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The “Fatal Flaw” in HAMP

Steven Gillan
Mar 09, 2011

Approximately 20 months into the Home Affordable Modification Program (HAMP) and the Obama Administration’s efforts to slow foreclosures with its many troubles still exist. This is evident from all the processing problems we still see and hear about on a daily basis, from lost documents; improper calculation of income; poor knowledge and implementation of the underwriting guidelines; four, six, 12 and 20 months for approval; and now, the robo-signing situation. The list continues, but yet after all this time, we do not see improvement. Now, we find a “fatal flaw” in HAMP that could be our last chance to fix the problems. What we do see is a level of frustration from all interested parties; we have the investor who hired the servicer under a Master Servicing Agreement (MSA) who cannot get their servicer provider to even respond to their inquires—plus a continuous stream of fees to deal with the foreclosure process. We have the homeowner who is making every effort to comply with the servicers’ continuous request for documentation. Then, there is our government representatives wondering just exactly what is going on? The plan in the beginning was to create the MHA/HAMP where the U.S. Department of the Treasury would provide an overall strategy, guidelines, policy directives and alterations as required to try and meet the overall objectives of stabilizing real estate values nationwide. The Treasury hired Fannie Mae and Freddie Mac to run the programs—Freddie as its compliance team and Fannie as the agency responsible for implementation. After all this time, it is evident the program is failing for reasons as mentioned earlier, what is to be done. To the Treasury’s credit, they have tried to work with the servicing industry to make the plan workable. The frustration is evident at the Treasury and in Congress with the failure of the servicer to follow guidelines as designed yet the servicer claim they are doing everything possible. Now we have the robo-signing issue which they (the servicers) have admitted to being part of. Let's review … after 20 months of failing to implement loan modifications, several million Americans who have lost their homes, millions of below-market real estate-owned (REO) properties waiting to hit the housing market, and abuses like "robo-signing," why is the government still not physically overseeing the work of servicers? What is the Treasury to do? They can leave it up to the courts or the attorneys general around the country, but that will take months if not years. The Treasury could implement a component in HAMP that deals with compliance. It is a tool that has been built into the guidelines for compliance of policy by the servicer. This job is contractually the responsibility of Freddie Mac. It is a tool that allows Freddie Mac to review the servicer operation and procedures to assure that all applications for HAMP are given the same treatment. This compliance operation is part of the Servicer Participation Agreement (SPA) that more than 100 servicers have signed with the U.S. Department of the Treasury. Part of this guideline is the “Escalation” process where a homeowner that has been denied a modification has the ability to have their case reviewed by the Treasury. The Treasury has hired the Homeownership Preservation Foundation (HPF) to handle those calls. According to the Treasury, it is the job of the HPF to work with the homeowner and servicer to try and iron out differences and act as an advocate of the homeowner with the servicer. The troubling part of the above process is this … during that “Escalation” process, no one checks the servicer work product. When this homeowner was denied a HAMP modification, or the process is taking 10-20 months, no one checks if the servicer underwriting was correct to begin with, no one request to see the files to determine if that homeowner does or does not actually meet the guidelines. Again, are we just to believe that the servicer did the job correctly or that the file is not being dragged on for financial gain. This is the “Fatal Flaw” in HAMP which will doom it to failure because no one is checking on the servicer. How can the Treasury assure the homeowner or the American taxpayer that the particular file did not “in fact” qualify for a HAMP modification if no one determines that it was underwritten properly? The servicer can do and say whatever they want and the Treasury or the homeowner has not recourse but to accept their conclusion. A strong “Escalation” process performed by a neutral third party can either affirm or dispute those finding. With cases that the decline is valid based on HAMP underwriting guidelines, everyone knows where they stand and they all can move on. In a case where the servicer did “in fact” make a mistake, a completed modification application, fully underwritten by a U.S. Department of Housing & Urban Development (HUD) Direct-Endorsed Underwriter would be given to the servicer for them to review and complete the process. This “Escalation” process would also give the Treasury the information they need to verify if the servicer is doing the right job and take action on those that are not. It would let the servicing industry know that they cannot continue to perform their job poorly because no one will check on them. The hope would be to get the servicer, due to competition the knowledge that they no longer have a monopoly on the process, to act properly.  Unfortunately at this time, the Treasury has stated clearly they have no intention of performing this function even though it is mandated by HAMP. It makes sense to actually “review” a file for accuracy and they have been presented with a plan to implement a program immediately by our organization, the American Alliance of Home Modification Professionals (AAHMP). Without this, what recourse is left to the investor and homeowner? The answer is possibly the courts, but that takes a long time which will continue to just further slow the process. This does not benefit anyone but the servicer. This “Fatal Flaw” needs to be corrected. Steven Gillan is executive director of the American Alliance of Home Modification Professionals (AAHMP), an association formed to establish nationwide, newly elevated, lasting and consistent operational and behavioral standards for the professional mortgage loan modification industry. Steven may be reached by phone at (631) 875-3181 or e-mail
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