Is HAMP a Wolf in Sheep's Clothing?

HousingStorm contributors have already described HAMP loan modifications as potentially criminal and the most exotic mortgage yet, but they could actually be something even worse, thanks to some very fine print.

By agreeing to a trial loan modification, a borrower waives all notification rights as the foreclosure process continues.

McClatchy News Service reports:

These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won’t get help after all.

How many is hard to tell. Lenders participating in the administration’s Home Affordable Modification Program, or HAMP, still don’t provide the government with information about who’s rejected and why.

…

In the fine print of the form homeowners fill out to apply for Obama’s program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.

This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

That’s what happened to Evangelina Flores, the owner of a modest 902 square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.

“The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December,” said George Bosch, the legal administrator for the law firm of Edward Lopez and Rick Gaxiola, which is handling Flores’ case for free.

Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.

Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.

“They arrived real demanding, saying that they were the owners,” recalled Flores. “I have high blood pressure, and I felt awful.”

Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days.

…

How could Flores go so quickly from getting government help to having her home owned by Shark Investment? The answer is in the fine print of standard HAMP documents.

The Aug. 25 cover letter from Central Mortgage Company, the servicer that collects Flores’ mortgage payments, offered Flores a trial modification with this comforting language:

“If you do not qualify for a loan modification, we will work with you to explore other options available to help you keep your home or ease your transition into a new home.”

CMC is owned by Arkansas regional Arvest Bank, itself controlled by Jim Walton, the youngest son of Wal-Mart founder Sam Walton.

A glance past CMC’s hopeful promise finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders.

The document warns that foreclosure “may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law.”

This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn’t qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner.

Until now, lenders haven’t even had to notify borrowers in writing that they’d been rejected for permanent modifications.

In January, 11 months after Obama’s plan was announced, homeowners will begin receiving written rejection notices, and the Treasury Department finally will begin receiving data on rejection rates and reasons for rejections.

So, in the scenario of a family that has fallen behind a few months, their bank could offer them a trial HAMP modification to squeeze a few more payments out of them. Then, the bank could immediately foreclose at the end of the trial without giving any reason or warning, just as the homeowners believe they are getting their lives back on track.

Just more proof that HAMP legislation was drafted by bankers.