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No Appeals Process on Loan Modifications

Phoenix The relentless rise of foreclosures through metro Phoenix continues unabated, as borrowers try to hang on and many assisting beleaguered homeowners tear their hair in frustration in dealing with unaccountable and uncommunicative lenders and an inept government.  I spent a chunk of my day reading the handbooks and guidelines for the HAMP program (Home Assistance Mortgage Program), designed to make a difference and funded with billions, and its regulations for servicers as well as new laws in Arizona that were changing the environment for victims getting assistance.  It was difficult to find much hope for homeowners.

The best examples are in the HAMP guidelines for services.  I read the checklist with some initial hope on the column with the mandatory language for what they “must” do for borrowers, but the other column often diluted those requirements completely.  Worst, there are no penalties, even in the breach, because in a rarity for a huge, federal program, since Treasury and HUD allowed banks and investors to participate in loan modifications “voluntarily” at the end of the process all the discretion is left to the lender with no explanation necessary and no appeal available.

In effect the program was allowed to create a waterfall process of what looked like “requirements” and then pull all of the teeth later by not including any real enforcement for infractions.  The “appeal” process in effect becomes reapply for assistance.

Some of the advice becomes an exercise in a “catch-22” process.  To win a modification you have to be in arrears, so many homeowners have no choice but to stop payments to force consideration, but later not having continued or made later payments can also disqualify you for a modification!  In Phoenix we have run into some counselors who advise bankruptcy in order to stop the process, although bankruptcy judges do not have the power to force bank medications of a primary residence thanks to the US Senate’s failure to change this in 2009 on the Durbin Amendment.  A delay in the foreclosure becomes defined as a “win,” since increasingly real modifications that work seem impossible.  Others say “appeal” even though there is no appeal process.

Not surprisingly, the new Arizona laws were more on the side of trying to claim “consumer protections” than banker accountability, so these laws might take out some bad operators (which is good), but still leave homeowners by themselves up against the bankers with less and less home for their homes.

We need to rewrite the rules on this program to make it work, and an appeals process to correct bank errors and force the process to work would be a minimum first step.