Foreclosure Modifications, Killed by the Cure

Advocates and Actions Financial Justice Foreclosure

Bailout OversightNew York City When the Inspector General of the Treasury Department starts agreeing with me that the Treasury Department and the banks are totally messing up the HAMP – Housing Modification Program – you just know it must be terrible!  And it is…according to a recent report in the Wall Street Journal by Jessica Silver-Greenberg:

The program “has undoubtedly put people into foreclosure,” says Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, which funds HAMP. “It’s a parade of documentation horrors.”

In a report to Congress on Oct. 26, Mr. Barofsky concluded that some borrowers seeking loan modifications through HAMP might wind up “worse off than before they participated.” Back payments, penalties and late fees triggered when homeowners are rejected for a permanent fix can push some borrowers over the edge, he said.

The medicine kills them when it turns out, as Arizona Advocates and Actions ( has documented repeatedly, there are pre-approved or given verbal instructions to modify payments and then through repeated paperwork snafus, the banks renege and leave the borrower stuck very far out on the limb.  They do not hesitate to dog pile the borrower then with add-on fees, late payments, and all manner of predatory charges because the borrower was following their instructions. Yet the program requires that the borrower has to successfully make 3 payments on the modified terms, so in no time the borrower is stuck like chuck.

But of course there’s no accountability at the top or the bottom.

“The Treasury Department doesn’t record how frequently errors occur with documentation on home loans submitted to more than 2,500 financial institutions and servicers empowered by the U.S. government to grant and reject HAMP requests. An outside review of borrowers denied permanent modifications disagreed with the servicer’s decision in 4.8% of the loans during the fiscal quarter ended in August.”

Our experience is that an error rate of 5% is way, way too kind to the financial predators at the table here.  But even noting that 1.4 million people have been tossed out of the program thus far (against the Obama Administration’s original goal of 3 million modifications), a 5% error rate would be 60,000 homeowners.  That number of mistakes along would decimate home communities in many states around the country.  Put the error rate more reasonably at 10 to 20% and we are dealing with 120,000 to 240,000 homeowners that could have saved their houses, but instead have been wrongly excluded and bounced to the street.

It is unbelievable that this can’t be fixed!