Wondering why you can't get your Permanent Loan Modification?
Perhaps you've managed to get a "Temporary 3 Month Modification" under the Home Affordable Modification Program (HAMP) but are still stuck making those payments 4, 5, 6 or 7 months later, unable to move your Servicer forward into a Permanent Mod.
The Home Affordable Modification Program has been the darling of President Obama's Making Home Affordable Plan (it's currently being edged out by HAFA, but that's a subject for another post). When it was unveiled last year, its lofty goal was to enable as many as 4 million financially distressed homeowners to avoid foreclosure by working with their Servicer (lender) to modify the terms of their mortgage to a more affordable level. Unfortunately for the American homeowner, the reality has fallen far short of the goal.
Do you wonder why?
The Servicer's favorite explanation is that borrowers "just don't cooperate", i.e., they send in incomplete paperwork or they don't send it in at all or they fail to make their required Temporary Modification Payments.
Darn Deadbeat Borrowers. What's a poor Servicer to do?
Now, I'm sure there are some people out there that don't cooperate but I am here to tell you that in my work as a Southern New Hampshire Real Estate Agent who regularly works with distressed homeowners, I've run into far more situations where borrowers have done everything but stand on their head while spitting quarters in their efforts to cooperate.
So, what is going on here?
Why, despite infusions of millions of dollars of taxpayer money and the, alleged, best efforts of the Servicers, is the HAMP program failing? Why is there frequently such a discrepancy between the dollar amount of the Trial Payments and the Permanent Modification Payment? Why are people whose loans are owned by Investors that don't participate in HAMP being set up with Trial Payments in the first place?
Two words...SERVICER COMPENSATION.
It's the elephant in the room that no one is talking about.
Servicer income is largely derived from a percentage of the outstanding principal loan pool balance calculated on all loans (including the non-performing ones, I might add). Now, if you read the fine print on the Trial Modification documents you will see that it says that during the Trial Period the difference between what should be paid and what is being paid gets added to the loan balance.
Hmmm? So, during those 3 to 8+ months of "Trial Modification" when the difference between what all of those Homeowners should be paying and what they are paying is being added to their principal balance what do you suppose is happening to the Servicers Loan Pool Balance and, therefore, their compensation?
I'm telling you, when the Geniuses in the Treasury Department decided to back this whole idea for Trial Payments, the Servicing Community broke out the champagne and started doing the Happy Dance.
It's perfect; they have the Federal Government ADVERTISING for them. Helping them promote a program that fattens their coffers on the backs of the distressed American Homeowner, using our tax dollars to fund it to boot.
The key here is that under the Permanent HAMP Modification they cannot continue to add the difference between the old higher payment and the new lower payment to your loan balance so party time is over. This is why so many people who are initially told they qualify and are put into the Temporary Program are ultimately rejected for the HAMP program. But don't worry, your Servicer is there to help you and they'll offer you another Non-HAMP Modification. Read the fine print...you'll see that whatever you're offered, in all likelihood, is still adding that difference to your loan balance.
Until the whole issue of Servicer compensation is addressed, it is doubtful that we'll ever see folks who need it get meaningful modifications.
If you are as disturbed by this as I am, do something about it. Pass this information on; repost this blog, get people talking about it. Let's bring some attention to the elephant in the room!