Within the past two weeks, we have had three or four homeowners either in or about to be in, foreclosure who clearly qualified for, yet were denied mortgage relief under the federal Home Affordable Modification Program, otherwise known as HAMP. One of those people was Tammy, and her story is indeed a compelling one. Tammy’s mortgage problems began about a year ago when her husband left her and her three young children, resulting in a loss of his income to contribute toward household expenses. Despite that fact, Tammy was able to raise the $7,000 she was behind in mortgage payments and offered that sum to her bank in February of this year, which would have paid her arrearage in full.
Now under the traditional lending model, where the bank you make your payments to is the owner of your mortgage, Tammy’s offer of a complete payment of arrearages would truly be a no-brainer for the bank – take the money, and add any other costs or fees incurred at the back end of the loan. But not so in this day and age of securitized lending, where loans are bundled by the thousands in loan pools or trusts and sold as stock certificates, making the bank collecting your payments simply a loan servicer, rather than the loan owner. And because your bank actually makes more money when you go into default, it has nothing to lose and everything to gain by driving you into foreclosure. Thus, foreclosure pays.
Tammy came face-to-face with this cold hard reality when her bank flatly rejected her offer of $7,000 to catch up on her arrearage. It did so on the pretense that she owed $3,000 in legal fees incurred by the bank for filing a foreclosure complaint against Tammy a month earlier. Giving away the fact that this was just an excuse to allow it to continue on with the foreclosure, however, was the fact that the bank made no proposal whatsoever allowing Tammy to pay those fees back over a period of time.
Tammy is far from being at the bank’s mercy however. As we see so often these days, she is the victim of phenomena we call a “false HAMP denial”. HAMP, which can lead to a substantial reduction in a homeowner’s payment is required to be offered by all banks which accepted federal bailout funds, which most did. Banks routinely refuse to qualify homeowners for HAMP relief because it is profitable to foreclose. The problem is that the unsuspecting homeowner doesn’t realize he or she is being victimized by not being offered HAMP relief, and there is no government agency to be found to enforce compliance with the Program by the banks.
Tammy clearly qualifies for HAMP relief, which will lead to her mortgage payments being lowered dramatically. In addition, it is noteworthy that Tammy’s loan is insured by the Federal Housing Administration. This is important since the FHA has a specific rule that loan servicers like Tammy’s bank must offer the homeowner the opportunity for a face-to-face meeting with the bank to discuss a resolution to the mortgage issues prior to filing foreclosure. What this means is that Tammy’s foreclosure is subject to dismissal on account of the bank’s failure to comply with this requirement. Thus, the matter could be a total do-over for the bank.
A do-over is not what we want for Tammy however. The goal is to achieve meaningful and long-lasting mortgage relief which will keep her and her young children in their home. We can achieve that goal by calling the bank out on its transgressions, thereby forcing it to come to the table and work with Tammy. Chances are if you are a homeowner with a troubled mortgage, like Tammy, you too have been victimized by your bank, in one way or another. However, in order to turn that victimization into significant mortgage relief, you too must call your bank out on its misconduct.
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Kate Eyster and Lauren McGookey contributed to this article.
Copyright 2013 Daniel L. McGookey