(The President speaks after Housing Refinance Roundtable with real people who have benefited from renegotiating their mortgages and explains how millions of others can take advantage of his Making Home Affordable plan.)
NACA's "Save the Dream" Tour
Taking bank chiefs to task to save homes
Bruce Marks, chief executive of the Jamaica Plain-based Neighborhood Assistance Corporation of America and self-proclaimed "Bank Terrorist" is drawings tens of thousands of distressed homeowners this summer to cities nationwide in a "Save the Dream Tour" meant to help borrowers modify their loans and avoid foreclosure. Marks, 54, recently spoke with Globe reporter Jenifer McKim about how he is successful in helping homeowners obtain affordable mortgages.
What’s a "Bank Terrorist"?
We wear that as a badge of honor. Bank terrorism is a nonviolent way we personalize the consequences of CEOs’ actions. When someone loses their home, they lose their neighbors, they lose their community, and their kids lose their friends and their schools. It’s personal. Lives have been devastated. We go to the CEOs’ homes, usually on Sunday morning, which is family time, in their gated communities. We are relentless and we go after them everywhere they go.
Data shows that lenders are resisting efforts to help distressed homeowners save their homes. How do you overcome this?
You have to do it in two ways: You have to engage in bank terrorism. It gets their attention. Then, you have to provide the best operation possible. What makes us different is we do all the work for the servicers. We get all the documents. We have 300 counselors on the ground, hooked up to the Internet. The documents are scanned and they go immediately to the servicer. They get the solution. It is spectacular to see. President Obama has been pleading and begging and bribing these servicers, and they have flat out refused. The NACA way is the way Obama should do it.
What should Pres. Obama do?
He could require [lenders] to restructure the mortgages and that is not what is being done.
Bank of America Corp. and Wells Fargo Home Mortgage rated at the bottom of a new government report card on lenders helping homeowners. Do you agree?
At these events, I have legally binding agreements with every one of these lenders. I get things done that they don’t do in the normal course of business. If you were to ask me, I’d say they do a very good job.
What is your agreement?
We submit an affordable payment, documented with verification of income. There is only one solution: That is to restructure the mortgage, permanently reducing the interest rate and permanently reducing the principal to guarantee an affordable payment.
What kinds of deals are homeowners getting with your help?
They are getting an interest rate permanently reduced to 2 percent. They are getting $30,000 to $50,000 of principal reduced. We don’t say to the lender what the interest should be. We say this is what that homeowner can afford on a tight budget. We send it over fully documented with pay stubs and a hardship document.
What advice do you have to others struggling to help homeowners avoid Foreclosure?
We all have to come together and fight these servicers. You should do what we are doing. Work with everybody, do the advocacy, join us in going to their front door and holding them responsible. The way you get things done is to organize and motivate people.
How many homeowners are you helping?
On a monthly basis, about 20,000.
Don’t you think homeowners have some responsibility for getting themselves into this mess?
We are talking about owner occupants. Did some homeowners buy more than they could afford? Yes. But were they encouraged to do that by the largest financial institutions in the country? Absolutely. I don’t blame the homeowners, people who are hard-working Americans, who all they wanted was a good place to live.
Do you think the foreclosure crisis is beginning to ebb?
No. Not with what I’m seeing. I think it is going to be accentuated by people losing their jobs. The unemployment benefits are starting to run out. People are just desperate.
Why didn’t you include Boston in your 10-city tour?
We reached out to the Governor (of Mass.) and there has been no interest in working with us.
Banks Step Up Loan Modifications Under Pres. Obama's HAMP Program
--- Bank of America Corp. and Wells Fargo & Co., among the worst performers of banks in the U.S. government’s main foreclosure prevention plan, stepped up their pace of mortgage modifications by at least 60 percent in August.
Bank of America more than doubled its number of modifications started through the Making Home Affordable Program to 59,891 in August from July, while Wells Fargo improved by 64 percent to 33,172, the U.S. Treasury said in a report today from Washington. Overall, 47 banks have begun 360,165 modifications through the program, up from about 235,247 in July.
