The government’s response to the foreclosure crisis, the Treasury Department’s Home Affordable Modification Program is winding down.
On December 31, 2016 the seriously misguided foreclosure relief program will end. The program was designed to offer affordable payments by adjusting interest rates, extending the loan term, and reducing or forbearing principal. Instead, the program was typically used as a tactic to foreclose on an unsuspecting homeowner by providing erroneous information- like you must miss three mortgage payments in order to qualify for a modification. The end of the program will leave likely usher in a new strategy devised by the banks to “help” struggling homeowners.
The Consumer Financial Protection Bureau, created under the Dodd-Frank Act of 2010, is proposing consumer protection rules to create some uniformity and accountability among mortgage servicers, investors, government housing agencies and policymakers. Hopefully, policy makers will study the dismal failure of HAMP and create a new program that actually has teeth and enforces servicers to comply with already existing consumer protections.
Nationally, however, there were 533,813 U.S. properties with foreclosure filings in the first six months of 2016, down 20 percent from the previous six months and down 11 percent from the first six months of 2015, according to statistics provided by RealtyTrac of Irvine, Calif.
The consumer protection bureau’s proposals are designed to “inform the discussion of potential options to help prevent avoidable foreclosures,” it said.
Proposed features include access to a common and readily available loan modification application form, consideration for consumers not proficient in English, and protection from upfront fees. The program provides the illusion of helping homeowners, while it is used by unscrupulous loan servicers to ensure a default occurs.
“The modification program was put in place to provide alternatives to foreclosure,” said CFPB bureau director Richard Cordray.
“Our principles will serve as helpful guardrails for servicers, investors, and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages,” Cordray said.
Unfortunately, the proposals don’t establish binding legal requirements on mortgage servicers, who have absolutely no incentive to work with the homeowner.
The bureau’s proposals are designed to offer a meaningful payment reduction for borrowers and guarantee that repayment plans are affordable through the life of the loan. However, at Living Lies we routinely see modifications where payments increase followed by a large balloon payment at the end of the loan that strips any equity that might be created over the course of the loan. In fact, these modifications would typically violate consumer lending laws if they were new loans. However, there are no serious consequences when servicers breach the bureau’s “rules”, and overall the efforts are a waste of time.
The proposals are available at http://goo.gl/KPHfkq.
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