Chronicles of a Loan Modification

March 15, 2011 (Chris Moore)
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In a presentation for investors, Bank of America chronicled the life and times of 100 random mortgage loans that were 60 days or more delinquent on their way down the path to a permanent HAMP loan modification. HAMP is in the House Financial Services Committee’s crosshairs this week, aiming to terminate the Obama Administrations troubled flagship anti-foreclosure program.

In the first phase of the chronicled loan modification process, 28 loans fell out of the program because Bank of America could not get hold of the borrower.

“We conduct extensive outreach activity to these including 110 phone calls and eight customized letters,” Bank of America Executive Vice President Terry Laughlin said, “in addition to door-knocking in hard hit markets and hundreds of outreach events across the country.”

The remaining 72 provided financial documentation, but 52 did not pass the HAMP underwriting guidelines. Approximately half of the 52 did not pass because they already had mortgage payments at or below 31 percent of their monthly income. Twenty-three percent did not have enough monthly income to qualify and 17 percent did not submit their hardship paperwork.

That left 20 borrowers that made it to the trial stage. Fourteen completed the process by making three consecutive mortgage payments required under the programs new terms.

14 out of 100.

What Bank of America did not release was the amount of loans that received private loan modifications through HOPE NOW. Since the beginning of HAMP, private loan modifications have been nearly double the amount of HAMP loan modifications.

Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), said recently before a House committee, “HAMP’s failure to meet its original expectations has many causes, starting with a rushed launch based on inadequate analysis, an insufficient incentive structure, and without fully developed rules, which has required frequent changes to program guidelines.”

Unfortunately the reality is, due to the hard economic times, many people are not going to qualify for a loan modification. According to Laughlin, “We’ve reached the crossroads. Despite the loan modification programs, our best efforts, and our industry’s best efforts, foreclosure will be unavoidable going forward.”

Tags: Bank of America, loan modification, HAMP, mortgage loans, underwriting guidelines, mortgage payments, HOPE NOW