The Home Affordable Modification Program was designed to help homeowners weather the foreclosure crisis and (hopefully) keep their homes. Unfortunately, bad behavior by mortgage lenders and servicers made this process kludgy and unfair. Many people were initially told that they had to be in default before they could apply for assistance. This was untrue. New rules now prohibit the practice, but have not stopped it.
The New York Times reports that lenders claim 38% of the failed loan modification applications were the fault of the borrower—they did not complete their paperwork or failed to make a first payment. However, I’ve seen countless loan modification applications go through umpteen rounds of “we need more documents.” In some cases, entire applications had to be resubmitted because lenders sat on them for so long that the documents went out of date. To describe the process as Kafkaesque is an understatement.
According to a recent report (the subject of the NYT article linked above), the banks have rejected four million loan modification applications. That’s the number of people the program was supposed to help. Citimortgage rejected 87% of the applications that it received. Chase denied 84%. Bank of America rejected 80%. Wells Fargo rejected 60%—which makes it seem good in comparison. With numbers like this, it’s evident that the banks have made a mockery of the HAMP program. Hopefully this will lead to more enforcement action by the CFPB and the FTC. While we cannot help those who were already thrown under the bus, penalizing the banks that behaved the worst would send a message. Given that the CFPB has been aggressively stepping up its enforcement efforts, I remain hopeful that we’ll see more press releases coming from our regulators in coming months.