IS THIS GOOD NEWS? H.A.R.P., The Home Affordable Refinance Program and H.A.M.P., the Home Affordable Modification Program are working hard to earn trust from distressed homeowners. Or so they say. Fortunately, the Stimulus funds for HARP will be extended at least until June 2011. HAMP has been working a bit harder for people with underwater homes -- that is if you owe more than your home is worth up to 25% negative value or 125% LTV.
Define underwater: You see, if you owe more than your home is worth, your lender takes a rather dim view of the risk factors for your likely ability to keep making the payments. And if you are going for HARP i.e., to refinance, those risk factors weigh rather heavily against you -- so the terms (rates) are less than exciting. In fact, less than 220,000 of the supposedly 4.5 million people who would be eligible for HARP have qualified. Most people are either in arrears (having missed payments) or in a position of eminent default if they have lost income and realize they can't sell for a profit...then they are facing the next most likely options. Short Sales, Foreclosure, Deed in Lieu and 'strategic defaults' i.e., simply walking away.
What about the Guidelines? The actual problem is far more complicated than just a set of government guidelines and labels. Your lender is not a government institution. Sure, Congress has passed bills adopting these terms and recommending them. But please understand: Banks are private companies charged with delivering a profit to their shareholders. While some would rightfully argue that our government owns a large share of the biggest banks, the fact is the banks still get the decision making power to deliver a profit. The 'guidelines' for HAMP, HARP and MHA (Making Home Affordable) are just that. Guidelines. They are not laws. Banks get to interpret them if and when they feel justified. Naturally a bank that took more TARP money has a certain obligation to consider the guidelines more so than a bank that did not. Many local Banks, Savings and Loans and Credit Unions who did not receive TARP funds are flatly saying no to modification, forbearance or distressed refinances with impunity. There is more pressure on the TARP recipients to at least pretend to be complying with these guidelines. They will say you didn't qualify when in fact you might very well qualify if you got a reasonable negotiator to understand your predicament.
Which brings up the biggest problem of all: Inept modification and loan mitigation staff. This is a new arena and the people being hired by these servicing arms of banks may be freelance staff, who do not have a grasp of what your family budget and work situation really indicates in terms of likelihood to keep paying your mortgage. (The mitigators also don't talk to the collection department staff so the poor clients gets a barrage of different and conflict in information). The loan mitigators rarely understand complex personal financial documents. We see a lot of gross errors on the lender's financial documents. Naturally, they err on the side of caution --so it's really hard to convince such a person you WILL keep paying your reduced mortgage if you have been in bankruptcy for a year and made no payments during that time. They are very 'bottom line' motivated so it's important to keep coming back to what that means. DO they want to explain to their superiors the decision to foreclose on someone who was wiling to pay more than their house was worth or DO they prefer to take their losses at auction? This is a very gray area.
Most people who have experienced some income loss or family financial pressures would technically qualify for either HAMP or HARP if they make enough now to afford a reduced payment totaling no more than 31% of their gross loan to value. Certainly there are limits to how low a bank will go and for how long. It's important to show that your hardship is both real and temporary. The luck of the draw is which bank or servicing lender is handling your loan and how motivated is that servicer to assist you. There are so many factors: How long have you been in arrears? Do you have stable income now, and not least: Have you alienated you lender with a long drawn out process?
Are these programs just for your Freddie or Fannie Loans? Freddie Mac loans are negotiated slightly differently than Fannie Mae loans and so on. FHA and VA depend on the lender's own interpretations in addition to the standard government guidelines (most have their own investor guidelines or overlay) and all rely on the very different situations a borrower will present. For example, is your hardship a continuing issue? For how long? Do you have sufficient income now to afford a lower payment and for how long? Will your income recover quickly or take years? Is your financial pressure time frame yet known? Etc., etc. Each lender has their own ideas. There are literally thousands of options!
Are these programs just political? There certainly is a lot of posturing at congressional level by people who write the laws. Do they get what the actual effects of these laws are? You can bet these new and extended programs are being used to stump for votes by politicians. So you would be naturally be wise to keep your particular representatives apprised of your progress.
Success story: Recently a client received a wrongful denial of permanent terms after four months in a trial modification program. It was quickly determined that an error was made figuring their income but no reasoning seemed to get the desired result to convert the temporary modification into a permanent term. They were being stonewalled. So they wrote seeking help from their Congressional Representatives, including the President, at http://www.congress.org
This very frustrated home owner had been getting the run around. They lodged complaints with whomever would listen. One Senator actually called the CEO of the National Bank involved on their behalf. Another Senator offered helpful advice on which agencies could assist. The same borrower wrote a complaint letter to the State Attorney General who also reported their concerns to the State Attorney General of New York who forwarded the complaint to the Comptroller of the Currency, the overseer for National Banks. I guess you could say they realized they were all on notice. Magically the corrected permanent modification papers arrived by courier...right on cue! So it pays to know your rights and due process.
I just listened to Charlie Rose interviewing Elizabeth Warren, our official 'watchdog' on the subject of Consumer Protection and she calls this agency the unwanted stepchild. Nobody wants to police banks on loan and credit card fairness-- even if it is their 'job'. http://www.charlierose.com/view/interview/10895
Until the consumer protection laws are actually implemented and fairly, the current state of our consumer protection is: borrower beware!