Calling a Bank about a loan is THE most frustrating experience … even more so than sending in a loan mod request package — for the 15th time.

From a legal perspective, it gets worse, especially when “Joy” or “Nancy” tells you one thing (like, “You’re approved for our internal Loan Modification Program…”) but refuses to put it in writing. Or the letter you get says something different than the Bank’s representative said on the phone.

What do you do to protect yourself?

Try this:

When someone from the Bank calls, tell them: “I am recording this call for LEGAL purposes. Please state your full name and your birthdate – for identification purposes.”

How much you wanna bet the call will end – right there?

It will. And that’s OK.

If the Bank representative won’t agree to be recorded – END THE CALL. Nothing that is said in it will will matter anyway. The Bank will change its position. And you won’t be able to prove a thing. (And having the Bank’s representative refuse to be recorded, can work to your advantage later in court…)

Oh, and when Joy or Nancy balks, remind her that the Bank is recording the call already. For “training purposes.”

Lance Churchull writes:
“One thing I have wondered about in the past is why the two government-sponsored entities, Fannie Mae and Freddie Mac, found it necessary to have different rules for short sales, but then I remembered that the “G” in GSE stood for government and, of course, the government usually makes things more complicated than they should be. Well, on April 28, 2011, the Federal Housing Financing Agency (FHFA), which has been overseeing Fannie Mae and Freddie Mac since their near financial collapse, decided it would be better if they had uniform rules for delinquent mortgages. The FHFA has directed that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee with the stated purpose of creating an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, including the short sale process. The director of FHFA said, “Once fully implemented, the enterprises’ aligned policies will require earlier contact, more frequent communication and prompt decisions.”

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.

Mortgage borrowers who are turned down for loan modifications may now get additional information that could help them understand why they didn’t qualify under the so-called “HAMP test.”

Until recently, borrowers weren’t privy to the data used to perform the Home Affordable Modification Program’s, or HAMP’s, “net present value” test. But as of Feb. 1, loan servicers are required to send letters disclosing up to 33 data points to some borrowers who were rejected for HAMP loan modifications. Not all loans are covered by this requirement, which is part of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, so not all borrowers will receive letters.

HAMP test required

The data points focus on the borrower’s financial situation, home, existing loan and proposed modification, according to Tom Goyda, a spokesman for Wells Fargo in St. Louis. Borrowers who believe they have found mistakes in the data may file appeals with their servicers. Final decisions are up to the servicers.

“If they think there are any errors in terms of the inputs used, they have 30 days during which they can provide, in writing, what their evidence is to support what they believe the correct value should be,” Goyda says.

HAMP’s net present value, or NPV, test measures whether a loan modification makes financial sense for the lender. If so, the servicer must offer the borrower a trial modification. If a modification isn’t in the lender’s financial interest, and the borrower hasn’t made the payments, the servicer may foreclose on the loan.

HAMP test website

Borrowers who want to see the inputs in action will soon be able to run their own practice HAMP tests on a website being developed by the U.S. Treasury. The website is expected to be ready in late spring and will include definitions of terms and icons to explain the inputs, according to Treasury spokeswoman Andrea Risotto. The system will have security features, but it will be open to anyone who wants to use it.

The chief benefit should be greater transparency in the HAMP process. Borrowers will be able to evaluate whether their situation might pass the HAMP test and see how changes in the data could affect the results, Risotto says. For example, a borrower who believes the loan servicer’s opinion of the home’s value was incorrect can see whether a more accurate valuation, perhaps based on an appraisal obtained by the borrower, would affect the outcome of the test.

The website will perform only HAMP calculations, not tests based on servicers’ proprietary non-HAMP loan modification models.

Inputs determine outcome

Besides the disclosed inputs, the results of a HAMP test depend on other factors controlled by the servicer, such as the estimated cost of the loan modification, the perceived likelihood that the borrower will default on the loan and cost of a foreclosure. HAMP’s guidebook for servicers lists 51 recommended inputs for the NPV test.

The design of the HAMP test is critical, a point that was well-explained in a Congressional Oversight Panel’s December 2010 review of federal foreclosure prevention programs.