Wells Fargo and Bank of America, which have taken a combined $70 billion in taxpayer-funded aid, had been criticized by lawmakers for not doing enough to offer assistance to struggling homeowners. The banks have cited the time needed to boost staffing in loan servicing departments and government delays in distributing information about the program.
“A lot of our momentum pickup is working with those customers we had already made offers on, making sure they were aware of the offer and converting those offers into trial starts,” Steve Bailey, a Bank of America home retention strategies executive, said in an interview yesterday.
Bank of America’s modification pace may quicken as the Charlotte, North Carolina-based bank accounted for about 22 percent of the 571,354 modification offers made to borrowers, though not all started, through the program. San Francisco-based Wells Fargo accounted for about 13 percent.
Capacity and Transparency
Bank of America and Wells Fargo still lag their peers including JPMorgan Chase & Co. and Citigroup Inc. As of August, Bank of America had started modifications on 7 percent of its eligible loans. Wells Fargo was at 11 percent. Citigroup’s rate was 23 percent, while JPMorgan’s was 25 percent. The best performer among servicers that had at least 100 qualifying mortgages was Morgan Stanley’s Saxon Mortgage Services, which had begun trials for 39 percent of its 73,694 eligible loans.
The US Treasury Dept said today that the program has been more successful than any other foreclosure relief effort for “at- risk borrowers.”
“Nonetheless, we recognize that challenges remain in implementing and scaling up the program,” Michael Barr, the Treasury’s assistant secretary for financial institutions said in written testimony to the House Financial Services Committee panel on housing. “We are focused on addressing challenges in three key areas: capacity, transparency and borrower outreach.”
Millions of Foreclosures
Barr said the Treasury has asked loan servicers to expand call centers, add more staff than planned, increase training and to allow borrowers to escalate complaints, among other things.
The program won’t be able to help everyone, Barr said. “Even if HAMP is a total success, we should still expect millions of foreclosures, as” President Barack Obama said when he announced the program in February, Barr said.
Eligible loans under HAMP are those originated prior to 2009, where the owner is “at risk of imminent default” and the underlying property is owner occupied and conforms to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans.
Besieged With Volume
“The servicers are still besieged with volume,” said David Sisko, the head of default management services for Deloitte & Touche LLP.
Molly Sheehan, a senior vice president for JPMorgan’s home lending business, told the panel that her company has made progress by hiring more people and investing in technology.
“We believe that the industry as a whole is making significant capacity investments like those made by Chase to provide assistance to as many families as possible,” she said.
The program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.
The Treasury numbers released today doesn’t include redefault rates on the HAMP modifications.
“A lot of these loans shouldn’t have been made in the first place,” Sisko said. “The issue really comes down to how many are going to be successful.”
Unemployment Rate
Government-controlled mortgage-finance company Fannie Mae reported last month that 41 percent of the loans it modified in the fourth quarter, before HAMP was implemented, were still current or had been paid off.
“With unemployment still near 10 percent, even the most ambitious loan modification program will not be able to assist borrowers who have no ability to make a reasonable mortgage payment,” Jack Schakett, a credit loss mitigation strategies executive at Bank of America, said in written testimony to be delivered today to the House subcommittee.
The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs, highlighting threats to consumer spending.
Mike Heid, co-president of Wells Fargo Home Mortgage, said the program is too new to calculate meaningful success rates and that previous redefault rates may not apply.
“The last couple of months the vast majority of mods all have payment decreases,” Heid said in an interview today. “So historic redefault rates really are no longer appropriate given that the type of mod that’s getting done is just very, very different than it used to be.”
Obama announced the programs in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac were released in April. Specific program guidelines for loans owned by other investors were provided in June, and the Treasury later gave new details for loans backed by the Federal Housing Administration.
