Monday, September 13, 2010

Mortgage modification, and the failures of government

I'm coming up on the first anniversary of being downsized.  God is good, and we've been getting lots of help from friends and family.  We've been very careful about doing anything that would impact our credit score.  We worked very hard years ago to clean up our credit, and we don't want to go through that again.

We have applied for a federally-assisted mortgage modification.  There are two programs, HAMP and HARP.  If you can figure out the difference between these programs please let me know.  All I could figure out is that no one at Wells Fargo seems to understand them.

Our mortgage is with Wells Fargo.  To say that Wells Fargo is disorganized on this would be a gross understatement.  I talked to 4 different people and they all told me completely different things:
* I can't qualify for HAMP because I'm not late on a mortgage payment.
* I should apply for HARP first, because it offers deeper modifications.
* I can't qualify for HARP because I'm currently unemployed.
* I have to apply for HAMP first, for some reason that was never clear.

I'm fairly confident that all of those are incorrect.  But I can't prove it.  Every person also gave me a different list of paperwork to fill out and information to send in.

I eventually talked to a guy who actually processes applications for the HAMP program at Wells Fargo, and he told me that he thought I would qualify.  So I decided to give it a try.  The list of paperwork he asked for was different from the paperwork that previous people had asked for, but I decided to just do what he asked for.

That person took my information over the phone and sent me out some paperwork on the process.  I got a call the next day from a different person in that same department who told me that he had been assigned as my case worker.  I got his direct phone number--something everyone else had claimed they could not give out--everyone else was based in a call center that only accepted randomly-distributed calls.

I received the paperwork, filled out my parts, and returned it.

Then the phone calls started.  Wells Fargo's HAMP group has an automated dialer that apparently calls everyone in the program randomly.  I've been called twice in a day a few times.  I've gone 3-4 days between calls a few times.  The first call was mildly interesting.  They asked if I got the paperwork and when I thought I would send it back in.  I sent it back in a few hours later.

The next few calls were wastes of time.  They simply said that their paperwork-receiving department must still be processing the paperwork.

Then I got a call telling me that they had received the paperwork, and that it looked complete.

Then I got a call telling me that I was missing my last two pay stubs.  I informed the person that I am currently unemployed, and that my last pay stub is from almost a year ago.  Per the instructions in the paperwork packet, I only provide pay stubs if I am currently employed.  "Oh.  I guess you are right.  I guess we don't need anything else from you."

After that the calls began to take on a comical tone.  They are just calling to tell me that they don't need anything else from me.  Now I recognize the number and try to save them time by asking, "Has something changed, or are you just calling me again to tell me that you don't need anything else from me?"  That usually elicits a laugh.

In the meantime I have been calling my self-professed case worker and primary point of contact.  I'm at least 12 voicemails deep on him.  His outgoing voicemail message says that the current date is August 23rd, which is about the first day I spoke to him (the only time I have spoken to him.)  I'm assuming he was let go, or something.

This morning I received yet another automated call.  And this lady told me that I had a new assigned case worker.  She gave me his phone number.  I just left him a message.

While we have been playing the phone aggravation game, Christy found an interesting article that basically accuses all of the major banks of outright fraud in their administration of the HAMP program.  You can read the article for the details.  Here's my short version:
HAMP is a two-stage process.  If you qualify you get a three-month trial period at a lower mortgage amount. If you make those three monthly payments on time then you get a permanent modification.  The government is theoretically paying the difference between your full mortgage payment and your temporary mortgage payment for those first three months.  And, theoretically again, the government and the bank are both contributing to the permanent modification.
The accusation is that people who qualify for HAMP and make their three temporary monthly payments are being rejected from the program and not getting the permanent modification.  And then the banks are pushing the houses into foreclosure and demanding that the borrower also repay the difference between the normal and temporary mortgage payments for those three months.
Apparently there are a few lawsuits started, and at least one that is looking for class-action status.  The banks' argument seems to be that they are never guaranteeing people that if they qualify for the temporary program then they will qualify for the permanent modification.  The banks are further claiming that their HAMP contract is with the government, and if they are breaching that particular contract then the borrower has no part of that contract and cannot sue.

They are probably legally correct about that second point.  I would advise them that being legally correct and being right are two different things.  But the courts will side with them on that point.

On the first point I'm sure that they are wrong.  I made a copy of the intro letter and HAMP application instructions that they sent me.  I redacted out my personal information and scanned it.  I've posted it in a PDF file, here.

What you will see on pages 2, 3, and 8 are sections that I have starred where they describe the process.  They clearly state that if you pay the three temporary payments on time then they will perform the permanent modification.  There are no further qualifiers.

If push comes to shove then they will probably argue that these instructions are not legally binding, they are just marketing fluff.  But that argument has failed before.  The courts will be less inclined to give the banks that pass.

The banks should instead just plead incompetence and start modifying those loans.  They won't do it.  But that is what they should do.

So, why do the banks cheat like this on the HAMP program?


The government forced the whole mortgage modification mess down their throats.  It is costing them lots of money to pay for the staff to administer this circus.  They are losing money with each modified mortgage--the government isn't paying for the entire loss.

When they modify a mortgage that mortgage gets removed from the tranche it was in as part of a CDO.  They are piling up losses in their CDO businesses, with no end in sight.

Christy suggested that we back out of the HAMP program.  As soon as I get to talk to my case worker I will ask point-blank about guarantees and additional qualifiers.  If he equivocates then I will almost certainly back out and put the house on the market.

What's the lesson here?  Government cannot effectively regulate business.  It's not for a lack of will.  Business is just too complex and adaptive to be mastered by a lumbering bureaucracy.

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