Can restoring stability work?

Anonymous
Nov 22, 2012

Several years ago, Ohio, along with about ten other states, was awarded federal funds for the purpose of providing homeowners mortgage relief under a program known as Hardest Hit. Ohio’s share of funds amounted to just under $600 million. The distribution of that money ultimately fell under the control of the Ohio Housing Finance Agency. However the “front-line” administrators of the Program are the so-called HUD (Housing and Urban Development) Sponsored Housing Counseling Agencies. In other words, once a homeowner submits his or her online application for funds, that application is forwarded to the local housing agency for review and handling.

In theory, a successful applicant can be awarded up to $25,000 to be applied to reinstate his or her loan. “Reinstatement” typically means that the loan arrearages are paid, the loan is brought current with the homeowner simply resuming payments on the loan under the same terms as before. The first basic test for qualification under the Program is that the loan default was caused by a fairly substantial loss of income occurring within three years before the application.

The program is flawed in several serious ways. First, as indicated, it is generally meant to provide reinstatement relief rather than modification relief. The difference between these two types of relief is crucial for homeowners struggling to save their homes. In our experience, borrowers are in need of permanent relief on their mortgages, (lower monthly payments), if they are going to succeed in paying off the mortgage, not simply a temporary fix from the government throwing money at the loan servicer. Second, and even more important, the Program is fundamentally flawed in its design, whereby it requires the government agencies administering it to go on their hands and knees like beggars to the loan servicers to ask whether the servicer will accept the funds, giving homeowners the chance to succeed in paying on their mortgage and stay in their home. As I have said so often in this column, in the world of securitized lending, because it is profitable to foreclose, the servicer is generally disincentivized to grant a homeowner real mortgage relief, because it will profit through foreclosure.

In the case of the Bermans, the local HUD Sponsored Counseling Agency has indicated an intention to recommend approval of $25,000 in funds, more than enough to cover their $23,000 in monthly payment arrearages. The latest problem? Out of the blue, the Bermans’ bank has announced that an additional $23,000 in attorney fees need to be paid before it will accept the government funds! Those fees were allegedly incurred over the course of the Bermans’ eight-month foreclosure fight. In short then, the bank is trying to kill any chance the Bermans have of salvaging their home.

     However, despite the cruel, immoral and possibly illegal position taken by the Bermans’ bank, we firmly believe that they will be able to save their home from foreclosure. This is so since at its core, every foreclosure is an equitable action, meaning that the court has to decide whether foreclosure is the fair and proper thing to do given all the circumstances of the case. In the Bermans’ situation, we feel that the attorney fees demanded are excessive, to the point of being two to three times an amount which could be considered reasonable. That being the case, we have requested the foreclosure court to conduct a hearing on the issue of those fees. We are confident that the end result will be a substantial reduction of those fees, allowing the Bermans to gain the Restoring Stability funds, and stay safely in their home.

Note from the author: If you have questions or comments regarding this or any Foreclosure Story article, please visit www.mcgookeylaw.com.

Next week: The story of Josephine, whose foreclosure case was so flawed that the day before its scheduled deposition, the foreclosing bank did a tactical retreat by dismissing the foreclosure action, indicating that it wanted to work with her in granting real mortgage relief.

Copyright 2012 Daniel L. McGookey