Making Home Affordable: The Waiting Game
Last week, the US Treasury reported that only 9% of eligible homeowners had been helped by the Obama Administration's Making Home Affordable program. The government-sponsored loan modification program provides incentives for lenders to modify struggling homeowner's mortgages so they can avoid foreclosure -- which is not only devastating for families, but costly to banks.
Five months into the Making Home Affordable program, 235,247 trial modifications are underway. A US Treasury Dept press release claims the program is "on pace" to provide assistance to 3-4 million homeowners before the end of 2012.
But since the program was rolled out February 19th, the federal government has twice had to lean on banks to pick up the pace on loan modifications -- on July 9 and again on July 28 -- and this most recent report admits that performance among various banks has been "uneven."
Eleven of the 25 largest participating banks are helping under five percent of Americans headed toward foreclosure. The Bank of America -- recipient of $45 billion in bailout funds -- is helping less than four percent of qualified borrowers.
Some of the shortcomings the report acknowledged -- "quality of borrower experience, such as average borrower wait time for inbound inquiries, completeness and accuracy of information provided applicants, and response time for completed applications" -- are problems we've heard from dozens of HuffPost readers who have written in with their stories.
At this point, the overwhelming backlog means that homeowners who filed paperwork months ago are still being told to wait...and wait, and wait. Sandy Smith from Green Forest, Arkansas has been dealing with the mortgage modification quagmire for nearly five months.
The Treasury figures report that nine percent of qualified borrowers have received trial loan mods, but that nine percent doesn't even include homeowners like Sandy, who have struggled to make ends meet while keeping up with their mortgage payments. The Making Home Affordable program includes a provision for homeowners who are not yet delinquent in their payments but are in "imminent default" -- are on the brink of falling behind -- but the figures provided by the Treasury show loan servicer success rates as percentages of borrowers who are at least 60 days delinquent on their loans.
Sandy bought a $130,000 house in 2002 and received a fixed-rate mortgage with $20,000 down. But recently, with the cost of living up in addition to several unexpected expenses, Sandy found it was becoming more and more difficult to stretch her monthly retirement check to cover her mortgage payments.
In April, she called the customer service number on her mortgage bill and asked if she could refinance to lower monthly payments. She explained that she was looking for information about refinancing but didn't want to do anything to hurt her credit rating:
I was told that a refinance would result in the same or higher monthly payments. I then called my insurance company -- which also provides loans -- and got the same response.
I then thought maybe I should check Fannie Mae or Freddie Mac to see if there was anything there that could help. When I went to Fannie Mae website, I found a short questionnaire to be filled out to see if I qualified for assistance. The answer was that I qualified for the Affordable Home program.
Sandy faxed in the forms and information for the Home Affordable program on April 27:
On May 15, I finally reached a human at the end of the telephone tree. I spoke to Norma who then transferred me to Barbara. Barbara, in turn, transferred to Pat who then passed me on to Douglas. At which point I was told they have had a lot of applications and was given a number to call back next week. I called the number given on May 18 and again encountered a phone tree. I finally arrived at the extension of Mr. Morgan who told me to be patient, they have received a lot of inquiries, and they would get back to me.
June 4, I called and talked to Pat who said it would take two to two and half weeks to hear anything. He said was it was taking 60-90 days to process applications.
On June 23, I talked to Thomas who transferred me to Natasha who said it was taking 30 to 45 business days to process applications.
On June 30, I reached Chuck who transferred me to Tiffany who transferred me to Nadine, who transferred me to Jackie. Jackie said I needed to fax my homeowner's insurance declaration, current insurance bill, current bank statements (the previous ones were out of date), and a copy of my divorce decree which showed I was entitled to receive half of a military retirement, and my last year's tax return. I faxed the information the same day.
I called on July 11 to see if they had received the papers and what my status was. Cassandra said they received the updated information and it would take a few more weeks.
