Denied Loan Mods Reviewed by Lenders?

Oh boy…this one might get your blood boiling, especially if you’re a homeowner who has been denied a loan modification under the government’s HAMP program.  (By the way, I recently wrote an article about the shortcomings of HAMP, which might be worth reading for a little background). But back to the issue at hand:  Kate Berry of American Banker recently wrote about yet another problem with the program, one that reeks of conflict of interest.

Borrowers who have been denied loan modifications and want to have their case reviewed can call the Homeownership Preservation Foundation.  Sounds innocent enough, right?  Well, as it turns out, HPF is a nonprofit that began as an in-house division of mortgage lender Residential Capital LLC, a unit of Ally Financial Inc., according to Berry.  By the way, Ally is the new name of GMAC Inc.  The article continues:

The foundation’s board is dominated by GMAC and other finance officials; its chairman is the former CEO of GMAC’s ResCap unit.

So, essentially what we have is a nonprofit group funded by loan servicers charged with the task of resolving disputes between borrowers and those very same servicers.  That sounds like a very blatant conflict of interest to me.  But of course, the government has a plausible explanation…according to Berry, “the foundation had already created the 888-995-HELP toll-free hotline, and the Treasury did not want to have to reinvent the wheel.”

We didn’t want to confuse borrowers further,” said Cindy Gertz, the director of operations in the Treasury’s homeownership preservation office.  “We were leveraging the infrastructure and brand that already existed.”

Ummm…”the brand that already existed.”  Well, you ask a stupid question…you get a stupid answer.

But the obvious problems with this conflict of interest have already arisen.  According to the article:

Several distressed homeowners who contacted American Banker said servicers refuse to give explanations for denied mods.  Many were put into trial mods at a reduced payment but were later denied and are now in worse shape because servicers demand that any arrearages be paid in full for the loan to become current.

Oh, and all this on the taxpayers’ dime.

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