Are loan modification programs, HAMP and HARP, HOPE-less?

I have been receiving a lot of feedback from clients, frustrated with trying to obtain loan modifications to their existing mortgages. Many are claiming that their banks and mortgage companies are giving them the run around by requesting unnecessary information, not returning telephone calls, and other temporizing tactics.

For those of you who are not yet underwater with your mortgage and are unfamiliar with the lingo, the federal government set up two major programs in response to the record number of home foreclosures: the Home Affordable Modification Program (HAMP, not hemp) and the Home Affordable Refinance Program (HARP). Both HAMP and HARP can help homeowners manage their mortgage loan payments, but they both do so in different ways. HAMP is designed to help those experiencing financial hardship (if not downright despair) when it comes to their home loan payments, while HARP is designed for those who are simply sick and tired of paying their real estate financing at high interest rates.

Although HAMP subsidizes lenders with government money for any losses lenders may incur by offering a loan modification, there are a number of prerequisites that need to be met before being eligible under this program:

1. Home loan existed on or before Jan. 1, 2009.
2. Remaining balance on loan does not exceed $729,750.
3. The property has not been condemned.
4. Homeowners must prove they are experiencing financial hardship and are in danger of falling behind on their mortgage financing payments.
5. Homeowners must provide documented income to support the payments that a loan modification would permit.
6. Homeowners have not been convicted of felony larceny, theft, fraud, forgery, money laundering, or tax evasion in connection with a real estate related transaction.

Most calls I receive regarding HAMP concern the items 4 or 5: how does one prove to a Big Bankster that one is experiencing financial hardship and in danger of falling behind on mortgage payments, and then prove one can make the lower payments under a loan modification? Try convincing your friendly bankster on that one. Good luck.

Since so many have failed that test, for those who are supposedly able to make their monthly mortgage payments and who can’t demonstrate financial hardship, the government introduced the HARP program. HARP 2 allows homeowners to refinance their home loans under more acceptable interest rates. (Why HARP 2? HARP 1 was a disaster.)

In order to qualify for HARP 2, homeowners need to meet the following criteria:

1.    Their mortgage must be guaranteed or owned by Freddie Mae or Freddie Mac.

2.    Mortgages must have been sold to Fannie or Freddie on or before May 31, 2009.

3.    The mortgage must have a loan-to-value (LTV) ratio of greater than 80 percent.

4.    All payments must be current.

5.    Applicants may have a maximum of one late payment in the last 12 months, but that late payment cannot have occurred in the last six months.

Since HARP 2 has so many formidable qualifications, it is, too, doomed to be a disaster. For instance, what about all those mortgages not affiliated with Freddie Mac or Fannie Mae?

Moreover, the banksters appear not to have ramped up yet on their familiarity with the processing details, so expect needless and countless requests, errors, and delays on their part. And if your customer service rep has an Indian or Philippino accent, oh, oh...be afraid, be very afraid....

Incidentally, HOPE is a hotline for people who are trying to avoid foreclosure, not looking to refinance under the HARP program. HOPE stands for "Homeownership and Opportunity for People Everywhere". Yeah, right.

The Barefoot Accountant