On July 27, I figured we had reached 90 days, so I called again. Coralinda transferred me to Jolene who said that I needed to resubmit the form I sent on April 27 which gave permission for them to receive my past three years tax returns. Apparently the form is only good for 90 days so they need a new one. There are also new forms included in the application packet which I need to fill out. She suggested that, while I was at it, I might as well include new current banks statements and utility bill as the previously submitted ones would also expire.
When I opened my mail late in the day on the 27th, I found the following from Chase dated July 6:
Thank you for your recent request for a loan modification on your mortgage account (indicated above). We are sending this letter to let you know that we are actively reviewing your request and will be following up within thirty (30) days of the date of this letter.
Please keep in mind that your modification request, like all loan workout options, requires full underwriting review and approval. If your modification is approved, we will send you a formal agreement to sigh.
At Chase, our goal is to provide thorough and accurate service for every customer. We greatly appreciate your patience as we complete the review process. We value you as a customer and look forward to helping your with your financial needs.
Sandy faxed the documents for the third time on August 3. In a follow-up call a few days later, another representative told her they had received the paperwork, and it would be processed within the 90-120 days.
ABC News Glamorizes the "Financial Terrorist" on a "Crusade to Restore the American Dream."
Nightline correspondent Vicki Mabrey profiled self-described "Financial Terrorist" Bruce Marks on Friday, painting his actions in a religious light as a "revival of spirits" and "hopes." Co-host Cynthia McFadden began the show by rhapsodizing, "The financial terrorist. He’s on the front lines of the foreclosure front using guerrilla tactics on a crusade to restore the American dream."
She continued, "And he's taking dead aim at the big banks. Is there anything he could do for you?" Mabrey did offer Neighborhood Assistance Corporation of America (NACA) CEO Marks a few tough questions, noting that his organization, which tries to help homeowners restructure their loans, also uses extreme tactics, such as protesting outside the homes and schools of the children of financial executives.
However, she also spun the intimidating, thug-like actions of NACA as some sort of religious movement: "Like an itinerant preacher, Bruce Marks moves NACA's Save the Dream tour from Cleveland to St Louis, Chicago, Atlanta and other cities. He expects to have over a million members by fall. One million converts for the movement."
Mabrey did press Marks on his "guerrilla tactics," noting, "Dumping furniture on the lawn of Greenwich Financial's William Frey to make him feel the embarrassment of foreclosure, Marks says, even going so far as protesting at the schools of some executives' children." She complained, "You’re accosting children...You're embarrassing children. You're embarrassing these executives in their neighborhood. Take it to their office."
On February 10, 2009, reporter Bianna Golodryga filed a profile of Marks for Good Morning America that was even more fawning and friendly. She ignored the fact that Marks likes to refer to himself as a "bank terrorists" and that he attempts to scare the children of financial executives. So, Mabrey should be commended for at least highlighting these issues.
However, much of the segment included flowery language, such as when the reporter covered a NACA conference on how homeowners can try to save their homes from foreclosure. Mabrey gushed that the event was "A revival of spirits...of hopes...of the American dream."
She also asserted that the "enthusiasm" of this man who frightens school children "has earned him many enemies but it's also garnered him legions of devoted followers."
It would have been nice if Mabrey had produced more questions such as this one about Americans who are in homes they can’t afford: "These people who got houses they couldn't afford, you're getting them a good deal and what's going to happen is it's going to come back to the rest of us. We're going to get charged more."
A partial transcript of the segment, which aired at 11:35pm EDT on September 4, follows:
11: 35pm tease
CYNTHIA MCFADDEN: Tonight, on Nightline: The "Financial Terrorist". He’s on the front lines of the foreclosure front using guerrilla tactics on a crusade to restore the American dream. And he’s taking dead aim at the big banks. Is there anything he could do for you?
11:36
CYNTHIA MCFADDEN: We begin tonight with the economy and news today that the unemployment rate climbed yet again last month to 9.7 percent, with more than 215,000 jobs lost. It is the highest jobless rate since 1983, but believe it or not, it is the smallest monthly job loss in a year. Certainly many Americans are feeling pressure from job security to the threat of foreclosure. And the man you're about to meet has vowed that he will do whatever it takes to keep people in their homes. He's proud to be called a financial terrorist as Vicki Mabrey reports in tonight's "Realty Check".
