Based on the past dismal failures of mortgage-related rescue plans proposed by current or past administrations, it's difficult to believe that the latest set of plans, proposed by the Obama administration will be any more successful. In fact, it may serve as yet another way for banks and servicers to suck more money out of homeowners who are currently treading water as it is.
Past attempts include Barney Frank's Hope for Homeowners plan, started under the Bush administration, costing $300 billion. It helped one (1) homeowner.
The recent plan to modify second mortgages has helped no one.
The Making Home Affordable plan, also called HAMP, set out last year to help 4-6 million people. It has in fact potentially hurt approximately 940,000 and has served as a means for banks to suck $4-5 billion out of homeowners. According to Treasury reports 160,000 homeowners have been helped in one form or another, but in many cases a $20 reduction counts as a successful modification and often times the principal has been increased by adding arbitrary fees and charges to the original amount of loan on properties whose values have drastically decreased.
A contributing writer at ShameTheBanks.org and former Ocwen loan specialist wrote, "I challenge our government to audit these alleged loan modifications and I know for a fact they will find a huge discrepancy in the numbers. Is it too late to do that? The truth coming out would be another big fiasco to our economy and proof our Government is way behind the times and desperate if they let Ocwen run the show."
On March 26th the Obama administration announced their plans to help homeowners facing foreclosure and struggling to keep their homes. One plan aims to help unemployed homeowners - now making up a large segment of troubled borrowers. Another will attempt to address the issue of principal reduction for underwater borrowers. Some of the details of the plans are addressed in "What You Need To Know About Obama's New Mortgage Aid Plan". Anyone having had the misfortune of dealing with the previous plans will immediately see the flaws.
In order to qualify, "Homeowners must not have missed any payments on their home loans, must live in their home as a primary residence and must provide proof of income."
This is contrary to advice given to homeowners over the past year and a half, who were told by banks, servicers, and government agencies, that they wouldn't even be considered for HAMP if they were current on their payments. This factor alone excludes millions of potential candidates from this new program. JP Morgan Chase even had a message on their 800 number specifically telling customers that as long as they were current on their mortgage they wouldn't even be considered for a loan modification, according to Piotr Reysner an attorney representing homeowners in a recent Sacramento case.
Ironically, in yet another plan announced on Monday borrowers would have to be delinquent to qualify.
Once a homeowner actually does fall behind, the banks use the well known tactic of delaying the process, drawing out the payments, and "losing" paperwork. In 90 percent of the cases the process ends without a resolution or permanent modification. Alicia Morgan has been blogging about her experience with these tactics on her STB Blog.
Stephen, a member of ShameTheBanks.org, wrote, "We were promised a loan mod package in the mail before Thanksgiving. It never came. Then we were promised it before Christmas. It never came. Then it was promised in 30, 45, 60, 90 business days. It never came. Clearly because we were current they were dragging their feet. Due to that, we are now late on our mortgage just to elicit a response from them but still no loan mod. My credit score of 800 is now in jeopardy because the bank is f-ing around and doing nothing to help people like myself to stay in a home and make good on a debt after BoA was bailed out by US...the taxpayers."
According to the administration's latest program, "[unemployed] borrowers will have three to six months in which they'll have to spend no more than 31 percent of their monthly income on their mortgages. If you do find a job during that time, you will be evaluated for a loan modification that could permanently reduce your payments."
Taking into consideration that banks and servicers have not been required to provide any reason for denying a permanent modification after a trial period lasting as long as six to eight months, there is no reason to believe they will be offering modifications under this plan. In some cases they do provide a reason that is so ridiculous it defies reason. An Indiana couple was denied a permanent modification by GMAC for paying early.
What this plan will most likely accomplish will be to provide banks and servicers yet another way to extract money from desperate homeowners by providing another glimmer of false hope. In most cases the payments made during the trial period are never applied to the loan, so taking 31 percent of a family's unemployment check with a slim chance of being modified, under the guise of hope, is little more than a cruel joke.
The administration's new plan also addresses the ever elusive principal write down and may even offer banks and servicers incentive to do this. "For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents". That is quite an incentive on a home that would sell for 40-50 percent of its original value at auction. What the banks decide to do with this windfall remains to be seen. So far there has been no incentive attractive enough to make a real dent in this fiasco.
Bank of America and Ocwen have been very vocal when it comes to the importance of principal reduction. They see the advantage to homeowners and Ocwen's President, Ron Faris, testified before a Congressional subcommittee saying, "In Ocwen's experience, negative equity increases the chance of a re-default by one-and-a-half to two times." So, in a nut shell, they see the importance and the urgency of principal reduction. They just don't see a need to actually do it.
In a recent interview on the Diane Rehms Show, author of "Busted" and former New York Times reporter, Edmund Andrews said, "When banks are valuing these homes at 100 cents on the dollar ... [they] are deluding themselves," referring to the refusal of banks to reduce principal on underwater mortgages.
Jack Wright of Texas recently submitted a story to ShameTheBanks.org about his 13 year ordeal with Bank of America. Despite a court testimony that Wright had overpaid his mortgage, Bank of America managed to take his home anyway. After spending 13 years litigating him into homelessness and poverty, the courts, including the Texas Supreme Court, are denying him access because he can't afford the court fees. If you're dealing with Bank of America this is a story you're going to want to read. Jack's site, MSFraud.org, provides a wealth of information for victims of mortgage servicer fraud, attorneys, and has one of the largest article archives relating to mortgage fraud.
Do I think lenders should admit that they artificially inflated the values of homes and conned homeowners into over extending themselves? Do I think they should use these programs as they are designed and help the very same homeowners they duped? Yes I do. Do I expect them to do anything that could remotely be seen as decent, fair, or honorable? Absolutely not. They have proven themselves to be wholly incapable of taking any responsibility for a crisis they helped create.
I do however expect them to take full advantage of government programs. Especially one that will allow them to continue to fleece the American public with false hope and promises that they have no intention of making good on.
You can find more stories written and submitted by homeowners like the ones mentioned in this post at shamethebanks.org. You are also encouraged to add your own.
Follow Richard Zombeck on Twitter: www.twitter.com/zombeck