Felix Salmon

How the mortgage industry polices HAMP

By Felix Salmon
December 20, 2010

American Banker’s Kate Berry uncovers a stunning factoid today: the nonprofit Homeownership Preservation Foundation, the official body charged with resolving disputes over HAMP modifications, was founded by ResCap and to this day is run by GMAC and other finance officials from within the mortgage industry.

No one involved even bothers to dispute the conflict of interest, one of many that have plagued the Treasury Department’s Home Affordable Modification Program, or Hamp.

“Because we’re supported by the industry, are we really working for the homeowner?” asked Bruce Paradis, the foundation’s chairman, who retired as CEO of ResCap in 2007…

The group has trained 200 counselors specifically to deal with complaints from borrowers who have been denied modifications. The foundation’s 888-number is now listed on every denial notice sent to borrowers turned down for Hamp…

The group does not track the outcome of its calls, so there is no way to know whether borrowers were inappropriately denied a modification or how many disputes with servicers were ultimately resolved in favor of the borrower…

Some industry experts have questioned why a nonprofit affiliated with servicers is receiving government funding to resolve disputes between borrowers and the same servicers who are denying modifications.

The only problem I have with this story is the degree to which HPF actually does what Berry says it does. Yes, HPF employs hundreds of counselors, and it tries to warn homeowners about loan-mod scams. But what I can’t find on the HPF website is anything about being an “ombudsman”, in the words of the American Banker headline, or having any official power to resolve disputes with lenders in favor of the borrower.

Either way, there’s a big problem here. If HPF doesn’t have dispute-resolution authority, someone should, and it’s not clear who that might be. And if HPF does have that authority, it’s not prominently advertising the fact — and it shouldn’t be governed by people within the lending industry. That would seem to be obvious, to everybody except Treasury, anyway.

Update: Kate Berry calls with more detail. Basically, calling what HPF does “dispute resolution” is a bit of a stretch — essentially all they can do is counsel homeowners whose requests for a loan modification have been denied, and attempt to get those borrowers onto the phone with the servicer to hear exactly why they were denied. Those attempts are not always successful.

The problem here is twofold. A lot of the blame must be laid at the feet of Treasury, which has failed to create any kind of dispute resolution process for HAMP. And then a bit more blame should accrue to HPF, which has failed to lobby Treasury to get the powers it needs to really stand up for homeowners against incompetent servicers.

It seems clear that Treasury gave this contract to HPF because they weren’t anti-servicer. But it also seems clear that so long as servicers are in charge of doing loan mods, and are providing what little policing there is themselves, HAMP is going to have no real enforcement mechanism.

3 comments so far | RSS Comments RSS

One of many reasons I’ve been saying all along that the gov’t should have established a third party to handle the tasks of gathering all the paperwork, and rendering the approvals/denial decision.

Posted by Shnaps | Report as abusive

That’s all right. Next election everyone pretending to be serving “the people” will be looking for other work. I can’t wait to see Lord Geithner thrown out of office. What a slap in the face of justice ..

Posted by Woltmann | Report as abusive

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