What We All Should Have Learned by Now About Loan Modifications

Originally posted in April 2010.

I’m starting to feel Dizzy.

1. HAMP, after its first year, is officially a BUST – Yes, its true.

The President’s Home Affordable Modification Program is not working worth a damn.  According to the most recent report from Neil Barofsky, the TARP Inspector General, the program suffers from a “fire, ready, aim” approach taken by the Treasury Department in its development and launch, and may have actually harmed the very people it set out to help.  As a result, getting a permanent loan modification is next to impossible, it seems that no one knows how to do it.  Of the 594,000 loan modifications that started the application process between September and December of 2009, only 21,000 have received a permanent modification, and according to the Treasury Department’s own reports, HAMP has only permanently modified 168,708 mortgages since it was introduced last year.

According to a recent story in the New York Times:

“AFTER months of playing pretend, the Treasury Department conceded last week that the Home Affordable Modification Program, its plan to aid troubled homeowners by changing the terms of their mortgages, was a dud. The 10-month-old program is going nowhere, the Treasury said, because big institutions charged with implementing it are dragging their feet.”

2. Banks are, at least, not cooperating consistently or at all with the HAMP rules – Yes, it’s true.

The banks are either refusing to follow the rules set forth in the HAMP Guidelines, or they are unable to consistently do so.  They routinely foreclose when people are under consideration for a loan modification; an action supposedly not allowed under HAMP.  They often refuse to modify even when it appears to be in their best financial interest to do so, and even though HAMP requires homeowners to make only three “trial payments,” homeowners report having to make many more than three.

3. Homeowners Can’t Fill Out Paperwork Correctly – Yes, it’s true.

According to the Mortgage Banking Association, 99% of homeowners fail to complete or submit the proper paperwork needed to obtain a loan modification, which is why according to that association we have 1.3 million trial modifications and only 170,000 permanent ones, assuming by “permanent” you mean adjusted somewhat lower for five years.  Stupid, stupid homeowners.  First they all go out and buy homes they can’t afford, then it’s jet skis and flat screens, and next thing you know they can’t fill out paperwork right.  Damn them.  They’re what’s wrong with this country.

4. Loan modifications don’t work and aren’t helping – Yes, it’s true.

Loan modifications re-default in large number anyway, so in terms of solving the problem, we’re really just “kicking the can down the road”.  According to the latest federal report, loan modifications granted between January and April of 2009 are re-defaulting at the alarming rate of 51.5%, meaning that the modified mortgages are reporting 30 days or more late.  Re-default rates for modified loans in the last 12 months came in at 57.9%.

The same report, however, also showed that when homeowners’ mortgage payments are reduced by over 20%, the re-default rates dropped significantly.

(Morons… we’ve obviously got morons on our team.)

5. Offering to help homeowners obtain loan modifications for a fee makes you a scam – Yes, it’s true.

Even though, according to the government’s own reports, it’s at least extremely difficult to obtain a loan modification, and even harder to get one that reduces your payments by 20% or more, the fact remains that getting caught trying to help a homeowner obtain a loan modification for a fee, is akin to being busted selling crack on an elementary school playground.

6. Banks are wrongfully foreclosing on homeowners – Yes, it’s true.

In fact, Bank of America foreclosed on at least one home in Florida this past year that they didn’t even hold a mortgage on… that’s right the homeowner tried to tell them that they owned their home free and clear… before the bank locked it up and put the owner’s belongings in storage.  IndyMac got chewed out by a New York judge so fiercely for mistreating a homeowner that it was down right fun to watch.  The judge wiped out the homeowner’s indebtedness completely in an effort to punish IndyMac for being, well… IndyMac.

And JPMorgan/Chase was sanctioned for “documents that appear to be either patently false or misleading in connection with the Motion For Stay Relief,” according to Diana G. Adams, the United States Trustee for the Southern District of New York.


