Chicago Foreclosure Lawyer Blog

NBC Nightly News recently ran a piece on trial modification traps into which many homeowners fall. Essentially, people become stuck in a perpetual trial modification, with the servicer claiming that it needs more information before it can issue a permanent modification. At some point, the servicer begins the foreclosure process, even though the homeowner has done everything right. We see this on a regular basis when meeting prospective clients interested in defending their foreclosure cases.

My only gripe with the piece is that it seems a bit short for the subject matter. While it begins to demonstrate that Making Home Affordable's HAMP program hasn't had significant success, it fails to take the next logical step -- examining exactly why HAMP wasn't very succesful. Allowing servicers to make their own rules, providing vague "guidelines," and failing to provide an incentive to modify loans are the three biggest problems that HAMP has.

Here is the video:

Visit msnbc.com for breaking news, world news, and news about the economy

When viewed in conjunction with the video below, you begin to get a better picture of what's really going on. Servicers make more money when they foreclose on a mortgage.

Visit msnbc.com for breaking news, world news, and news about the economy

This segment actually surprised me. I was unaware of the Fannie Mae angle on this story. It makes sense in hindsight -- putting people into trial modifications is a great way to kick the can down the road. Taking the claims made in the video one step further, the trial modification trap is a great way to spread out home foreclosures over a series of years to effectively backstop the housing market.

It's almost a great plan, until you realize that it is a plan that affects the lives of real people, a plan that is unsustainable, and a plan that does nothing to promote real economic recovery.

The entire report contains a few other segments. I won't link them here, but they are available at the end of the videos above.

In a move that will likely prove to be of only symbolic importance, the House voted to terminate the Home Affordable Modification Program (HAMP). The HAMP Termination Act is unlikely to pass the Senate. Even if it does, the Obama administration will likely veto it.

The GOP argues that HAMP was an utter failure and should be discontinued. It has not offered a program to replace HAMP. Terminating HAMP would leave many Americans without an alternative to foreclosure.

For those opposed to "big government," HAMP's failure is a dream come true. It demonstrates that government is inefficient and cannot get things done. The fact that private loan modifications eclipsed HAMP modifications is clear proof that private business is the driving force behind our nation's success. Or is it?

Wasn't HAMP's failure moreso that the government didn't do enough? It created a program with no real carrots or sticks. Banks had no incentive to participate in good faith -- they were going to receive their bailout money regardless. The government didn't provide strong enough rules -- it issued guidelines. Arguably, HAMP failed not because big government doesn't work, but because our government failed to go big enough.

At the end of the day, HAMP has been a failure. It has not helped the millions of Americans it was supposed to help. Some people were worse off after participating in the servicer-led HAMP non-effort. And there's the real problem. We let the fox guard the hen house. We basically let the fox tell the hens that, in order to be protected from the fox, they should leave the front door wide open.

And we wonder why HAMP has failed.

For those who received loan modifications, HAMP wasn't a failure. For those who bought more time in their homes, HAMP wasn't a failure. However, by allowing banks to run the show, we made HAMP a failure.

Pro Publica's latest information blast provides an interesting look into how the mortgage industry and HAMP failed to provide solutions for home owners. I particularly like the way the data is presented; I love graphs and charts.

For the most part, I think the information is presented without manipulation. There is one particular data point that leaves me wondering whether the blame rests 100% on the servicer's side. According to the second graph in the piece, roughly 66% of delinquent borrowers were not in contact with their servicer. The paragraph explaining the graph implies that servicers should have been more proactive in contacting delinquent borrowers to discuss alternatives to foreclosure. I agree with this sentiment. Obviously, there is not going to be a data set for "dodged servicer calls" or "servicer calls unrelated to alternatives."

The graph demonstrates a key point in preventing foreclosure: home owners must be proactive and contact their lenders. Waiting for the servicer to call is a bad strategy. Avoiding talking to the servicer is an even worse strategy. Hoping the servicer will just offer a loan modification is the worst possible strategy. Dealing with servicers can be an exercise in frustration. However, it's a necessary step in the loss mitigation process.

To cap off National Consumer Protection Week, I have read the 27-page proposed settlement between the state Attorneys General and the mortgage lenders.

There are groups on both sides of the debate that are less than happy with the proposed settlement. I happen to think it's not too bad for a first draft. Some highlights after the jump.

Continue reading "Highlights From The Proposed Foreclosure Settlement" »

I've written about this before, but a recent news article has me posting about trial modifications and foreclosures again. The linked article recounts a story that is all too common in our modern foreclosure landscape: the home owner who made every trial payment on time, but was denied a permanent modification, resulting in foreclosure proceeding forward.

