In 2009, when the federal government introduced the Making Home Affordable program, a two-pronged piece of legislation that included both the Home Affordable Refinance Program and the Home Affordable Modification Program (HAMP), the goal was to put a dent in the growing foreclosure crisis. HAMP was intended to reduce or eliminate avoidable foreclosures and make it possible for eligible homeowners, through permanent loan modifications, to stay in their homes. HAMP's government-backed mortgage servicer incentives were a mechanism that was intended to boost loan modifications and foreclosure alternatives in the form of robust loss mitigation efforts.
Generally speaking, HAMP has probably been a more successful mechanism for people with an income level sufficient to qualify for favorable terms on a loan modification. However, it has not been particularly helpful for the relatively large pool of defaulting homeowners who do not meet program criteria.
One of the unavoidable complications that accompany any sizable piece of complex legislation is administration. Clear and consistent communication – always a priority – becomes an absolute necessity when a new piece of legislation introduces an entirely new program, with new timelines, new conditions, new qualifying criteria and no background of established case law to resolve inevitable questions and dispute.
While the program has had some successes, opinion remains divided over HAMP's overall efficacy and efficiency. Borrowers continue to file lawsuits against servicers under various legal theories, including claims that their due-process rights have been violated. It seems clear that HAMP loan modifications do not implicate ‘property interests,’ and, therefore, due-process rights do not apply.
To date, borrowers have expressed uncertainty and confusion regarding HAMP's application process, particularly regarding the program's trial period plan (TPP). Homeowners have accused lenders and servicers of failing to fully explain homeowners' rights and obligations, asserting that vague or misleading language has had damaging – and sometimes costly – results for borrowers attempting to participate in the loan modification process and avoid foreclosure.
A great deal of the conflict and confusion seems to come from misunderstandings that arise during the application process. While lenders engage in a preliminary review to establish homeowners who may be eligible for HAMP loan modification relief, formal acceptance into the program is contingent upon the submission of a successful application and subsequent analysis. Application documents outline the formal HAMP application and approval process, including an explanation of the TPP requirement and a statement that lets borrowers know that they will be notified of their acceptance or rejection into the program once their application has been processed. It is at this point that confusion and misunderstandings often crop up.
Some of the primary concerns include the following:
- Borrowers who equate a HAMP loan modification application with a formal contract. This misunderstanding is exacerbated by misleading and unclear language, as well as portions of the application that have a contractual tone, including references to formal offers and requests for a signature;
- Homeowners who mistakenly believe that submitting a HAMP application is a guarantee that foreclosure has been delayed or avoided; and
- Lenders who fail to communicate in a clear and timely manner. The issues here are twofold: applications that feature vague or ambiguous language, and clerical mistakes and a lack of follow-up that leave borrowers uncertain as to where they stand.
An extremely high volume of applications and the uncertainty that is inherent to a new and still-evolving program complicates these common mistakes or miscommunications. While borrowers can become understandably frustrated with lag times and delays between filing application paperwork and getting fast, efficient and accurate responses back from lenders and servicers, the real problem is not delays, but the subsequent mixed signals. In cases where borrowers never receive notice of their application, they may believe that their situation is resolved or still pending while the foreclosure process is well under way.
The issue that has prompted much of the debate is what happens when that miscommunication turns into action: Some borrowers have actually started submitting TPP payments when they have not even qualified for the program. And some lenders have received and processed those payments without clarifying the situation to the homeowner.
Borrowers continue to attempt to circumvent the case law establishing no private right of action under HAMP by alleging alternative legal theories, such as third-party beneficiary, breach of the implied covenant of good faith and fair dealing, and unfair trade practice claims. Servicers have been successful in defeating these claims by filing motions to dismiss in the cases of Robinson v. Wells Fargo Bank NA, Seller v. Aurora Loan Services and Wigod v. Wells Fargo.
Emerging case law will answer many questions involving borrowers' rights under HAMP. Improved quality-control standards will help to minimize servicer liability in these types of cases. Consumer advocates argue that some of the most egregious communication failures are, in essence, a form of fraud.
To minimize liability concerns going forward, lenders should continue to take steps to ensure that homeowners have a reasonable opportunity to respond to a HAMP application denial with any new or additional information that may have a positive impact on their eligibility status. Servicers should refine and improve their HAMP application documents and communications, eliminating any vague or misleading language. Servicers must also make it clear that an application is not a guarantee of approval and should take steps to ensure that all communication with applicants is documented and recorded.
Clear, consistent and timely communication is the single best way to avoid costly and damaging misunderstandings. Establishing a single point of contact for borrowers in the HAMP pipeline is another key strategy that many lenders are employing due to regulatory issues. Improving access to information is also a positive step. Technology can be a big help in terms of speeding up the process of getting paperwork documented, filed and distributed. Technology can only go so far, however.
As a consequence, some lenders are opening field offices in various localities to assist borrower access to loss mitigation programs. Balancing human interaction with modern technology is the key to improving the loss mitigation process. Hopefully, these are the kind of steps that will help ensure that HAMP does not become an ongoing frustration for some borrowers and a tool to unfairly attack responsible lenders and servicers. Instead, HAMP can do what it was intended to do: help prevent avoidable foreclosures for eligible borrowers.
Geoffrey Milne is an attorney at Hartford, Conn.-based Hunt Leibert Jacobson PC, which provides legal representation in finance, foreclosure, bankruptcy and mortgage related litigation in both state and federal courts. He can be reached at (860) 240-9140 or at firstname.lastname@example.org.