Chase has filed documents that appear to be either patently false or misleading in connection with the Motion For Stay Relief. In the Motion For Stay Relief, Chase took the position that it was acting only as the

servicer of the Mortgage. Chase at the same time attached documents that supported a different position. Specifically, an assignment showed that Chase held the Mortgage and was assigning that Mortgage to Deutsche. Not only was the assignment dated post-petition, but it was signed only a few days before Chase filed the Motion For Stay Relief. The assignment was also prepared several years after the last actual assignment of the Mortgage. When afforded opportunities to correct this matter, Chase, through supplemental filings, continued to produce documents that were confusing and contradictory, and presented an affirmation submitted by a witness who apparently had no direct or personal knowledge of the facts or the chain of ownership of the Mortgage.


However, what is clear is that, whether created through inadvertence or a deliberate act, the assignments created by Chase in connection with the Motion For Stay Relief appear to be false or misleading. This is not the first time that Chase’s conduct with regard to motions for relief from the stay has been questioned in a bankruptcy case.  Based on Chase’s past and current conduct, the United States Trustee supports the Debtor’s request for sanctions in order to deter further conduct such as that seen in this case.

7. Getting a loan modification is free.  All you have to do is call your bank directly.  Yes, it’s true.

According to federal agencies including the FTC, the Attorney General, the Treasury Department and HUD… and according to every single state agency imaginable,  including the State Bar Associations, the state AGs, and more… homeowners don’t need to hire anyone to help them get a loan modification.  Homeowners are advised to simply call their lender or mortgage servicer directly, or contact a HUD approved non-profit housing counselor and everything will go swimmingly from there.

8. Government programs have failed to stop foreclosures and declining real estate prices, both residential and commercial, continues to drag the economy towards a deeper recession.  Yes it’s true.

The number of homes facing a foreclosure today is enormous. In the last quarter of ’09, there were just shy of 2.4 million homeowners 60 days or more late on their mortgage payments, nearly a 50% rise from ’08.  The pressure is on the Obama administration to do something right in this regard.  Forecasts show 4.5 million foreclosure filings in 2010.  And new home sales have fallen precipitously over the last four months to their lowest level in 50 years.

According to Mark Zandi, Chief Economist at Moody’s:

“It’s a very serious threat to the housing market, and still one of the most significant risks to the broader recovery.”

9.  Banks are being investigated by government agencies to see why they are failing to modify loans.  Yes, it’s true.

In January of this year, the Treasury Department and Federal Reserve each sent field investigators into the major lenders and mortgage servicers to determine why the financial institutions were failing to modify mortgages as required by the HAMP guidelines.

One of the outcomes of the “SWAT TEAMS,” as they were called in the press, investigating was that the Fed issued a clarification related to the Equal Credit Opportunity Act stating that lenders and servicers did in fact have to comply with the regulation that requires lenders to send out a letter stating why a borrower was denied for a loan modification just as is the case when applying for credit.  It was later uncovered that this only applied to homeowners who weren’t delinquent on their mortgage payments, bringing the total number of homeowners affected by this important clarification to zero.

10. Lawyers should not be allowed to be paid by homeowners for attempting to obtain a loan modification on their behalf.  Yes, it’s true.

According to a rule proposed by the FTC, attorneys should not be able to collect a fee from a homeowner in conjunction with an attempt to obtain a loan modification until the bank agrees to grant that modification, which based on current statistics could take six months or even a year.  Until then, lawyers should have to work without pay in order to protect homeowners from… I don’t know… something.

11. Banks are intentionally not doing loan modifications because they make more money by foreclosing.  Yes, it’s true.

Sheila Bair at FDIC has provided 54 banks with loss sharing agreements, similar to the infamous one given to IndyMac Bank’s new owners, whereby the FDIC picks up 80-95% of future losses depending on something no one really understands.  So, when you factor in the discount paid for many of today’s mortgages, originated at places like IndyMac and Washington Mutual before both of their demises, and the fantasy accounting treatments made possible by Geithner and Bernanke, it actually does often pay the bank to foreclose now and get the loan off of its books, as opposed to modify it under the government’s program.