To many observers, this seems like a blatant cash grab by the major lenders, especially those that chose to participate in HAMP. Why wouldn't it? Stringing along borrowers for months and months at a time, giving them a false sense of security and ultimately yanking the proverbial football away should look bad. What's happening is that lenders are exploiting the law for their benefit. The trial modifications make no promise of a permanent modification, and the lender needs to protect its security interest (the mortgage), so it hedges its bets and files a foreclosure action "just to be safe."

Here's the crux of the problem: people aren't adequately informed of their rights. We have plenty of required disclosures and notifications that are supposed to be designed to protect borrowers. The problem is that those disclosures aren't written in plain language and are often clouded with legal terms that prompt people to skim over entire clauses.

Another issue: banks aren't required to disclose that they will likely file a foreclosure action during a trial modification. Since they're not required to disclose this, many people don't know that the trial modification does nothing to halt the foreclosure process. In fact, once a trial modification is denied, many home owners are so far behind on their pre-modification payments that there is no way to bring the loan current.

There is only one way to protect yourself -- don't spend that "extra" money. Save as much money as you can in a separate bank account, and if you are denied, hopefully you have enough money to bring yourself current on your loan.

As the new HAMP regulations go into effect, hopefully we will see more successful trial modifications. Banks are now required to pre-approve people for permanent modifications before beginning the trial modification. In the meantime, we'll see lots of media coverage telling us that HAMP failed. Really, it was the banks failing its customers and the taxpayers that bailed them out.

Although it did not make big news, a change to the Illinois Mortgage Foreclosure Law (IMFL), is a big deal for many Chicago-area and Illinois homeowners facing foreclosure. The change gives homeowners added leverage in dealing with their lenders.

When a lender proceeds to the sheriff's sale stage of the foreclosure lawsuit, it must first comply with the provisions of the Home Affordable Modification Program (HAMP). This means that if a homeowner applies for a HAMP modification, the lender cannot proceed to a sheriff's sale without first addressing the HAMP application. Lenders who do not comply will find their sales set aside, forcing them to go through the sale process again. However, this change will not help homeowners who do not help themselves. Since the circuit court judges won't necessarily know that a homeowner has applied for HAMP, it is vitally important that individuals show up to court and make this fact known.

As always, it is best to consult with a licensed attorney before proceeding with any legal action. You may have options and rights that you didn't know existed.

An interesting article at The Huffington Post seemed like more of the same until I read it a second time.

Let's face it. This blog is often a litany of "man, the market is bad," and "wow, it's probably going to get worse." I don't want to get stuck in a rut where all I write about is how much further the market can slide. I don't want to be a nattering nabob of negativism.

I've tried to dig into the "why" of the current economic climate, and the answers are frequently depressing. That's why this Huffington Post article isn't more of the same. It actually gives me a glimmer of hope for those about to attempt the HAMP process.

The reason we've seen a decline in trial loan modifications converting to permanent modifications? Among others, a lack of homework on the part of the servicers participating in the HAMP program. When HAMP first launched, servicers weren't requiring borrowers to submit full financial documentation. This put many people into trial modifications who were never eligible for permanent modifications. When the time came to evaluate the file for conversion, those borrowers were denied the permanent mod.

Oddly enough, what was a primary cause of the subprime lending crisis? Lenders not requiring full financial disclosure.

At least some things come full circle. The bright side to all of this is that, hopefully, people being placed in trial modifications will be more likely to be eligible -- HAMP now requires these disclosures be submitted prior to a trial mod being issued.

A report recently issued by National People's Action indicates that Bank of America, which acquired Countrywide when it failed, is now the largest mortgage loan servicer in the United States. On a national level, Bank of America owns over 14 million residential mortgages that are worth $2.159 Trillion.

In Chicago alone, Bank of America was responsible for almost one in five of the 23,000 new foreclosure filings in 2009. It is likely that a good number of these mortgages were eligible for the Making Home Affordable program -- over a million of BoA's delinquent loans were eligible. Unfortunately, only 5.8% of those loans were offered a permanent modification. For those who don't like to do math, that's 62,969 permanent mods out of 1,086,894 eligible homeowners.

The National People's Action report has a wealth of information. You can find it here. We will be adding more posts on this subject in the next two weeks, check back often and learn just how deep the rabbit hole goes.

Two days, two articles, two different viewpoints. If you listen to NPR, you may have heard the segment on the "troubled Obama mortgage program." If you read MarketWatch, you may have read that loan modifications are on a sharp rise. So, which one is right? Oddly enough, both are pretty accurate once you filter out the spin.

After the jump, I attempt to do just that.

Continue reading "The HAMP Program -- Success or Failure? It Depends Who You Ask." »