January 4, 2010

AP Publishes Columnist’s Rip At Govt.’s Permanent Break for Home Relief Income-Fudgers — On Christmas Day

MakingHomeAffordableLogoThe Obama administration’s Home Affordable Modification Program (known as “HAMP” to lenders and services, and MHA, or “Making Home Affordable” to the general public) is “failing.”

I only learned this because I looked at the Associated Press’s feeds on Christmas evening and saw this headline — “No consequences for lying borrowers.”

In an item time-stamped December 25, AP national business columnist Rachel Beck (note: not a reporter) used language that would ordinarily cause many in the press to characterize such a person as a hard-hearted meanie to describe the results of this core Obama initiative this far:

No consequences for lying borrowers

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.

…. The program isn’t working like it’s supposed to.

…. 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.

The directive was actually issued on December 16 (PDF). Its first few paragraphs read as follows:

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.

Note the word “permanent.” It would appear that for the duration of the program there will be no consequences to loan modification applicants who seriously understate their income in an attempt to get approved for lower payments. If caught, they just have to revise what they previously submitted. Unless the dark side of human nature has magically changed during the past Christmas season, this will of course encourage unethical applicants, a number of whom surely fudged on their existing mortgage apps, to see how much fibbing they can get away with.

Here is other choice text from Beck’s blast (some of what follows was between sections already excerpted above):

…. 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.

…. Since March, just 31,000 homeowners have won permanent relief (out of 728,000 modifications under way, according to a December 10 program press release — Ed.). One big reason why is that lenders are doing what they should have been doing all along – requiring things like proof of income.

…. Under the $75 billion program, lenders are paid by the government to alter mortgages in hopes that cheaper loans will lead to fewer defaults.

…. 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.

…. 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.

…. Dishonesty fed the housing bust. Let’s not let it ruin the chances for its repair.

AP beat reporters and the rest of the press had roughly six business days before Christmas to find this news and report on it. Based on the results of a Google News search from December 16-23 on “loan modification trial” (not entered in quotes, sorted by date with duplicates included) would seem to indicate that almost no one did.

Of the 143 results returned, a large plurality were of Alan Zibel’s December 21 AP report on the program’s status. Zibel revealed nothing about the permanent HAMP waiver. The only listings that I saw that even hinted at the existence of the permanent waiver of the income-fudging start-over in its headline were two (here and here) at eCreditDaily.com and one MortgageNewsDaily.com. Even those titles (“New Rules Poised to Speed Up Foreclosure Rescues,” “‘Critical’ Waiver Should Speed Up Mortgage Redos,” and “HAMP Waiver Eliminates Trial Period Restart Rule”) were vague — especially compared to Beck’s. Distressingly, quite a few of the remaining results seem to blame the mortgage lenders and servicers for program’s problems, with very little fire directed towards the bureaucracy or at borrowers who are fibbing or not following through.

A Google News search (previous 30 days) on the first sentence of Beck’s column (in quotes) came back with 83 results. Those results indicate that Beck’s column was carried on these days Christmas Eve – 1 (in Oakland); Christmas Day – 67; December 26 – 9; December 27 – 3; December 28 – 1; December 29 – 2.

Thus, 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. It will more than likely stay virtually unknown, unless readers here change that.

Cross-posted at NewsBusters.org.



  1. [...] Cross-posted at BizzyBlog.com. [...]

    Pingback by AP Publishes Columnist’s Rip At Govt.’s Permanent Break for Home Relief Income-Fudgers — On Christmas Day | The Cliffmaster — January 4, 2010 @ 9:01 am

  2. Suggested Action Items:

    - Shareholders should remind their Banks of their fiduciary duty to the shareholder: limit waivers to the trial period for liars, so the honest shareholder gets their deserved return on investment.

    - Depositers can do the same: Remind their banks of their duty to protect their deposits. Do not reward liars (and, in this case, it is High Income liars!!!) Similarly, do not reward bank/lender employees who allowed sloppy loans. Do not reward managers who allowed sloppy loan procedures. If bank managers announce a metric like this — flat raises if more than TBD number of an employee’s loans receive an application for a High-income Liar’s Loan — that’s (a) an interesting disincentive for the employee who created the Liar’s Loan to solicit for modications, to avoid attention to his past submissions; and (b) an interesting incentive for the honest employees to solicit for the modications, to expose their co-worker, the one who WAS getting the big bonuses with fast, high volume, but sloppy paperwork and now can get the deserved negative attention.

    My 2 cents.

    Comment by Cornfed — January 4, 2010 @ 10:11 am

  3. #2, if a bank is going to be in the program, it has to obey the Treasury directive, or face legal action from the fibbers. I believe participation in HAMP may also be mandatory for banks with certain levels of bad loans.

    IOW, the authoritarians are abusing their authority at the expense of the affected banks. This is an object of example of what authoritarians always do.

    Comment by TBlumer — January 4, 2010 @ 10:24 am

  4. [...] low monthly payments by issuing a mid-December directive ordering participating lenders not to penalize applicants for having done so. Associated Press columnist Rachel Beck describes this move as “reward[ing] [...]

    Pingback by Pajamas Media » Fan and Fred: Frauds by Design? — January 8, 2010 @ 2:16 am

  5. [...] low monthly payments by issuing a mid-December directive ordering participating lenders not to penalize applicants for having done so. Associated Press columnist Rachel Beck described this move as [...]

    Pingback by BizzyBlog — January 10, 2010 @ 8:32 am

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