Maryland Homes at Risk Part II - HAMP Hell

Day-care operator Lesa Harris and her family are going through what could be called “Hamp Hell” in Annapolis.  She’s spent 18 months in a trial period that’s cut her mortgage payment by $800, never missing a month. But trying to convert what was supposed to have been a three-month test into a permanent modification has been utterly frustrating, with repeated requests for necessary paperwork she’s already provided.

“One night the end of November a lady came knocking on my door to basically take a profit and loss for my company which I had already submitted to them four times.”

Harris is just one of millions of struggling homeowners, who have found themselves stuck in HAMP’s application treadmill, cancelled or denied. The scorecard? Only about 520,000 have been granted permanent modifications to their home loans rather than the 3 to 4 million initially projected.  So far, about a billion dollars has been spent. 

"The Home Affordable Modification Program been a failure.  This was the program that was supposed to help Main Street...It’s just not working."  That’s Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, or TARP, the giant government bail-out created in the wake of the financial crisis, at a recent hearing of the Congressional Oversight Panel. He pointed the finger at the Treasury Department.

"They continue to refuse to adopt the simplest benchmarks for success.  They appear to be afraid to reign in or impose penalties on the servicers whose, everyone can agree,  performance on this program has been abysmal."

But Tim Massad, the department’s acting assistant secretary, says Congress hadn’t given Treasury the power to impose financial penalties.  "What we have is the ability to withhold payment when they enter a permanent modification. A lot of the problem was, we  couldn’t get them to get  the permanent modifications done.  This is voluntary. Congress didn’t give us the power to levy fines."

Clearly, just asking servicers to work with distressed homes, with a thousand-dollar payment for each permanent modification granted,  isn’t sufficient, says Julia Gordon,of the Center for  Responsible Lending. 
"When a borrower doesn’t live up to their end of a contract, the servicer gets on their moral high horse.  But the servicers are not treating their contract with the Treasury as sacred…The problem isn’t HAMP, it’s that servicers weren’t doing the thing they were supposed to do even before HAMP."

During the housing boom, servicers focused on their role as collection agents, and gave short shift to their obligation to do loss mitigation.  Now that they actually have a lot of losses to manage, Gordon maintains, they are either unable or unwilling to do it.

"The government Accountability Office along with the Congressional Oversight panel and TARP – all three of those commissions have been investigating HAMP continuously – but in a way because they’re only investigating HAMP they’re missing the point.  What’s just begun to happen since this fall,  government commissions are just beginning to investigate what the servicers are doing.  That’s the problem.  The problem isn’t inside the Treasury Office, it’s inside the servicing organizations."

John Mechem, spokesman for the Mortgage Bankers Association, says the servicers are not to blame.
"The reason why HAMP is not helping as many borrowers as it had originally been programmed to help is because the nature of the problem has shifted."

HAMP, Mechem adds, was created to help borrowers with adjustable, sub-prime loans, whose payments were set to take a big jump. But with millions of homeowners thrown out of work by the recession, that’s changed:  "The biggest problem we’re seeing right now in the market is  borrowers who have no income or significant drop in income, where they can’t afford to make  hardly  any mortgage payment, and those are the hardest people to help.  Those are not the borrowers who the HAMP program was designed to help."

Peter Holland, an expert in consumer law, who teaches at the University of  Maryland School of Law, points to another reason impeding HAMP’s effectiveness:  the profit motive.  Unlike mortgage investors, whose losses are often offset by insurance, servicers can actually make more money from foreclosures.

"The servicer gets paid first in a foreclosure. So whatever servicer fees there are - assessed fees, junk fees, late fees -- when that house goes to foreclosure, the servicer is going to get paid prior to the investors who will take a hit at the back end so sometimes the amount of fees that would go to the servicer right off the top of a foreclosure sale are many times greater than the incentive with HAMP."

Indeed a Congressional Oversight Panel report last December concluded that such misalignment of incentives, as well as the lack of required servicer participation, were major reasons for HAMP’s shortcomings.

At last month’s congressional hearing, Maryland Congressman Elijah Cummings was clearly frustrated at how HAMP has played out:
“That leads me right to you, Mr. Massad – what are doing with the servicers? 
[Massad An inter-agency task force is looking at this – all the things they’ve done wrong with foreclosures.  There’s a lot of talk to have national servicing standard, which is something we may well need.  We can’t through HAMP change the entire industry’s behavior – this is an industry that is broken.”

In the meantime, Lesa Harris has finally been approved for a permanent modification. But, she says, because the servicer mistakenly documented her income as higher than it is, the modification would cut just $20 off her original payment. For her, and other distressed homeowners, changes that could benefit them may come too late.

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