Obama’s Shame: The Affordable Home Loan Modification Program

by Richard H Frank

It appears as though the U S. Housing market is about to enter a double dip with forecasted values to drop an additional 25% for existing homes.  Add this impact to potential sales and existing mortgages under water, now estimated to be 23% and 6 million verging on foreclosure, and the perfect storm for destruction of an industry is in place.  The average number of vacant properties in the United States stands at 13% with states likes Florida, Michigan and Arizona experiencing 50% abandoned properties.  We must ask what happened to TARP and the highly touted Obama Affordable Home Loan Modification Program?

When the banks were bailed out and extended hundreds of billions of taxpayer dollars to find ways to protect “troubled assets,” part of those funds were targeted for home loan modification programs.  The general rules for qualification to receive a modification were:

  • A major change in income status
  • Mortgage principal and interest, taxes and insurance payments to exceed 31% of income
  • A hardship must be present stemming from health, marital status or other catastrophic condition.

The program was initiated in December, 2009 and to date of the 2.5 million applicants, only 1 in 4 have been granted some sort of modification.  The total TARP funding for the program was $75 billion and to date only $1 billion has been appropriated.  The banking industry continues to sit on $74 billion and continues to stonewall applicants at every opportunity.

Tactics employed by the banks include:

  • Not including a request for all documentation required upon application
  • Claiming submissions are incomplete when evidence shows all criteria has been met
  • Requiring re-submission of documents over and over again under the guise that Federal requirements have changed
  • The response to monthly follow-ups is that the application is in process
  • The application is in Underwriting, although no contact information is available
  • Referral to the “Hope Department” to assure all documentation as been received
  • Being advised that the only modifications being granted are in the case of death of spouse or divorce

The above process takes from 12-15 months while the homeowner is being advised to keep making payments in order to avoid foreclosure.

Oddly, the Foreclosure Department and the Loan Modification Departments do not communicate as late notices, letters of intent to accelerate and requests to sign a Deed in Lieu of Foreclosure continue to be received by the homeowner.  Bank representatives arrive, unannounced, at your home to prove occupancy and assure the premises has not been abandoned, giving the confused homeowner hope that the bank might be forthcoming with an affordable modification.

Following 15 months of frustration, the homeowner receives a boilerplate notice of rejection for either being current or not being qualified as to meeting requirements of the program.

“The Affordable Home Loan Modification Program” is just another sham like cash for clunkers and stimulus cooked up by the Obama Administration  with the help of the banks who received TARP, characterized by understaffing at the banks for administration, overloading underwriters with applications and sloppy or intentional mismanagement of documentation in an effort to reject otherwise legitimate claims.

Perhaps the impending double-dip recession in the home real estate market will bring the banks to their senses.  Keeping people in their homes and receiving lower interest payments in the short term until the market recovers is a good business decision and seems to make more logical sense than forcing up to 50% of mortgages into foreclosure and/or bankruptcy.  When the market recovers, be it in 5 or even 10 years, the mortgage holder will be made whole when the property (today’s “troubled asset”) finally sells.  That property will have been maintained and hold its value as opposed to having been abandoned.

As for the 600,000 mortgages that have been modified, this will be the only salvageable “talking point” that the Administration and the banks will have.  Unfortunately, there are 2.1 million applicants, many of whom are better able to maintain their mortgage under modification, than those that have been approved that are in peril of losing the largest investment of their lives.  Where are Obama and all the politicians that bailed out the banks to come to their aid?  Perhaps the Government should demand the return of the $74 billion in TARP funds that the banks are withholding from the program.  After all, that money belongs to “We the Tax-Paying People”.

I doubt that even a further deterioration in the housing market and leading to a total collapse will wake the mortgage holders to the peril they face by mismanaging the Modification Program.

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