12. The government wants the banks to modify loans.  Yes, It’s true.

The government has given the banks significant financial incentives to modify loans.  The Making Home Affordable Program is a $375 billion program intended to save 3-4 million homeowners from foreclosure.  Uncle Sam wants those loans modified and they’re working hard to come up with something that works.

13. Treasury says HAMP will modify millions of mortgages by the end of 2012.  Yes, it’s true.

Just this past month, an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the government’s loan modification program by the end of 2012.  And as always, Assistant Treasury Secretaries, Michael Barr and Herb Allison both essentially say that everything is going just fine and according to plan… just a few insignificant speed bumps, but in the end the HAMP program is performing well and will achieve its objectives.

Thank goodness for unnamed Treasury officials.  They’re so cheery and upbeat.

14. You should hire a lawyer if you’re at risk of foreclosure.  Yes, it’s true.

Michael Froomkin, a University of Miami law professor, says that he became motivated to create a foreclosure fellowship program after learning of the thousands of foreclosures in Florida courthouses.  Quoted in the Miami Herald, Froomkin said:

“When the foreclosure happens, the number of important legal defenses that may be available are not always obvious to people without legal training.  Some of these options will buy you time, and some of these will do a lot more . . . even those that buy you time are a way of getting a lender’s attention and stimulating a negotiation.”

So… the University of Miami Law School and law school professor Froomkin thinks homeowners should be represented by legal counsel when at risk of foreclosure.  And Barbeth Foster, who is a recent graduate of the law school works with his team of lawyers, and supervises three law students who signed up to work 15 hours per week helping distressed homeowners.  According to Foster: “People don’t realize what options are available; they don’t have to roll over and take whatever is happening to them.”


15. It’s okay for federal bankruptcy judges to modify any type of loan except a mortgage on a primary residence, because if they could do that, even for an instant, our country would look like Zimbabwe over night.  Yes, it’s true.

It’s called the “cram down” on the right, and “judicial loan modifications” on the left, but no matter what you call it, don’t even bring it up.  It’s dangerous talk.

16. Unemployment is rising, no it’s dropping… no it’s rising again.  Yes it’s true.

The brilliant blog, Calculated Risk summed it up pretty nicely, I thought: “A near record number of part time workers (for economic reasons), a record number of unemployed for more than 26 weeks, and a decline in average hourly wages are all negatives.”  Yep, sounds negative to me too.  I concur.


17. We’ve hit bottom and the recession has ended.  Yes, it’s true.

But according to an article in the UK Telegraph, under the headline:

Deflation on the prowl as Bernanke shuts down his printing press

The most audacious monetary experiment in modern history ended on April Fools’ Day. America must walk without crutches, on gangrenous legs.


“The basic 30-year fixed mortgage has risen to 5.08pc from 4.71pc in December. The US housing market looks too sickly to withstand this. New home sales have fallen for four months in a row, dropping to a half-century low in February. The inventory of unsold homes has jumped to 8.6 months supply. Some 24pc of mortgages are in negative equity.”

I just don’t think I can go on.  It’s just too painful.  And there’s more and more and more… we’re marooned in a blizzard of lies.


18. Principal reductions are not the answer.

19. Principal reductions are the answer and the new HAMP will require banks to consider them.

20. We’re having a double dip that could bring the recession back with a vengeance.

21. The stock market is headed higher… but could implode at any moment.

22. Burdened under mountains of debt, and with China about to stop buying our debt, we’re doomed.

23. The banks are insolvent or having the best year ever.

24. Hyper Inflation is around the corner, or not.

Whew… I’m tired.  And confused.  Well, not really.

But I have had about enough of this crapola though.

Yes, it’s true!



Both stories on the front page at Bloomberg now: Stock Bulls Increase With Share Buyback Spending Signaled by Profits Surge and Bond Buyers Seek Record Protection From Rating Downgrades: Credit Markets.  Now admittedly, not all companies with public debt have public equity, but this still looks a tad divergent, no?


Ergo bibamus… a lot.



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