A few days back, on her popular Real Estate Wonk blog, Baltimore Sun housing commentator Jamie Smith Hopkins provides an excerpt from a letter, written by Baltimore resident Michael F. Malloy, that describes a frustrating mortgage mediation experience. Molloy posits that “nothing has changed,” as banks continue to take advantage of home owners with predatory loan products and exorbitant fees. Here, one of our Foreclosure Prevention Counselors, Bryan Sheldon, has put forth a response to Mr. Molloy’s letter. –Harsha Sekar
Michael F. Molloy’s letter does a fine job of illustrating issues faced by homeowners who are in default or who are struggling to make their mortgage payments. It’s not that there aren’t programs available to assist most homeowners. The problem is that servicers and investors have no real need to follow program guidelines or assist borrowers in default. The primary program available to the average homeowner is the Home Affordable Modification Program, or “HAMP.”
Assuming that the letter writer’s relative is still employed, requested assistance in a timely manner, and has a mortgage serviced by a company who is participating in HAMP, the mediation session probably shouldn’t have even occurred. Even though the Home Affordable Modification Program has helped over 600,000 Americans receive permanent modifications to their mortgages, many more may have been helped if mortgage servicers did not routinely and blatantly ignore HAMP guidelines. For one thing, no foreclosure action is supposed to be commenced while a borrower is in review for HAMP or alternative assistance.
If someone is in the process of applying for a modification and their servicer asks for a document that seems irrelevant or ridiculous, it probably is. Bank of America routinely asks for utility bills. Wells Fargo requires borrowers to submit a separate hardship letter and financial worksheet, despite the fact that both are included on the required Request for Modification and Affidavit (RMA). Chase asks borrowers to provide a written statement that they do not have to pay Homeowner’s Association fees. This is despite the fact that the borrower must list any Homeowner’s Association fees that they may have on the RMA or risk perjury. Mortgage servicers have institutionalized dilatory and onerous documentation requirements despite the fact they directly contradict HAMP guidelines.
The basic problem with the available government programs is that they have been implemented in the grossly deficient regulatory system which contributed to the foreclosure crisis in the first place. Fannie Mae is the HAMP program administrator, and Freddie Mac is the compliance officer. Mortgage servicers can “shop around” between other regulatory bodies such as the Office of Thrift Supervision and the Office of the Comptroller of the Currency, and the tangled web of oversight authority produces an environment in which no one really has the capability to reign in a still largely out of control industry.
Mortgage servicers are businesses like any other. The bottom line is their primary concern, and it often does cost servicers more money to modify mortgages than to foreclose, write off their losses, and see if they’ll be sued by investors or the government later. The regulatory system needs to be overhauled so that mortgage servicers face substantial risk if they refuse to comply with program guidelines. Until the financial incentive to modify a non-performing mortgage into a successful transaction for both the consumer and the servicer is greater than the servicer’s incentive to foreclose and cut its losses, I believe we will continue to hear stories similar to this one.
To see a copy of the regulations that mortgage servicers are supposed to be following, click here.
Foreclosure Prevention Counselor
St. Ambrose Housing Aid Center, Inc. Baltimore, MD