be able to foreclose on a home and then sell it to a new buyer for half the balance on the mortgage just to get it off of their books. Â FDICâ€™s SHEILA BAIR Â AGREES: Read About What She Says Here.
E. Congress must remove incentives that banks have to foreclose. Read Diane Thompsonâ€™s testimony in front of the senate.
D. Because the Video Documentary message will be delivered on the same day, itâ€™ll make news.Â And when it makes news, other homeowners will see what weâ€™ve done, and when they do, I believe the 100,000 will become 300,000â€¦ maybe even 500,000.Â And then I can send an email to everyone involved that asks each homeowner to send a letter and a big bag of sunflower seeds to one Senatorâ€™s office for one specific purpose.Â And when that Senator comes into work the next morning and finds a few hundred thousand bags of sunflowers seeds with letters attached, heâ€™s going to be paying attention to what that letter says.
And at the end of the day, homeowners will have a voice and that voice will be heard.Â Itâ€™s only one dollar, but thatâ€™s not the problemâ€¦ the problem is shame.Â I donâ€™t just need your dollar, I need you to recruit as many other homeowners as you canâ€¦ and ask them to recruit others as well.Â I know the desire is there, the need is thereâ€¦ the passion is thereâ€¦ but it wonâ€™t happen by snapping fingers, or clicking buttons.Â If youâ€™re willing to believe, we need you and we need you now.Â Hereâ€™s a link to more details about the A Hundred Thousand Homeowners initiative.
The REST Report is in my opinion, the best thing to happen to loan modifications sinceâ€¦ well, since forever.Â Itâ€™s the only way a homeowner can know with certainty whether or not he or she qualifies for a HAMP loan modification.Â Period.Â And itâ€™s the latest thing Iâ€™ve learned about, since beginning my journey into the land of foreclosures and loan modifications almost two years ago.
Itâ€™s easy to sit back and criticize HAMP loan modifications, Iâ€™ve certainly offered more than my share of such criticism.Â But so what?Â HAMP is here, and HAMP isnâ€™t going anywhere.Â I wanted to offer something that would make a positive differenceâ€¦ something that would help homeowners to make the best of a situation thatâ€™s certainly less than ideal.Â So, after ten months of hard work and investigation, Iâ€™m proud to be able to offer the REST Report to homeowners.
The REST Report is an 11-page report that will tell you with certainty whether you will pass the NPV test and qualify for a HAMP loan modification.Â Itâ€™s a version of the same software used by banks and servicers to determine HAMP eligibility, and itâ€™s the only platform that can tell you whether you pass the NPV test, as required by the US Treasury.Â Thereâ€™s no way I would even consider going through the loan modification process without having run my own REST Report and thatâ€™s the plain truth.
Hereâ€™s a link to my article on the REST Report, and I urge you in the strongest possible terms to read it if you are currently in the process of obtaining a loan modification, or if you are thinking of applying for a loan modification: The Best Thing to Happen to Loan Modifications Sinceâ€¦ Well, Since Forever.
Mandelman Over and Outâ€¦
Over the last year and some odd months, Iâ€™ve written close to 300 articles on the economic, political and social costs of the foreclosure crisis, so even though Iâ€™ve suffered physically and fiscally from the effort, I do most definitely feel as if Iâ€™ve accomplished something significant.Â Thousands of homeowners and others in the real estate and mortgage industries across the country have certainly made me feel as if Iâ€™ve done something important.Â Lord knows Iâ€™ve learned an awful lot, and thatâ€™s never a bad thing.
So, yesâ€¦ it was long.Â And yesâ€¦ Iâ€™m sure Iâ€™ve left out more than one or two things, for which Iâ€™ll kick myself later, but Iâ€™ve written it for those who found value in it.Â I chose to write it, because I felt that others might benefit from the perspective Iâ€™ve gained from the path I took.Â Itâ€™s history now, whatâ€™s happened over the last year and a half, but itâ€™s important history because itâ€™s been a time of great and lasting pain for so many that are so much like meâ€¦ the parents, the homeowners, the business owners, the Americansâ€¦ I wish it could have been different and I wish more than anything that it was over.
And it can be over soon, but not by wishing that it be so.Â It will only end because of people that decide that they will never give up on the power of the people in this grand experiment that has created the greatest nation the world has ever known.
As Sir Winston Churchill said in what was undoubtedly the shortest speech he ever delivered, and yes, I know I could take a lesson from his apparent brevity…
â€śNever give up.Â Never give up. Never. Never. Never.â€ť