HAMP revamp continues to ignore program’s biggest flaws

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President Barack Obama’s plan to expand a much-maligned program that’s designed to help distressed homeowners to avoid foreclosure still fails to fix two of the biggest problems for consumers when it comes to getting a government-run loan modification.

Treasury Department announced Jan. 27 that the Home Affordable Modification Program (HAMP) would extend through December 2013, and that the program would be tweaked to allow more homeowners who are eligible to apply for enrollment.

But consumer legal experts say the revamp of HAMP doesn’t address concerns that mortgage-service companies don’t play by the rules. For instance, nothing stops mortgage-service companies from squeezing thousands of dollars from homeowners when approval for a permanently modified loan is delayed during their trial-modification period, and the homeowners must foreclose on the property anyway.

Consumers Digest first reported on these HAMP problems in “The Foreclosure Trap: How to Save Your Home” in the March/April 2011 issue. Under the terms of HAMP, which was created in May 2009, consumers who face the threat of foreclosure may apply for a loan modification through the government, but mortgage-service companies still determine who qualifies for a permanent modification. As of Oct. 31 (the most recent date for which figures are available), 46 of the nearly 2 million homeowners who qualified for trial modifications were given permanent modifications.

Under the new guidelines, the federal government will give $3,000 to mortage-service companies for each permanent loan modification that they approve. Under the original guidelines, mortgage-service companies received $1,000 for each permanent loan modification that they approve. But the increased incentive still doesn’t give mortage-service companies the motivation to do right by homeowners because, for most of the companies, an extra $2,000 per case amounts to chump change, says Diane E. Thompson, who is vice counsel for National Consumer Law Center.

Instead, Thompson says, the government should penalize a mortgage-service company each time that it bungles a homeowner’s modification request. For instance, critics blame the companies for losing paperwork, which delays or destroys a consumer’s chance at getting a permanent modification.

In addition, the changes to HAMP do nothing to eliminate the possibility that mortgage-service companies bury homeowners in trial-modification limbo that can last 6 months or longer (rather than the anticipated 3-month trial). As a result of the extended trial-modification period, a homeowner might pay thousands of dollars to prove he/she can meet the modified payment terms, only to have the mortage-service company reject the permanent-modification request and foreclose on the property. Consumers Digest contacted U.S. Department of Treasury, which oversees HAMP, to inquire about incentives and lengthy trial periods, but the agency didn’t respond.

If homeowners have any good news, it’s that the reboot of HAMP will allow more homeowners to apply for a loan modification. You now are eligible to apply for HAMP if your monthly loan payments represent less than 31 percent. The original debt-to-income threshold was at least 31 percent. In addition, rental properties (including investment properties) now are eligible for HAMP.

Although we’re glad that more homeowners will have the opportunity to apply for a loan modification, that doesn’t mean necessarily that it will be easier for them to qualify for a permanent loan modification or that they will face fewer obstacles along the way.

– K. Fanuko