$75 Billion HAMP Program: Homeowners and Taxpayers Duped?

14 Nov $75 Billion HAMP Program: Homeowners and Taxpayers Duped?

Bankruptcy lawyers have grown accustomed to hearing alarming stories from clients about so-called mortgage loan modifications which never seem to be finalized: homeowners being strung along by disingenuous mortgage company reps until foreclosure, “trial modifications,” unreturned phone calls, never ending requests for documents, never getting the same mortgage company rep on the phone twice, being asked for the same documentation again and again, everything but a modified mortgage.

What if you knew that in return for $75 billion in HAMP funding, as of September 1, 2009, only 1,711 homeowners had received a permanent loan modication? That is what a Congressional Oversight Panel reported last week, according to Ruth Simon of the Wall Street Journal, and Chris Serres of the Minneapolis Star Tribune (see “Mortgage Help? Maybe Not,” page D 1, November 11, 2009).

According to Serres, none of the HAMP funds goes to homeowners. Instead, banks are given up to $4,000 for every loan they modify. And the Treasury Department announced that as of November 10, 2009, a total of 650,994 mortgages had been approved for “trial modifications.” Compare that figure with the miniscule number of actual modifications.

Trial modifications typically involve having the homeowner make a few reduced payments, while fees and costs are simply pushed to the end of the mortgage. This way, the lender still receives all the money owed under the note. According to Mary Bujold of Maxfield Research Inc., “these modifications don’t get to the root cause of why the person defaulted in the first place — the mortgage payment was too high.”

You might have wondered why a $75 billion program wasn’t making more than a tiny dent in the problem it was designed to address: homeowners being foreclosed upon due to unaffordable mortgage terms. The answer appears to be that the banks have hit upon the “trial modification” as a way to grab their share of HAMP funds without really modifying the mortgages.

There could be another factor at work: many home mortgages are owned by securitized trusts. Modification of such mortgages is impossible, because the trustees of the trusts have no authority to “give away” money owed to the trust by modifying a mortgage. The trustees would be violating their duty to the trust to ensure that money owed under mortgages is collected in full from homeowners. Hence the utility of “trial modifications,” which aren’t really modifications at all.

Maybe it’s not that HAMP isn’t working, but that HAMP can’t possibly work, or even worse, that HAMP was designed not to work, for some other purpose.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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