Reviews of the Home Affordable Modification Program ("HAMP") tend to agree on a skeptical tone, but they diverge in terms of their analysis. The split often reflects the orientation of the critic. Those that are looking at the problem from up on high tend to attach their a priori conceptions of the concept of modification - either from the perspective that its best to "take no quarter" in terms of forgiveness or from the belief that it is does
not hold servicers accountable.
The foot soldiers of HAMP are the housing counselors working with individual clients. If you talk to them, the analysis tends to be much more specific. They will give you a point-by-point set of reasons for why HAMP's promise remains constrained.
It helps to review the actual mechanics of HAMP to understand the situation. The basic waterfall of a HAMP model is simple:
- Calculate the capitalization of unpaid interest, escrows, and servicing fees.
- Calculate a mortgage payment that equals 31 percent of the borrower's income. The original interest rate can be dropped in increments of 1/8th of one percent until the payment reaches that point. Keep going until the loan rate is as low as 2 percent. If the new payment amount still does not work within the 31 percent guideline, then go to the next step:
- Try a new model with a loan term of as long as 40 years.
- Develop a new payment plan with a balloon which would then allow the initial payments to fit within the 31 percent criterion.
- If none of these options work, then a HAMP mod is not possible. The borrower can explore options with their lender, such as an "in-house" modification. Alternatively, some states provide mortgage assistance. In North Carolina, for instance, our North Carolina Housing Finance Agency has money from Treasury's Hardest Hit Fund to make mortgage payments on behalf of borrowers that are unemployed.
1) The loss mitigation department is going ahead with a foreclosure at the same time that the loan modification group is working on a HAMP modification. This is known as "dual-tracking." Like most of these problems, this is less about the people that run HAMP and more about the performance of those charged within the servicing industry to participate in HAMP. Admittedly, this is more of a rarity than it was a year or two ago.
2) lost paperwork. Problems two, three, and five are all somewhat related to problem six. Paperwork gets lost because so much of the transaction is done in paper. This is an era when computer software exists to let all work be done electronically. For some reason, loan modification programs operate in anachronistic chaos. Everything is done through faxes. This means that lots of paperwork goes to a fax machine which can be monitored by anyone.
2A) Faxing deserves a special shout-out: It means that plenty of faxes go to fax machines that have run out of paper or ink. It means that some faxes sit around in an office over the weekend, unclaimed and unprotected.
One of counselors mentioned the fax problem: "It is worth noting that we can have a confirmation page that says that a fax went through," he says, "but even then in those cases the servicer claims to have not received. It isn't just a matter of the fax machine doesn't work. It even happens when our fax says 'yes, their fax machine received it.'"
The alternative to faxing is a web page called the Hope Loan Portal. More of the servicers are using that for paperwork. It is so new that counselors don't have experience with it to validate its effectiveness.
3) Representatives of servicers take forever to respond. HAMP guidelines say that a servicer must respond to a call within five days. In practice, if they don't respond during the required time, then they can take longer. One of our counselors has (had!) an appointment with a B of A service rep for 2 pm today. The counselor made it last week. But they didn't call and they aren't answering their phone. "It's this constant phone tag."
4) Phones that no longer work. Seriously, when does a phone not work? Perhaps the servicers could use burner phones. Certainly it would save money compared to a contract. BoostMobile has a good plan for $50.
Their $50 plan has that voicemail function that some of these servicers seem to lack. Sometimes you can shop around to get a better deal from Cricket or MetroPCS. One other option would be a land line. Just a tip.
5) The servicers don't return phone calls. Most of these mods are made under the pressure of a deadline. When just getting a call back is tough, then the whole process is undermined. In many instances, housing counselors are paid not per hour but only on a per-modification basis.
One of our counselors had the experience of hearing from the mod department that they would not call her back because they did not think it was right to talk to the borrower. If she represented a borrower, then they didn't think it was right to talk to her, either.
6) No "single point of contact." Housing counselors will tell you that the one exception to this common sense mechanism is the modification team at Bank of America. Without a single point of contact, it often becomes necessary to resend documents several times. Never mind that this brings up significant issues of privacy. It makes everything much harder.
One caveat: the blame for these problems should fall on servicers and not the HAMP program. To the extent that the people at HAMP are at fault, it is merely because they have set up a well-intentioned program but in some cases fallen short on enforcement.