Maryland Homes at Risk Part I - HAMP Hell

Lesa Harris lights cigarette after cigarette as she sits on her back porch in Annapolis, recounting what she calls “The Fight” – her nearly two-year struggle to access a ballyhooed foreclosure prevention program via her mortgage company, Bank of America.

“I am eligible for Home Affordable Modification Program and I want it.”

The Home Affordable Modification Program, known as HAMP, launched in February of 2009, just a month after President Obama took office.  The new administration, anxious to stem the rising flood of foreclosures, poured 75 billion dollars into it. The idea: alter eligible homeowners’ loans so they can actually handle them.

HAMP is like re-financing on steroids.

First off, says Andrea Risotto of the U.S. Treasury Department, borrowers’ mortgage payments can’t be more than 31 percent of their income.  And then, there’s the terms, she says:

“They can get a two-percent APR. They can extend the term to 40 years and they can even forbear some of the principal, meaning delay payment.”

To Lesa Harris, it seemed a godsend.  She and her husband, Chuck, had bought their house in 1976 for about 125-thousand dollars.  The rates were high then, she says, and they refinanced a few times.  At one point, they took out 100-thousand dollars in home equity to finance an addition for Lesa’s budding day care business.  Then, in November of 2008, things turned sour.

“We had the contractor come and put the upstairs up. Right before he finished,  he took the rest of the money and declared bankruptcy.  He never came back.  About a month later, Chuck was on his way to work and got hit by a truck.”

Chuck suffered a serious back injury – he was unable to work.

“At that point, I told Chuck, ‘I don’t want to have a contractor come in here and you laying up and me trying to wonder how I was going to pay the bills.’”

Harris managed to keep paying the mortgage, never falling behind.  But with a monthly payment of twenty-two hundred dollars, she could see trouble coming.  So, she reached out to HAMP because she had heard that the federal program was designed for folks like her.

That’s true, says the Treasury Department’s Risotto:

“HAMP does not require a person be delinquent - they can anticipate hardship on the horizon.  What’s interesting with HAMP is that it helps capture people before they fall behind and those who have already fallen.”

The HAMP program requires homeowners to enter a trial period in which they make payments that are lower than the original; the difference gets tacked on to the back end of the mortgage.  Homeowners in the trial period submit various documents to prove eligibility for a permanent modification. The trial period is supposed to last three months.

Harris met the program’s criteria and filed an initial package with Bank of America on July 1, 2009.

Things looked good – very good.

“The trial payment was 800 dollars less – manageable – I was very excited because I could afford doing this.”

But, Harris said, trying to convert that trial to a permanent modification has practically turned into a full-time job. She says she’s been caught in a bureaucratic treadmill where paperwork seems to go astray, generating further requests and ominous warnings. She’s been diligent, she says.

“Every time I sent documentation, I called to check, ‘Did you receive the documents?’  I sent them by fax and by FedEx, then I’d call and ask, ‘Did you receive them?’

“I don’t know how many times they asked me to submit a hardship letter.”

Harris leafs through piles of letters and manila envelopes on her kitchen island.  She grabs a few, waves them in the air, exasperated.

“Because of missing documents…

“If you do not supply these documents, we will begin foreclosure.”

Harris found herself in what could be called “Hamp Hell.”  Though Harris hadn’t missed even one payment, she was being threatened with foreclosure “because of missing documents.”  She couldn’t not continue making trial payments, yet she couldn’t get someone on the line who could resolve the situation. She was trapped.

Bank of America declined to comment.  Treasury’s Risotto says it’s not the way the program is supposed to work.

“The guidelines that are in place say that homeowners are not to be foreclosed while in HAMP.”

But she acknowledges the mortgage servicers aren’t under any obligation.

“Servicers receive an incentive when they turn a trial modification into a permanent modification. HAMP is voluntary.  So, they don’t have to participate.  They’ve chosen to.”

They can work with you - or not.  The carrot is a one-thousand dollar payment for each permanent modification granted. But what’s the stick?

Risotto:“Since it’s not law, there’s not much we can do.”

Risotto says The Treasury Department has started posting a scorecard for participating companies on a website, financial-stability-dot-gov—so people can see how many trial modifications they’re granting, how many permanent modifications.

According to the website, as of last November, Bank of America has granted more than 340,000 trial modifications since the program began almost two years ago.

ProPublica, which connected WYPR to Lesa Harris, broke that data down further.  It reports that of those 340,000 trial modifications, approximately eight percent are in a trial period of three months or less and six percent are “Aged,” that is, beyond six months. About 24 percent got converted to permanent modifications. The biggest chunk – 62 percent – were cancelled.

The biggest reason for cancellation, according to ProPublica and The Treasury Department?  Insufficient documentation.

Missing paperwork? Like Lesa Harris?

“Lesa’s situation is very typical.”

That’s Julia Gordon from The Center for Responsible Lending in Washington.

“Let’s call it the different circles of HAMP purgatory.  It can be hard to get into a HAMP trial mod, and once you have one, it can be very hard to get it converted to a HAMP permanent mod. And that’s happening for thousands and thousands of people.  What’s worse is that people who got into a trial mod but ultimately are not accepted into a permanent mod ironically are worse off than if they had not gotten a trial mod in the first place.”

Gordon says the trial modification is not really a modification so much as a payment plan – where the borrower ends up owing the difference in mortgage payments plus interest on that difference.

“It’s possible that if she does not convert to a permanent mod, she’ll have to pay the lender back more than she would have if she had just left her house because the balance grew.”

Recently, Harris was contacted by two different Bank of America representatives in the same day.  One told her she had been granted a permanent modification while the other told her she had been denied.  She continues to make her trial payment.

In Maryland, nearly 5,000 homeowners are in a trial plan and close to 16,000 have gotten permanent modifications, the Treasury Department says. On average nationwide, those who receive a permanent modification reduce their mortgage payments by an average of five hundred dollars a month.

It’s a help, but it’s a relative drop in the bucket, critics say. But for many homeowners like Harris, it’s the only chance they’ve got.

I’m Mary Rose Madden, reporting in Baltimore, for 88-1, WYPR.