Housing counselors thumbs down on mortgage modification operations

Housing counselors are wringing their hands after giving a stout vote of no confidence to mortgage modification makers.

That’s not surprising.

Work performance conducted by mortgage servicers, if a new survey is any indication, should be enough to get them roundly fired and quickly replaced in today’s workplace, but they just continue not to work for their money.

At least government transparency is working.

The U.S. Government Accountability Office’ (GAO) report, “Troubled Asset Relief Program: Results of Housing Counselors Survey on Borrowers’ Experiences with the Home Affordable Modification Program (HAMP) ,” is an unsettling revelation of workplace incompetence bordering on malpractice.

More than three out of four housing counselors surveyed about their experiences with a $50 billion government sponsored (read taxpayers’ money) mortgage modification program, HAMP, said their clients’ overall experiences with the program ranged from “negative” to “very negative.”

The culprits are both the mortgage servicers for their shoddy work and the government for not enforcing the guidelines.

After Congress established the $700 billion Troubled Asset Relief Program (TARP), $50 billion in TARP funds were allocated in 2009 to help struggling homeowners avoid foreclosure. Unfortunately, during the first two years of the program, more homeowners were denied or canceled from trail modifications than those who received permanent modifications.

Along with others critical of HAMP, GAO’s report is its third attempt to study the problematic U.S. Treasury program and make recommendations to improve it.

In the current study, which calls for sanctions against mortgage servicers who don’t get the job done, GAO surveyed nearly 400 housing counselors from NeighborWorks’ National Foreclosure Mitigation Counseling Program (NFMC).

The survey found:

• Roughly 76 percent of the counselors said borrowers looking for a mortgage modification suffered a “negative” or “very negative” experience.

• Approximately 40 percent of counselors who provided written comments said they experienced difficulties working with servicers.

• Some 39 percent of counselors said mortgage servicers regularly lose sensitive personal financial documents and repeatedly request that homeowners resubmit them. In addition, over 78 percent of the counselors ranked “servicer lost the borrower’s documentation” as one of the three highest challenges they face assisting homeowners.

Servicers appear to be passing the buck on the issue.

• One of the most common servicers’ reasons for canceling trial modifications is insufficient documentation, but the U.S. Treasury can’t determine if borrowers have not submitted the required documentation or if servicers lost or misplaced it.

• A whopping 86 percent of counselors said servicers often miss the mandated 30-day deadline for notifying homeowners that they’ve been approved or rejected for a modification, and don’t get around to the job for several months to as long as seven months.

• Trial modifications are supposed to last only three months, but many drag on for six months or more. HAMP guidelines require that borrowers successfully complete a 90-day trial period, during which they make all the required payments on time before they can become eligible for conversion to a permanent modification. Nearly all of the counselors surveyed (96 percent) said trial periods typically lasted longer than 3 months, and 50 percent of these counselors said that trial periods typically lasted 7 months or more.

Some 60 percent of servicers were found not to be complying with HAMP guidelines, prompting counselors to insist that the Treasury enforce sanctions on servicers that did not comply.

“The Treasury told us that it had asked servicers to rectify issues associated with noncompliance and in some cases had withheld financial incentives, but had not yet finalized consequences for noncompliance,” the GAO report said.

Counselors also cited the need for Treasury to require mortgage modification servicers to make more timely decisions (51 percent) and to ensure that servicers worked with borrowers who were not yet 60 days delinquent (41 percent).

Borrowers who are not helped by HAMP may be helped by non-HAMP, or proprietary modifications, which may offer greater flexibility, if they get to them in time.

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