More Foreclosures as Homeowners Redefaulting on Modified Loans
Scores of homeowners are once again facing foreclosure in Miami and across the country, even after receiving home loan modifications, calling into question the effectiveness of the program and oversight by the Treasury Department.
Our Miami foreclosure lawyers understand that the government watchdog for TARP, or the Troubled Asset Relief Program, has released a report to Congress which shows that nearly half of all homeowners who received help through the federal government’s Home Affordable Modification Program have since redefaulted. TARP’s inspector general additionally reports that nearly 40 percent of those who received home loan modifications the following year are in the same position.
TARP was formed in order to extend an opportunity to borrowers to remain in their homes. Under HAMP, homeowners, servicers and investors are each eligible to obtain incentive payments that will make those home loans more affordable.
The overall redefault rate for HAMP is slightly more than 25 percent.
There were doubts when these programs were unveiled that they would be able to rescue borrowers from foreclosure. Some say the concept is solid, but that the Treasury Department failed in its duties to effectively structure penalties and incentives to mortgage servicers.
The inspector general report indicates that for all the misconduct that was carried out by servicers under the HAMP program, no penalty was ever paid. Treasury Department officials have fired back that they have never been given the authority to impose penalties. As one administrator said, the industry was a “mess” at the beginning of all of this. There were no clear standards for how to modify loans on a massive scale.
Still, that doesn’t excuse banks from attempting to cut corners at nearly every turn in an effort to boost their own bottom lines – regardless of the effect that would have on homeowners, the taxpayers who bailed them out or the market as a whole.
Despite the government setting aside some $40 billion to TARP support programs, only about $8.5 billion of that (roughly 22 percent) has been spent on programs that directly help borrowers.
Taxpayers have also funneled about $815 million in incentives to banks through the HAMP program as a means to encourage modifications. Since the program started, some 165,000 loans have re-defaulted.
Part of the problem seems to be that homeowners haven’t been receiving the kind of modification help they need to actually make a difference. The inspectors report showed that the homeowners who were most likely to default were those who were receiving a reduction of less than 5 percent of housing expenses. In many cases, that was not enough to keep them from being underwater on their mortgages. Some, but not all, of those individuals also had high debts overall and credit scores that were considered subprime.
That seems to be indicative of the fact that the bank likely should have never approved many of these loans in the first place. However, rather than take real steps to correct the problems, using the taxpayer incentives they have been provided to do so, banks once again have been taking the easy way out.
The inspector general outlined four recommended course’s of actions to improve the overall effectiveness of these loan modification programs.
- The Treasury Department should conduct a study to determine the root cause of the defaults, requiring servicers to provide additional information. Those findings should subsequently be made public.
- The Treasury Department should modify HAMP and other TARP programs in order to slash the number of redefaulted loans.
- The Treasury Department should mandate that servicers develop and implement a systematic course of action to would identify borrowers at risk of default and take action to prevent that from happening.
- Lastly, the Treasury Department should withhold all incentives from those services who aren’t providing borrowers with any alternatives to foreclosure.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.