Can Mortgage Modifications be achieved outside of HAMP?

By Mildred Bauza, Esq.  Bankruptcyassistu.com

 Getting a mortgage modification is difficult but not impossible. Mortgage modifications come in varying forms and for different reasons. Typically, a homeowner will apply for a modification because they have fallen behind on their mortgage payments and need to capitalize that arrearage or formulate a repayment schedule of that arrearage, and/or reduce the monthly payment given their current financial situation. A homeowner does not have to be behind on their payments to request a modification. If there is a change in the homeowner’s financial circumstances or there is an impending change, such as notice that your hours or your income will be reduced in the near future, that may be sufficient to request a modification before there is a problem. Many banks will offer help under a myriad of programs sometimes developed by the lender or mortgage processing firm handling the mortgage or under a government sponsored program.

Under the Home Affordability Modification Program (HAMP), President Obama’s relief plan for homeowners, the homeowner must show that they cannot afford to make the current payment. There are very strict guidelines regarding income verification and documentation of expenses. A homeowner can’t make too much money nor make too little money as they must demonstrate, not only that they will have an ability to make the mortgage payment under the modification, but that they can meet their usual and allowable living expenses. Although, well intentioned, the program’s strict guidelines have made it difficult for families to benefit from the program. In fact, an executive summary of a 192 page report issued by a Congressional oversight panel indicates that HAMP will prevent approximately 700,000.00 to 800,000.00 foreclosures a figure far short of 3 to 4 million foreclosures they intended to stop. The report cited the Treasury’s failure to acknowledge HAMPS shortcomings in time as the primary reason for the program’s failure in preventing the number of foreclosures they had hoped. The program has very strict income verification requirements. Whether it is a government sponsored program or a lender sponsored program, the modification process requires detailed documentation of every conversation and interaction with the lender, meticulous attention to detail in amassing and submitting documentation, an inordinate amount of patience, and relentless persistence. You must be extremely responsive to requests for additional information. You have to exhibit the highest level of interest and concern for your loan constantly following up, at a minimum once a week, for as long as the process takes to conclude.  Success can be achieved but you must be dedicated, organized and above all persistent. If your lender or loan processor tells you, you do not qualify for a modification under HAMP or a refinance under Home Affordable Refinance Program (HARP); ask if they offer any in-house modification programs.
 I’ll share with you the stories of two homeowners who have attempted loan modifications in the last year. I have changed their names to protect the innocent as they say. I will call the first homeowner, Marissa. Marissa lost her business primarily due to the economic climate a few years ago. She utilized some savings for a time and did everything she could do to address her financial situation including taking on a housemate and putting the house on the market. When she realized that it would be a matter of time before she could no longer manage her finances, she applied for a modification in the hopes of lowering her monthly mortgage payment. A word of warning when the lender asks if you mind if the conversation is recorded for quality assurance, say no you do not mind. Those recordings forced the loan processor to honor their representations to Marissa on several occasions. There were times where a second representative denied the representations made by the previous representative and because she kept such copious notes of each conversation, Marissa was confidently able to direct them to listen to the tape anytime a discrepancy arose.
After several months of negotiations, the modification was denied for insufficient income to support a modification.  Having been denied a modification, she was also precluded from requesting another modification for six months.  Her housemate moved out shortly after the modification was denied forcing Marissa to rent the home outright and move back to her family’s home. Still struggling, she once again applied for a modification at the end of the six month period.  Her move back to her family home disqualified her for a modification under HAMP.  Although, in her mind, this home is her primary residence, the home she intends to return to when her finances allow, the home she has struggled to maintain, HAMP does not allow for the property to be rented. This system designed to avoid foreclosure penalized Marisa. When she relayed this experience to me she indicated she was embarrassed by her move back with her family. I found her actions honorable, epitomizing integrity. Renting the house and moving into her family’s home was something to respect and admire. Something to be applauded and rewarded not held against her. Fortunately, for Marissa, her mortgage processor also offered what they called in-house modifications. Under the in-house modification program, with approval from her bank and the understanding of a compassionate representative, sufficient assurances and documentation were provided to overcome this hurdle and a modification was approved. Additionally, unlike most HAMP modifications, no trial modification period was required. It took a total of nine months of stressful, time consuming, heartbreaking; tear provoking, nerve racking, sleep depriving, relationship straining negotiations and efforts to achieve the financial relief she so desperately needed but it was achieved.
 Our second homeowner is Sarah. She is employed and has maintained her employment throughout this process. Sarah has a flexible interest rate mortgage that soared during the height of the real estate market and has never returned to a manageable rate. Sarah’s life partner was injured and lost his income several years ago. Sarah’s job is also not offering overtime which through the years allowed her to maintain her mortgage payments. Sarah used a mortgage counselor to modify her mortgage. The mortgage counselors, however, have only been able to secure temporary modifications; the bank has refused to make any permanent modification of the mortgage. Every six months she has been forced to apply for a new modification with the mortgage reverting back to the original payment schedule while another temporary modification is secured. Sarah finally reached her saturation point and unable to maintain her expenses was forced into bankruptcy. She now faces foreclosure once her bankruptcy is discharged or the bank receives relief from the automatic stay. There is one last hope for Sarah as Connecticut has a foreclosure mediation program. Under this program, the lender must notify the borrower of the program at the time of filing of the foreclosure proceeding. It is mandatory that the parties participate in the mediation program in cases where a qualified borrower files a written appearance in the case.  No one can be forced into entering an agreement but they must participate in the process. That having been said, however, there has been success in achieving modifications and/or short sale agreements under the court sponsored mediation program. To qualify for the foreclosure mediation program the borrower must own a 1-4 family house, the home must be owner occupied and the foreclosure action must have been started after July 2008. You can find more information on the program at http://www.jud.ct.gov/foreclosure/.  According to the data released by the State of Connecticut Judicial Department about 41%   of the families who took advantage of the program were able to avoid foreclosure and modify their mortgages. The data also indicates that only about 35% of families eligible appeared and took advantage of the program. For Sarah, success has not  yet been achieved but hope is also not yet lost.