VICKI MABREY: Bruce Marks is his name, though he's quite happy to be known as a financial terrorist. He'll do whatever it takes he says to keep people in their homes.
MARKS: We wear nonviolent bank terrorism as a badge of honor.
MABREY: As head of the housing advocacy and mortgage lending group, NACA, the Neighborhood Assistance Corporation of America, Marks leads a volunteer army and at his command, they take to the streets, to the halls of Congress-
GROUP (NACA): What about us?
MABREY: -to the posh homes of CEOs...
GROUP (NACA): Fix our loan so we can save our home.
MABREY: -in an effort to persuade lenders to modify mortgages.
MARKS: These lenders knew that the mortgages were structured to fail and yet they were making huge amounts of fees - billions and billions of dollars. That's what got us in trouble. So, they should have done what we're doing, way back when. You should determine what a homeowner can afford in an affordable payment and lock that in.
MABREY: His Save The Dream tour attempts to do just that.
MARKS: It's important that we get the word out.
MABREY: In arenas across the country each weekend the scene is like a revival.
UNIDENTIFIED WOMAN: NACA. When I say NACA, you say NACA. NACA.
HOMEOWNER (FEMALE): They saved my house from foreclosure, you know.
HOMEOWNER (FEMALE): They're saving us $900 a month and that's all I can say is God is good.
MABREY: A revival of spirits-
HOMEOWNER (FEMALE): And the lord bless all of you okay.
MABREY: -of hopes-
HOMEOWNER (MALE): My family can stay in the house. You know what I'm saying? I got two grandkids. They can stay.
MABREY: -of the American dream.
MARKS: We're saving the dream of Home Ownership.
...
MABREY: NACA's counselors assess homeowners' income and expenditures to come up with what they consider an affordable mortgage. Representatives from major lenders wait in a back room to evaluate the data and come up with their own figure. The plan is for homeowners like Holly O'Donnell to leave with a lower interest rate, decreased principal, or both. You know what's going to happen and you know what your critics are going to say. You're getting these people a good deal. These people who got houses they couldn't afford, you're getting them a good deal and what's going to happen is it's going to come back to the rest of us. We're going to get charged more.
MARKS: Well, you know what the fact is, there's not $1 of taxpayer money here. We're saying to the servicers and the investors who have created the crisis, profited from the crisis, fix the crisis.
MABREY: The mortgages aren't refinanced. They're restructured.
MARKS: Refinances don't work because it's a new loan. The only thing that works is if you take the existing mortgage and you restructure one or two elements, and then you lock it in forever. [In front of a CEO’s house.] We are going to do a picket line around his house, okay?
MABREY: Marks is convinced his guerrilla tactics bring lenders to the table. But some say he goes too far. Dumping furniture on the lawn of Greenwich Financial's William Frey to make him feel the embarrassment of foreclosure, Marks says, even going so far as protesting at the schools of some executives' children.
MARKS: We go into their gated communities, we go and we knock on their door and we say, we want you to meet the homeowners whom you're throwing out of their homes.
MABREY: You're accosting children. You're embarrassing-
MARKS: I'm not-
MABREY: You're embarrassing children. You're embarrassing these executives in their neighborhood. Take it to their office.
MARKS: My response to these CEOs is accountability. It's a bitch.
MABREY: His enthusiasm for the cause has earned him many enemies but it's also garnered him legions of devoted followers.
HOMEOWNER (FEMALE): Thank you so much.
MARKS: You're very welcome. I know that the vast majority of you when I get arrested you want to get arrested as well, but we can only have bail money for 300 or 400 people at one time. So we need you to participate in whatever way you feel comfortable.
MABREY: Holly O'Donnell is definitely on board.
O’DONNELL: Thank you. Thank you.
MABREY: After a day of waiting and worrying, she got good news from her lender.
