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Monday, January 4, 2010

Obama Administration's Dec. 16 HAMP Directive Forgives Mortgage Liars and Cheats

Continuing on the theme of creating a new housing bubble, Tom Blumer at newsbusters.org has found this interesting little tidbit via business columnist Rachel Beck, the AP, and the Obama Administration's HAMP (Home Affordable Modification Program) directives.

From Beck:

"The government shouldn't reward liars. But that's the effect of changes to the Obama administration's failing program to help homeowners modify their mortgages.

"Until recently the rules were clear: if you grossly understated your income to qualify for the program, you had to restart the loan modification process. It made sense. After all, we got into this housing mess partly because too many people were dishonest about how much they made.

"Fast forward to today. The federally funded Home Affordable Modification Program was aimed at getting banks to rework mortgages for homeowners in order to slow the pace of foreclosures. The government set a goal of modifying up to 4 million mortgages over the next three years.

"The program isn't working like it's supposed to. Since March, just 31,000 homeowners have won permanent relief. One big reason why is that lenders are doing what they should have been doing all along - requiring things like proof of income.

"How's the government responding? By letting homeowners who fudge their income numbers off the hook with little more than a wink and a nod."

[...]

"Under the $75 billion program, lenders are paid by the government to alter mortgages in hopes that cheaper loans will lead to fewer defaults. In most cases, modifications lower interest rates on home loans. Lenders also offer grace periods, longer repayment schedules or lower loan balances.

"Borrowers say lenders are permitting trial modifications, but few are being made permanent. Lenders say borrowers aren't providing all the necessary paperwork to get loans permanently altered. Many lenders don't require documentation of income upfront. First, they'll make a verbal agreement with a borrower for a modification, and then verify the income once the trial period starts.

"The government needs this program to work - and fast. That's the only way to explain the Treasury Department's waiver of a requirement punishing borrowers who understate their income by 25 percent or more when trying to get a modification.

"That means a borrower who had told a lender he made $75,000 but was found to make $100,000 doesn't have to restart the modification process. Under the waiver announced Dec. 16, that person now gets to continue the trial period instead of being rejected immediately. [emphasis mine]"

[...]

"The housing market's collapse wasn't just caused by lenders issuing risky loans to borrowers who couldn't afford them. More than a third, or 4.3 million, of the home loans issued from 2004 through 2007 were for borrowers who provided no or little documentation of their income, according to real-estate data company First American CoreLogic."

The HAMP directive Beck refers to can be found here. Issued on December 16, it states:

"Critical Home Affordable Modification Program Waiver Granted to Participating Servicers

"Effective today, a new critical Home Affordable Modification Program (HAMP) Waiver is granted to participating servicers, as detailed below.

"Permanent HAMP Waiver for Elimination of the 25% Trial Period Restart Rule #20091203

"Supplemental Directive 09-01 (issued April 6, 2009) required borrowers to be reevaluated for a HAMP trial period if their verified income (as evidenced by the borrower's documentation) exceeded the initial income information used by the servicer to place the borrower in the trial period by more than 25%. The borrower would be reevaluated based on the program eligibility and underwriting requirements and, if eligible, would have to restart the trial period.

"With the issuance of this waiver, borrowers are no longer required to restart the trial period. The trial period payments would not be adjusted, but the permanent modification terms would be based on the borrower's higher verified income."

Nice, huh? The fed is spending $75 billion with a directive almost calling for an official lack of oversight.

Blumer's piece emphasizes the lack of publication and play of Beck's article, saying "a truly revolting development in a costly program that is distorting the housing market, creating mountains of paperwork, and straining private-sector resources has gone virtually unnoticed."

I couldn't agree more. And the question must be asked as to why this $75 billion program (the very merits of which are debatable) is now being designed and modified to help liars and cheats.

More evidence of a new housing bubble?

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