Even now, three years after the Obama Administration introduced the Making Home Affordable Program (MHA) in February 2009 and the first program under the MHA intended to prevent foreclosure, the Home Affordable Modification Program (MHA HAMP) still continues to be plagued with problems, resulting in lenders and loan servicers continuing to deny loan modifications to otherwise eligible borrowers. To make matters worse, the conduct of the distressed homeowner (or lack thereof) significantly increases the chances that their MHA HAMP loan application will be denied.
Understandably, a distressed homeowner assumes that their servicer made a mistake when denying their application for a loan modification. At the Law Office of Linda C. Garrett, a consumer, MHA HAMP mortgage, bankruptcy and family-practice, I continue to receive calls from distressed homeowner's asking that I provide legal assistance with short-selling or foreclosing their distressed due to their belief that they have no recourse since their MHA HAMP loan modification application was denied (or their trial modification was not converted to a permanent loan modification). While temping to completely blame the loan servicer for the loan modification denial, many times the error is not only with the loan servicer, but also, with the homeowner--or at the very least, the homeowner's conduct exacerbates the problem. Below is a list of the top 11 mistakes (in no particular order) that homeowners make that adversely affect their chances of procuring a permanent loan modification through the HAMP program.
1. Assuming their loan servicer is their "lender": Why is this important? Because, like a property manager, the loan servicer is the entity that manages the loan--sends the payment invoices to the homeowner, collects the money from the homeowner on behalf of the lender or beneficiary, distributes the funds, and so on. For example, in most cases, Bank of America is the loan servicer and not the lender. How many people have heard, "the investor is not participating"? Ring a bell? This is why Bank of America approves some MHA Loan modification applications and denies others.
2. Assuming that the loan servicer is required to modify their loan through the MHA HAMP program. First, only if a homeowner's mortgage is insured by Fannie Mae or Freddie Mac, which would make the loan a government-sponsored enterprise (GSA) loan, then is the loan servicer required to review the loan under the MHA HAMP program. However, most loans are considered non-GSA loans, such as subprime loans, jumbo loans, etc. It is recommended that the borrower determine whether their loan is a GSA or non-GSA loan. If the loan is a non-GSA loan, then the loan servicer is no required to modify the loan; however, written into the fabric of the program are financial incentives for the investor /lender to evaluate a homeowner for a HAMP loan modification.
3. Assuming that the bank representative that answers the phone has any authority! Almost always, the person who answers the phone is no more than a glorified receptionist--pretending to know what he or she is talking about. If the matter is serious, it is strongly recommended that the homeowner ask for a supervisor--otherwise, the distressed homeowner is merely spinning their wheels.
4. Failure to properly fill out the paperwork for the HAMP loan modification application. About 99.9% of the applications I have reviewed (that were previously denied for modifications by the servicer) were prepared incorrectly. For example the MHA application was missing information and/or the information was inconsistent with the documentation provided.
5. Failure to provide complete documentation. No doubt, we have all suffered from the lender losing the faxed bank documents that were faxed no less than five times! Back in 2009, when the MHA HAMP program was new, loan servicers did not have the organizational skills and manpower to handle the massive load of paperwork they were receiving on an hourly basis. To make matters worse, the homeowner was failing to provide "complete bank statements" or other complete documents. Taking bank statements as an example, "complete" means providing every page--even the page that says "this page intentionally left blank"! I once had a client who, prior to procuring my legal services, kept resending incomplete bank statements--which resulted in a loan modification denial. A week before the home was to be sold at auction, I sent the complete bank statements--resulting in the loan being approved--days before the home was to be sold at auction. Another related mistake--failure to put the loan number of every single piece of paper--so, even if the pages were lost or mishandled, they were able to be returned to the proper file--due to the mortgage number being put on all the faxed pages.
6. Assuming they qualify for a HAMP loan modification. Many people would be surprised to learn that they do not qualify for a MHA HAMP loan modification. Before sacrificing time, sweat energy, it is advisable to learn if the homeowner is eligible for a MHA HAMP. For example, if the amount a homeowner owes on their first mortgage is more than $729,750, then they are ineligible for a MHA HAMP loan.
7. Failure to escalate their matter to a supervisor. This is a big one. I cannot tell you how many times a bank representative gave the distressed homeowner bad advice! Classic example: "You don't qualify because your mortgage is not in default" or, "You don't qualify because your home is in default." Or, "You don't qualify because the '31% rule' does not include your taxes or insurance; therefore you 'mortgage payment' is below 31%."