O’DONNELL: I am elated. Like probably one of the best things that's ever happened to me.
MABREY: What happened?
O’DONNELL: I got my interest rate dropped from 10.34 percent to 4 percent, which drops my payment about $340 a month.
MABREY: You look like a different person now.
O’DONNELL: It's such a huge relief. Something affordable within my reach.
MARKS: You grew up on this street.
O’DONNELL: Yes. I lived on this street since I was eight-years old.
MABREY: This is the house she can now afford two doors down from her childhood home.
O’DONNELL: It's fantastic. Thank you.
MABREY: It's not all altruism for Marks. NACA is a corporation, making low-interest loans of its own around earning $500 for each successful loan modification. Marks pays himself a salary of $150,000 a year. Hate to say it, but bad economy is good for your business.
MARKS: No, we - what we want to do is put ourselves out of business.
MABREY: Like an itinerant preacher, Bruce Marks moves NACA's Save the Dream tour from Cleveland to St Louis, Chicago, Atlanta and other cities. He expects to have over a million members by fall. One million converts for the movement. This is Vicki Mabrey for Nightline, Cleveland.
Guidelines For Pres. Obama's Loan Modification Program
Earlier this year the US Treasury Department issued regulations governing President Obama's mortgage modification plan, dubbed the Home Affordable Modification Program, which is one aspect of Obama's more comprehensive Homeowner Affordability and Stability Plan, the intent of which is to reduce foreclosures and stabilize the real estate markets.
Since every government program needs a acronym (TARP, TALF, etc.), I will refer to the loan modification program, designed to assist homeowners who are at risk of default and foreclosure avoid it, as "HAMP."
Which mortgages are eligible for HAMP?
To qualify for the HAMP, mortgages must meet the following requirements:
* The mortgage must be a first mortgage encumbering a 1-4 unit residential property that serves as the borrower's current primary residence.
* The borrower must have had a change in circumstances that causes financial hardship, or be facing a recent or imminent increase in the amount of the borrower's monthly payment that is likely to create a financial hardship.
* The unpaid principal balance of the mortgage must be no more than $729,750 (this
amount increases proportionately for multiple unit properties.)
* The mortgage can not have been previously modified under the HAMP.
* The mortgage must have been originated on or before January 1, 2009 (mortgages
are eligible to be modified until December 31, 2012)
Which eligible mortgages must be modified?
After determining that the mortgage is eligible based on the requirements set forth above, a net present value test must be performed on the mortgage. This test determines whether the estimated net present value of the mortgage, as modified, is greater than the estimated net present value of the mortgage absent modification. Relevant parameters for the net present value test include the estimated value of the property upon foreclosure, cure and re default rates, the amount of any incentive payments made under the HAMP and other information affecting the potential future value of the mortgage.
If the net present value test determines that the modified loan is more valuable, as modified, participating servicers are required to offer the borrower a modification. However, servicers have the option of offering borrowers a loan modification even if the modified loan is estimated to be less valuable. The Treasury will release further parameters for the net present value calculation at a later date.
How are loans modified pursuant to the HAMP?
1.) Interest rate reduction. First, a servicer must attempt to reduce the interest rate for the mortgage in increments of 0.125% (subject to a floor of 2%) until a mortgage debt-to-income ratio (Front-End DTI Ratio) of 31% is reached. For purposes of calculating Front-End DTI Ratio, mortgage debt includes principal, interest, taxes, insurance, homeowners association and/or condominium fees and certain arrearages.
Mortgage insurance premiums and debt service on subordinate liens are not included. If the interest rate required to reach a Front-End DTI Ratio of 31% is above an interest rate cap (set at the lesser of: (a) the original contractual rate, or, (b) the current Freddie Mac Primary Mortgage Market Survey rate) the modified rate will become the interest rate for the remainder of the term of the mortgage. If the modified interest rate is below the cap set forth above, the modified rate will remain in effect for the first five years and then increase by 1% per year until it reaches the level of the cap, at which time it will be fixed.
