The Law Offices of David M. Green

Mortgage servicers must give U.S. homeowners more time before kicking them out of the government’s loan-modification program, reflecting further struggles in the execution of the plan.

Servicers can’t cancel an active Home Affordable trial modification scheduled to expire before Jan. 31 for any reason other than property eligibility requirements, according to a posting today on a government Web site. They must write to borrowers to inform them about missed payments or needed documents, and give them at least 30 more days to submit them.

“The Treasury Department believes that this further guidance and associated requirements will provide more certainty and transparency regarding the final determination of eligibility for borrowers in trial modifications,” Meg Reilly, a department spokeswoman, said in an e-mailed statement.

The extension follows the Obama administration announcing a “Mortgage Modification Conversion Drive” on Nov. 30, meant to aid borrowers with trial plans set to expire at year end. The drive began after servicers struggled to acquire the documentation from homeowners required by the government to make loan changes permanent under its $75 billion program. Officials have placed some of the blame on both servicers and borrowers.

In October, the U.S. loosened documentation requirements and said an initial round of trial modifications could be completed over an extra two months, rather than the three-month standard.

Through November, servicers have permanently modified 31,382 of as many as 4 million mortgages targeted by the Home Affordable program, the Treasury said Dec. 10. A total of 728,000 were under way. The Treasury said last month that 375,000 trial modifications were scheduled to be converted into permanent repayment plans or expire by the end of the year.

“Servicers have made substantial progress in staffing up and dedicating further resources in support of HAMP,” Reilly said.

Testimony at a hearing on Dec. 8 by the U.S. House Committee on Financial Services documented how the foreclosure crisis is getting worse.

Laurie Goodman, senior managing director at Amherst Securities, a leading broker/dealer specializing in trading mortgage-backed securities, testified that in the third quarter of 2009, 14.1 percent of borrowers — or 7.9 million homeowners — did not make their mortgage payments. She estimated that 7 million of these 7.9 million homeowners will lose their homes. (www.house.gov)

Julie Gordon from the Center for Responsible Lending testified that the effects of high unemployment and defaults in exotic Alt-A and option mortgages will add millions of homeowners to this total. She estimated that by the time this crisis abates as many as 13 million families will have lost their homes. In addition, tens of millions of other homes are suffering a decrease in property values totaling hundreds of billions of dollars in lost wealth, costing states and localities enormous losses in tax revenues used to pay for government services.

Gordon testified how the Obama administration’s Home Affordable Modification Program has fallen far short of its promise to help 3 million to 4 million homeowners with loan modifications. After nine months of operation, only approximately 650,000 homeowners are now in a trial modification. However, only a fraction of those in trial modifications have received a permanent loan modification. In addition, HAMP has no provisions for principal reductions and offers no help whatsoever for the unemployed who cannot pay their loans due to the loss of their job.

When you apply for a loan modification, among the variables that will determine whether or not your application is approved or denied is NPV.  NPV is a scoring model that lenders use to determine the answer to assorted questions of concern to the lender, most of which will not be disclosed to you, or anyone else. 

NPV is actually a test, very likely unlike any other test you have ever taken, or ever will take again.  While the results are either pass/fail, some of the questions are unknowns, and that you actually have no opportunity to answer.  In fact, you have no control over how the answers are derived and filled in for you.

NPV is the "net present value" of your home and is based on a few variables that have been disclosed including:

1. Are you likely to re-default on your payments if a modification is granted?
2. Are you likely to catch up on your dellinquency if a modification is denied?
3. How much is your home worth now?  relative to how much you owe?
4. How much is it estimated your home will be worth in a year?
5. How much will it cost the lender to maintain your home if the lender files foreclosure instead?
6. How much will the lender make or lose on a foreclosure sale (using a government REO formula).

Lenders put all this information into some secret formula and either modify or decline your loan based on this information.  The problem is that this information is not disclosed to the borrower.

Because some of the above statistics can and do change based on market values, you might be denied a modification this month, and possibly qualify next month or several months from now.  For instance the estimated value of your home in a year is determined by government home value projections, and this information is updated quarterly. 

Is there anything you can do as a home owner?  At this point, there is little that is in your control.  It has been suggested that one place that home owners fail often is the hardship letter.  If you do not submit a good hardship letter, your request will be declined.  This is one area where the government non-profit housing counselors might be able to help you.  These counselors do know how to draft a good hardship letter. 

While there has been quite a bit of pressure to have open disclosure about the NPV data, lenders believe that their formulas are too complicated for the average home owner to understand. 

This may be true for the average home owner, but should be available none the less.  While you, Mr or Mrs Homeowner may not understand, there is always help out there to make numbers more clear if you care to avail yourself of this assistance. 

The other consideration, of course, for the banks using these models and fighting disclosure is that what you don't know (such as the estimated value of your home in a year), you can't appeal or fight.  This makes the banks more powerful and their decisions more final.