The High Cost of ‘Foreclosure Prevention’

by Stephen Spruiell

A reader e-mails regarding my piece today:

I’m sure you’ll be getting a lot of letters like this one. I was one of the people personally fooled by the HAMP program.

As  my personal bankruptcy neared completion, I received a letter telling me I qualified for HAMP. I sent in the paperwork, was approved, and I was promised if I completed the program, I would get a permanent loan mod with a monthly payment at or close to $1100/month.

I completed the program.

I completed two additional months of payments and multiple requests for additional documentation, replicating what bank officials admitted they already had on file.

My income did not change. My assets did not change.

I was denied a permanent loan modification.

My house goes up for sale for foreclosure on November 12, for a debt of about $182,000 that has already been discharged via bankruptcy  on a $150,000 mortgage on a home that right now is worth less than $130,000.

It seems to me the bank would have made a lot more money just giving me a permanent loan mod based on the HAMP payment calculated. Instead they will take possession of a property that is falling apart and needs about $20,000 in repairs, and will likely sit vacant for a year before it sells for far less than it was worth when I signed the last mortgage.

The other wicked side effect of HAMP was, that by agreeing to the program, I WAIVED ALL RIGHTS OF NOTIFICATION. So, if I was not on top of things, I would not even know that a foreclosure had been scheduled as I sit here dumbly calling my mortgage company every week and getting nothing but a “we’re looking at a modification” over and over.

This just doesn’t make a lot of sense. The Treasury Department blames the high number of denied modifications on borrowers who either incorrectly stated their incomes or failed to make their trial payments in a timely fashion, but it doesn’t sound like either was the case for this reader, and the congressional aide I talked to for my piece said he’s heard similar stories from constituents. 

The only thing I can think of is that current accounting rules are structured so that banks can game the value of a foreclosed property on their books to make it look worth more than a written-down mortgage loan, so they’d rather own the property than take the subsidized modification. That seems crazy to me, but who knows? I’d be interested to hear from anyone with insight into why this is happening, as well as other readers who have had experience with this program. If lenders are canceling modifications on borrowers who meet all the qualifications and have made all their trial payments, that is a scandal. 

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