8. Failure to keep in regular contact with the loan servicer through the loan entire MHA HAMP loan modification application process and/or trial modification. The difference between a homeowner having their loan processed and approved within 90 days and processed and denied after 6 months--is the difference between the borrower following up and not following up. The reason this is so very important is because after 90 days, the documentation supporting the loan modification application becomes outdated. And, if the documents are outdated, then the "underwriter" is not able to approve the MHA HAMP loan application. Even though the HAMP Handbook sets timelines for loan services to contact the homeowner--most loan services will tell you they are "guidelines," not law. It is the homeowner's job to keep their loan application moving through the various channels in a timely manner through the MHA HAMP loan application process-else their documents will become stale, increasing the chances that their MHA HAMP loan application will be denied.
9. The homeowner does nothing once their MHA HAMP loan application has been denied. Written within the HAMP guidelines is an appeal process whenever a MHA HAMP loan application is denied. The drafters of the MHA HAMP knew of the high probability that loan service would make mistakes when evaluating the homeowner's application for a MHA HAMP loan. This is why it is important that a homeowner appeal the loan servicer's denial. Simple errors include: improper calculation of "gross" income. This is especially problematic for self-employed individuals or homeowner's with rental income. For instance, a loan servicer denied an application because they said the homeowner made "too much income." When I questioned the bank, I learned that the underwriter made several mistakes: first, the under applied 100% of the rental income as income, instead of 75% of the rental income; second, the underwriter failed to properly calculate "net rental income" which was zero. After payment of the mortgage, taxes, and insurance, there was nothing left over for the homeowner. So, instead of putting zero for rental income, the loan servicer had inputted the figure of $1,450 as rental income--reflecting the full rental payment. This one major mistake was the difference between an approval and a denial of a MHA HAMP loan modification. Appeal! Appeal! Appeal!
10. Doing nothing once the homeowner receives a Notice of Trustee's Sale Date--even though the loan servicer is reviewing their application for a MHA HAMP loan modification. At one extreme, the homeowner does nothing because they assume the lender will continue the sale date--only to tragically learn that the home was in fact, sold at auction, even though their loan application was being reviewed for a MHA HAMP loan modification. At the other extreme, thinking that once a date was scheduled--there is nothing left for them to do. Huge mistake!!! Some immediate follow up includes: 1) calling the bank and finding out why a sale date has been scheduled; 2) confirming the sale date has been postponed. A proactive homeowner will be able to stop or post-pone the sale date--to give the loan servicer ample time to properly review the application. A reactive homeowner will do nothing until it's too late. A proactive homeowner assumes nothing. A reactive homeowner assumes everything.
11. Assuming that since they are not eligible for a MHA HAMP loan, they are not eligible for a loan modification--and thereafter taking immediate steps to short sale or allow their lender to foreclose on their home once they receive the MHA HAMP denial letter. Many homeowners don't realize that they can ask their loan servicer to have them considered for an in-house loan modification. Unlike MHA HAMP loan applications, the guidelines and procedures are usually much quicker and easier--as they have no third party to report back to, e.g. the U.S. Treasury--the overseer of the MHA HAMP program.
While the above reflect the top 11, there are many other mistakes homeowner's make when applying for a MHA HAMP loan modification. The point I hope I have driven to my reader is to assume nothing and to be hyper-vigilant about their loan modification application--from beginning to end.
Need Additional Help?
Whether a distressed homeowner is contemplating a loan modification, is in the middle of a loan modification (or trial modification), or has been denied a MHA HAMP loan modification, I am available to assist the homeowner at various stages--to include assessing their situation--to ensure, at the very least, that they meet eligibility requirements; or, identify common pitfalls or "red flags" and/or the homeowner has prepared a a complete and accurate MHA HAMP loan application, and/or whether the homeowner has a basis to appeal the servicer's denial and/or a basis to submit a new MHA HAMP application based on changed circumstances.
In other situations, I am available to provide assistance in connection with unique situations, to include, but not limited to, valuation of "gross income" for self-employed individuals, divorced individuals, identify and possibly remedy situations where there is too much income or too little income.
Contact Ms. Garrett, a California-based virtual-online HAMP attorney to set up a free 30-minute consultation to discuss your case.