aunt, a real estate agent, recently shared a disheartening story[/b] about a woman to whom she had once sold a house. In short, the homeowner contacted my aunt looking for advice. It appears the woman, believing her mortgage payments were placing too much of a strain on the household budget, had simply decided to stop paying. ‘Why?’ asked my aunt, astonished. ‘To qualify for federal aid,’ she said. To anyone who watched the Senate Banking Committee hearing on foreclosure prevention efforts two weeks ago, this little anecdote might not come as much of a surprise. It wasn't clear to my aunt whether someone – perhaps the woman's servicer or a disreputable loan mod company – had recommended this particular course of action, or if the woman had orchestrated the plan on her own. But given some of the examples of servicer misconduct brought to light during the committee hearing, either guess is reasonable. According to testimony from the National Consumer Law Center's Diane Thompson, servicers are routinely instructing borrowers to make up-front payments or waive legal rights before granting them trial modifications. In some instances, borrowers are being told that they have to be in default in order to be considered for Making Home Affordable (MHA). In case you were wondering, none of the above practices is recommended by the Treasury's guidelines. In fact, they're prohibited. So how does this sort of thing happen, you ask? Well, according to the Government Accountability Office (GAO), which keeps tabs on all TARP-related activities, the Treasury's administrative efforts are lacking in more than a couple areas. The GAO's recent congressional report on the Home Affordable Modification Program (HAMP) indicates that, among other shortcomings, the Treasury has failed to assess a servicer's capacity before admitting it into MHA. The Treasury's apparent indifference to whether a servicer can handle all the baggage that comes with a HAMP designation, of course, is not the sole reason borrowers are being given bad information. Staff training obviously plays a large part, too. But in the Treasury's attempt to sign up as many servicers as possible, as fast as possible, clearly too little attention has been paid to shops' operational limitations. On Tuesday, Obama administration officials and 25 HAMP servicers met to discuss ways to improve the program. Not much has been made public about the meeting, other than a short Treasury press release that basically reiterated information that was already known (e.g., servicer-specific performance results will be released soon, performance metrics will be developed, Freddie Mac will perform a "second look" audit on HAMP rejections). But here's hoping that those who participated in the meeting took a cue from the fictional Festivus holiday made famous by Seinfeld and held an "Airing of Grievances" ceremony. Over the past several months, servicers, the GAO, consumer advocates, lawmakers, the administration, borrowers and others have all underscored HAMP's imperfections. Now that the program's major flaws have been identified, maybe some meaningful tweaks will be made and homeowners like my aunt's former client won't be steered into credit-wrecking decisions. – John Clapp, editor, [b][i]Servicing Management[/i][/b] [i](Please direct all comments on this blog to clappj@sm-online.c
