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A Foreclosure Tsunami Part 1

Posted by CM on September 22, 2009


Hi folks, I’m back from vacation!  I just finished reading Ms. Diane E. Thompson’s written testimony to the U.S. Senate regarding HAMP (Home Affordable Modification Program).  HAMP is a program started by the Obama administration as part of their Making Home Affordable programTHIS IS VERY IMPORTANT INFORMATION: 75% of ALL mortgages in the U.S. are eligible for HAMP!  That said, finding a mortgage servicer who actually participates and handles the program correctly is another story all together.  As usual, the mortgage servicers aren’t really providing the necessary relief for homeowners under HAMP as this testimony highlights and as we already know from our experiences. 

A majority of the issues in this testimony, I have either experienced or read about before.  I will assume the same can be said for you.  What is refreshing and comforting is that at least someone in the U.S. Senate knows it too.  What remains to be seen is whether or not any changes come out of this testimony. 

For the full testimony, Click Here

Here are some excerpts I thought may be of interest to you.  If you are trying to obtain a loan modification using HAMP, please read this testimony in its entirety so that you know what your rights are in this program. 

Foreclosure and Modification Statistics

  • 13 million foreclosures are estimated between the years 2008-2014.
  • Currently, 12% of mortgages are past due and 7% are delinquent.
  • 8% of loans were modified in 2007-2008
  • In most cases, modifications reduced payments but increased the principal balance.

Summary of Loan Modifications

  • In order to avoid a foreclosure tsunami, loan modifications that lower the principal amount is the only viable option.  Even participating mortgage servicers of HAMP are still unwilling to lower the principal amount. 
  • To date, mortgage servicers under HAMP are a) not providing a sufficient number of loan modifications to homeowners, b) modifications offered do not meet the guidelines of HAMP, and c) HAMP still presents serious barriers to mass loan modifications.
  • Homeowners are often not offered a loan modification prior to foreclosure sale.  Furthermore, this testimony advocates that foreclosure proceedings be stopped while in the process of modification.    
  • The Net Present Value model (a model which determines whether the investor will make more money from a modification or foreclosure) should be made available to the public.  Plus, a second independent review and a place to complain should be available when a servicer rejects a loan modification application. 
  • Second liens should be modified with the first lien. 
  • Large servicers such as PHH Mortgage are not participating. 

Sources:
1.  Preserving Homeownership: Progress Needed to Prevent Foreclosures.  Written testimony of Diane E. Thompson, National Consumer Law Center and on behalf of National Association of Consumer Advocates.  Before the United States Senate Committee on Banking, Housing, and Urban Affairs.  7/16/09.
2. National Consumer Law Center: www.consumerlaw.org
3. National Association of Consumer Advocates: www.naca.net
4. U.S. Senate Banking, Housing, and Urban Affairs Committee: http://banking.senate.gov/public
5. Making Home Affordable: www.makinghomeaffordable.gov

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