Note to Treasury: Stop Defending the Banks

Full article by Arthur Delaney here.

The Special Inspector General for the Troubled Asset Relief Program — the Wall Street bailout that also gave rise to HAMP — reported Monday that some HAMP applicants, “who may have somehow found ways to continue to make their mortgage payments, have been drawn into failed trial modifications that have left them with more principal outstanding on their loans, less home equity (or a position further ‘underwater’), and worse credit scores.

“Perhaps worst of all,” SIGTARP’s report continued, “even in circumstances where they never missed a payment, they may face back payments, penalties, and even late fees that suddenly
become due on their ‘modified’ mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent.”

Since June, HAMP applicants have been required to provide solid documentation of their circumstances by coughing up pay stubs and tax forms. Previously, servicers would grant trial modifications over the phone, contributing to what Treasury and HAMP servicers both called an excess of ineligible people in trial mods. Borrowers who are at risk of “imminent default” are still eligible, however, and the hardship criteria are so broad as to include a “change in household financial circumstances” or an “increase in other expenses.”

Alan White, a professor at Valparaiso University law school, pointed out that a common complaint from HAMP applicants is that their servicers tell them they can’t get help until they fall behind on payments. According to the Making Home Affordable call center report from February (PDF), 10.9 percent of all HAMP complaints arose from servicers telling borrowers they must be delinquent to be eligible for help. It’s the fourth-most common HAMP gripe.

“Treasury is just wrong,” said White. “I really wish Treasury would stop defending the banks and start acknowledging that they are preventing HAMP from achieving its goals.”

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