Monday, December 28, 2009, AM | 3 Comments
The Federal Government initiated a program a while back called the Home Affordable Modification Program (HAMP). The basic logic behind it was to make loan modification easier and perhaps simpler for the consumers so that they would avoid foreclosure on their homes. But guess what? The lending institutions – perhaps your neighborhood bank as well, so it seems – try to foreclosure the property rather than go through the process of HAMP.
For some folks, there is more profit in it. It has turned into Kyphosis, the curve on an upper spine that causes a hunchback, commonly known as (HUMP). So the (HAMP) is being converted into (HUMP). How about that?
Ain’t that called backfire?
English not being my first language, I think it’s called backfire and it tends to backfire on the face of the Government program. The intention behind loan modification was that it would benefit both homeowners and the economy overall or at least that’s how consumers were told.
How you may ask can the lending institutions benefit from foreclosure? Well, when you originally closed on your home and you moved in, on the surface, you thought your lenders – those guys you signed the papers with – were the only ones you were dealing with. Think again, man!
Two separate entities are involved
This is what happened before, during, after and in between you closed on a home. Two separate entities are involved. Most consumers are unaware of it or so the story goes.
- The original lender or investment group purchases the mortgage on the secondary market
- This group hires another bank or financial company to serve as what is in the industry known as the mortgage servicer. These are the profitable folks that administers the loan and collect monthly payments from the consumers.
How can someone make money on the foreclosure?
So you say what the heck is the problem? What’s the big deal? How can someone make money on the foreclosure? Wasn’t that the problem for the mortgage lenders to lose so much money in the first place? Who on this beautiful planet of ours can make money off of it?
I tell you who? Unlike homeowners or the investors backing the mortgages, these mortgage service providers don’t risk losing money on foreclosures, and the system actually has built-in incentives that allow them to profit when consumers lose their homes.
Who says what about what’s in this swamp?
The author – Diane Thompson, an NCLC attorney – of a just-released report from the National Consumer Law Center says: “Foreclosures are a costly ordeal for the homeowner, the lender and the community. Yet they continue to outstrip loan modifications because service providers have no incentive to help borrowers stay in their homes.”
The report charges that Congress, the Treasury Department, the Securities and Exchange Commission – as well as credit rating agencies and bond insurers who set the terms in the mortgage market – have all failed to provide mortgage service providers with the necessary incentives to reduce foreclosures and increase loan modifications.
The report concludes on a high note
However, the report National Consumer Law Center concludes on a positive note: “What is lacking in the system is not a carrot; what is lacking is a stick. Servicers must be required to make modifications where appropriate and the penalties for failing to do so must be certain and substantial.”
Moral of the story
My friend from the 60s said: “Hey man! It don’t make no sense. Because of the lack of incentives, mortgage servicers make so much money.”
I said: “I don’t understand.”
He said: “You son of man! You so dumb. Dumb as ever.”
Then he said: “Ain’t you a consumer? You don’t gotta understand nothing. Let it be written so consumers don’t forget it. Let me put it in simpler terms: The system actually has built-in incentives that allow mortgage servicers to profit when consumers lose their homes. But because servicers have no incentive to help borrowers stay in their homes so they make money.”
I said: “I admit I understand one thing that I don’t understand nothing.”
Throwing so much money on something of this nature will work for the benefit of the consumers only, if and only if, the whole system is overhauled from top-down, bottom-up, and every which way you can imagine. Patches won’t work.
My friend from the 60s says: “Diane Thompson is right. But let’s face it. The government is of the people (powerful), by the people (powerful), for the people (powerful). Let’s be clear about that. I find a big difference between “stories” in a text book and real-life happenings. Remember, you dumb immigrant son of man! There are two kinds of laws in a country – those written on paper and those when you implement them. And more often than not, both kinds turn out to be mutually exclusive – one doesn’t know about the other.” Go figure that one.Facebook.com/doable.finance