HAMP Permanent loan modifications: Where there’s a will, there’s a way

This article discusses the conversion of HAMP Trial Modifications into Permanent Modifications. It shows what CAN be achieved if the goal is, in fact, to create permanent modified loans. It shows at least two companies that are achieving an 83% success rate, and reveals the bigger lenders such a JP Morgan Chase converting, for instance, believe it or not, only 1.46%! Compare the following numbers:

Ocwen holds more than 27,000 HAMP-eligible loans in its servicing portfolio, and has offered more than 23,000 trial period-plans. Of those, 19,000 trials have started with 12,000 modifications in permanent status.

HomeEq holds 16,000 HAMP-eligible loans and has extended 5,500 trial offers. The servicer has converted more than 2,200 trials into permanent status. A spokesperson for HomeEq said the numbers speak for themselves and declined to comment further.

By comparison, the big-four banks all held conversion rates in the same range. Bank of America (BAC: 15.56 -1.58%) and Wells Fargo (WFC: 28.17 -2.39%) both converted 25% of their trial modifications into permanent status. JPMorgan Chase (JPM: 38.53 -1.46%) converted 22% of its trials, and the Citigroup (C: 3.86 -2.53%) servicing arm CitiMortgage had a 21% conversion rate.

It should be noted that those banks hold hundreds of thousands of HAMP-eligible loans in the portfolios, compared to the smaller amounts for Ocwen and HomeEq.

But Ocwen, at the outset of HAMP, would not move a borrower into a trial modification until it received all of the documentation. More than 227,000 trial modifications were canceled for the entire program when the servicers found the borrower ineligible for a permanent modification or the borrower missed a payment. In January, the Treasury forced all servicers to collect documentation before the trial stage by June 1, 2010.

Treasury has recognized that our upfront documentation approach, while process-intensive, benefits homeowners and the program — and that approach is now required of all HAMP servicers,” Faris said. (As of June 1, 2010)

One Theory about WHY this is the Chase Case:

The large banks don’t want to incur the expense of REOs so they use “promises of modified loans” to keep the property in reasonably safe condition, mowed lawns, fixed leaks, secure and locked… While actually collecting anywhere from 3 to 12 monthly mortgage payments in the course of each year. There is no accountability in terms of communicating with borrowers seeking modified loans. So any paper trail evidence of why a loan modification should have been approved at a certain time but was denied is absolutely impossible to prove.

But the sheer volume of lost paperwork and documentation reported by an astoundingly large percentage of borrowers who tell of their experiences in court or in letters, complaints or online blogs, shows beyond a shadow of doubt that there is, at least, little or no effort to respect the process of achieving successful PERMANENT HAMP loan modifications for sub-prime borrowers. Endless nearly identical reports of applicants stating that they faxed and/or mailed all the required paperwork over and over only to be denied permanent loan modification with the reason cited as being missing documentation!

If the larger services such as JP Morgan Chase used the same approach as Ocwen and HomeEq, the effective revenue stream from distressed families trying to keep a roof over their families’ heads would cease!

Wouldn’t low income families be better off saving their pennies for the likely eventuality of a homeless family as opposed to sending JP Morgan Chase $1,000 or so dollars a month for a seemingly open-ended amount of time when the likelihood of not getting thrown out of their home — even after paying all the months of trial payments is only 1.46%. You wouldn’t want to play Russian Roulette with a loaded revolver at those odds, would you?

Given the larger banks resources as compared to Ocwen, one can only surmise perhaps  a different agenda, that appears to not include, financial motivation to enter a new lender/borrower long term agreement for a lower interest rate loan. And a closer look under the hood can give us some insight into why a bank such as JP Morgan Chase doesn’t have a lot to lose by not achieving long-term, low interest permanent loan modifications: Many of the JP Morgan Chase sub-prime loans were purchased from WAMU at 3-cents on the dollar. That means that Chase has, on a $300,000 loan a basic investment of $9,000! That’s 1 1,200% profit! There is virtually nothing that Chase can do but profit from such a loan, even if the home is foreclosed and sold at auction for 40% of the original loan value, which is still easy to do in most cases, such a foreclosure would net Chase before expenses an instant profit of $111,000. Having that much money for 40 years in your own account versus the risk of collecting it from a borrower who is experiencing financial hard times is a much tastier treat for sure!

The main point is that when motivation is a factor, HAMP Trials can become permanent.

If you step back from this picture for a bigger perspective, the picture becomes quite clear! A smaller servicer such as Ocwen Financial has a LOT to lose if these homes become bank owned property: REOs. They did NOT pay 3-cents on the dollar for these loans and have a lot at stake if they all default!

The lesson is clear. Banks are in the business of making money! As much as they can and as fast as they can. They are not in business to keep roofs over families! Since in the case of JP Morgan Chase, a 40-year very low interest mortgage with a borrower in financial trouble is not nearly as tasty as an instant

2 Responses to “HAMP Permanent loan modifications: Where there’s a will, there’s a way”

  1. Hello, great article!! I got you bookmarked. Thanks and best wishes

  2. While we’re discussing HAMP Permanent loan modifications: Where there’s a will, there’s a way Foreclosure Victims’ Blog — Foreclosure Law, If the loan modification company can’t give you a solid idea of what their REAL success rate is in getting quality loan modifications done that allow the borrowers to stay in their homes at their current income level, then you need to look elsewhere.