“If the NPV model is calibrated correctly,” the report states, “it will get the correct homeowners into HAMP to prevent avoidable foreclosures. However, an incorrect calibration could either act as a means to delay inevitable foreclosures or grant subsidies to those who would otherwise cure (a loan default) and therefore do not need the extra help.”

Borrowers won’t be able to test the model’s accuracy, and they won’t be able to test their servicers’ assumptions. But the new data should clear up some of the mystery about what goes into the HAMP test.

By Marcie Geffner

A credit rating agency says that between 65%-75% of HAMP loans are likely to go bad as borrowers continue to struggle with increasing debt.

The Fitch Ratings report said that on average, HAMP-modified borrowers have 64% of their monthly pretax income already committed to existing debt, and have no cash reserves to deal with an unforeseen emergency or expense.

When the borrowers default again, lenders often offer them foreclosure alternatives like a short sale rather than a second loan modification.

From an article at CNNMoney.com:

Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure.

The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance.

The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales..

Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.

“HAFA gave the servicers an indication that this is where they should take these [re-defaulting loans],” said Pendley. “The banks are now assisting borrowers; they’re being much more proactive, like helping them find real estate brokers for short sales.”

The benefit of these transactions for borrowers is that it lets them move on more quickly with their lives. They can get out from under the unaffordable mortgage payments, find a cheaper rental, start to, perhaps, save a little cash and start to rebuild their credit scores.

The Obama administration announced new modifications to the HAMP and FHA programs late last week to “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

So who benefits from the modifications? The program expands flexibility for mortgage companies and banks to assist unemployed homeowners as well as those who are underwater on their mortgages because of where they live – markets hardest hit by declines in home values.

And who doesn’t? Further into the Treasury press release, this elaboration:

The President has said: “We can’t stop every foreclosure.” And in fact, we can’t maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.

See the AP coverage of the story here.

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A report on Bloomberg.com recently said that the Obama administration was considering a ban on all foreclosures unless they have been reviewed and rejected by the Home Affordable Modification Program (HAMP):

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”

She confirmed the authenticity of the document, which hasn’t been made public.

At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.

The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

The article noted that the HAMP program covers 89% of outstanding residential mortgages.

The Wall Street Journal reported this week on the HAMP ramp-up, noting that the number of households benefiting from the Home Affordable Modification Program (HAMP) was up 11% in January and that, overall, about 947,000 households have taken advantage of the government’s foreclosure prevention program.

The article also noted the steps the Treasury is taking to (cattle) prod more lenders into participating:

Prodding lenders to saving more borrowers, the Treasury is publishing monthly comparisons of their performance. As of last month, it said Citigroup Inc. had provided modifications to 50% of the estimated number of eligible borrowers. Both J.P. Morgan Chase & Co. and Wells Fargo were at 38%, and Bank of America Corp. was at 22%.

In a statement, Bank of America said it had made stronger gains than rivals last month in providing trial modifications and converting trials into permanent fixes.

So maybe, just maybe, there is a glimmer of hope that the Fed’s historically low interest rates are being prodded out of the cold, dead hands of the bankers to reach the folks who really need them?

The government continues to struggle to put together a loan modification program that will work for both the homeowner and the lender. According to a recent announcement by HUD and the U.S. Department of the Treasury, new provisions to the mortgage modification program (HAMP-Home Affordable Modification Program) that will speed the process will go into effect on June 1, 2010 and include:

Documentation – homeowners must supply three types: a Request for Modification and Affidavit form, IRS Form 4506T-EZ and proof of income.

Acknowledgement – lenders must acknowledge in writing within 10 days that they have received the documentation and provide a timeline and explanation of the evaluation process.

Evaluation – lenders must evaluate application within 30 days and request any additional information needed from the homeowner within that timeframe. Also within that same 30 days, lenders must provide homeowners who meet modification eligibility requirements with a trial modification plan notice. If the homeowner does not qualify, they must also be notified within 30 days and be given consideration for other options, including forbearance, refinancing, non-HAMP modifications, short sales or deeds in lieu of foreclosure.

Homeowners who obtain a trial modification must make payments on time for the modification to become permanent.

And when they say “permanent”, it’s the government definition: the lender can choose to continue or end the modification at any time, even years later.