2.) Extension of term or amortization. If a Front-End DTI Ratio of 31% cannot be reached by lowering the interest rate to 2%, servicers may extend the term of the mortgage to up to 40 years. If loan terms prohibit extending the term, the amortization period can be increased to up to 40 years, which will result in a balloon payment that will be due upon the maturity or other termination of the
loan.
3.) Forbearance of principal. If the above steps still do not result in a Front-End DTI Ratio of less than 31%, servicers may forbear principal, which would then become due upon the maturity or other determination of the loan. The guidelines mandate that interest cannot accrue on the forbearance amount.
4.) Trial period. After the modified interest rate is determined, the borrower engages in a trial period lasting 90 days, or 3 payment periods, during which the borrower must make payments at the modified terms. If the borrower is current at the end of the trial period, the modification is then effective.
What incentives are available in connection with the HAMP?
Acknowledging the failure of prior loan modification programs, the Obama plan provides a variety of incentives to lenders and servicers to gain their participation on more loan modifications.
Lenders (or whoever owns the mortgage in this era of securitization) are eligible for the following incentive payments from the government:
* A payment in the amount of one-half of the difference between the borrower's monthly payment, as modified, and the lesser of: (a) the monthly payment of the loan at a 38% Front-End DTI Ratio, or, (b) the borrower's current monthly payment. This compensation will be paid for up to five years.
* A bonus incentive of $1,500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to de minimis restraints.
* Compensation to partially offset probable losses from home price declines for loans that have already been modified.
2. Servicers. Servicers, including lenders that service their own loans, are eligible for the following incentive payments:
* An initial payment of $1,000 for each successful modification.
* Annual payments of up to $1,000 for the first three years following successful modification, provided the borrower stays in the program.
* A bonus incentive of $500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to de minimis restraints.
Even borrowers, who have already obtained the benefit of having their loans modified, get sweeteners from the government. For example, if the borrower makes mortgage payments on time during the first five years after the modification, the principal on the loan will be reduced by an additional $1,000 each year.
What are the potential problems with HAMP?
In addition to obvious moral hazard seemingly present in all of the government bailouts, loan modifications create problems for investors in mortgage-backed securities. Most of the mortgages in this country are owned in some way or another by investors who have already taken huge losses on their investments in these securities.
Loan modifications may be opposed by investors, and may result in litigation as it did when Countrywide (now owned by Bank of America) settled predatory lending charges by various State Attorneys General by agreeing to modify thousands of mortgages. Investors in the mortgage-backed securities containing these Countrywide loans banded together and brought litigation to prevent the modifications.
The US Treasury Dept guidelines do not really address this, but state that servicers must comply with the terms contained in servicing agreements (including pooling and servicing agreements) for eligible mortgages, or make reasonable efforts to remove any prohibitions or obtain waivers from any necessary party.
The plan also presents additional problems for lenders and servicers.
The guidelines prohibit servicers from passing along most charges in connection with loan modifications. For instance, while notary fees, property valuation and other required fees may be reimbursable from a lender or investor, servicers cannot pass these costs to borrowers. In addition, servicers cannot require a borrower to contribute cash to the closing of a loan modification, and must waive any unpaid late fees. Servicers participating in the HAMP are required to enter into service contracts with Treasury's financial agent prior to December 31, 2009.
These service contracts are likely to require servicers to offer loan modifications to all eligible mortgages in a servicer's loan portfolio. Treasury expects to circulate examples of these contracts in April 2009. Servicers performing loan modifications will also be subject to detailed data gathering and record keeping requirements.
The US Treasury Dept will issue details on these requirements at a later date.
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Sources: ABC News, Huffington Post, Newsbusters, MSNBC, Red Tape Chronicles, Boston.com, NHI, Whitehouse.gov, Making Home Affordable.gov, Mortgage Meltdown, NACA, Mass.gov, US Treasury Dept., Loan Safe.org, Youtube, Google Maps
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