Twenty months into HAMP, nagging administrative issues are still prevalent and the program seems to have run out of steam. This is evident from the plethora of processing problems we see and hear on a daily basis. From lost documents, improper calculation of income, poor knowledge and implementation of underwriting guidelines, long approval times, and more recently the robo-signing scandal. The list goes on and on...
To Treasury's credit they have put forth an effort to work out some of these problems. They implemented directive after directive to deal with the challenges and shortfalls of the original program. But no progress has been made. Servicers say they are doing everything possible to comply, but in the end they claim their operations to not be set up for broad based loss mitigation programs.
The troubling part is that during the foreclosure escalation process, no one oversees the servicer's actions. When a homeowner is denied a HAMP modification or the process is taking ten to twenty months to complete, no one is checking on the servicer. No one requests to see the files to determine if that homeowner does or does not actually meet the guidelines. Again are we just to believe the servicer performed their underwriting role correctly. Who is monitoring the process to ensure borrowers are not being dragged on for financial gain?
This lack of oversight is the "Fatal Flaw" in HAMP. How can Treasury assure American homeowners or the American taxpayer that everything is being done to appropriately address the foreclosure crisis if no one is double checking whether or not each loan modification was underwritten properly? If servicers have willingly taken part in robo-signing, why is anyone to believe they did not cut corners in the underwriting process? Based on all the evidence, this is a forgone conclusion but what is Treasury to do? They can leave it up to the courts and individual Attorney Generals but it will take years to clear out the backup that is already in place at county courthouses.
Treasury could implement a component in HAMP that better addresses compliance. This job is contractually the responsibility of Freddie Mac and requires them to review the servicer operation and procedures to assure that all applications for HAMP are given the same treatment. This compliance operation is part of the Participating Servicing Agreement (PSA) that over one hundred servicers have signed with Treasury. Part of this guideline is the "Escalation" process where a homeowner that has been denied a modification has the ability to have their case reviewed by Treasury. Treasury has hired Homeownership Preservation Foundation (HPF) to handle those calls. According to Treasury it is the job of HPF to work with the homeowner and servicer to try and iron out differences, to act as an advocate of the homeowner with the servicer.
A strong "Escalation" process performed by a neutral third party can either affirm or dispute those findings. In a case where the servicer did in fact make a mistake, a completed modification application, fully underwritten by a HUD Direct Endorsed Underwriter would be given to the servicer for review and completion. This escalation process would also give Treasury the information they need to verify whether or not the servicer had done their job. It would also send a message of accountability to the servicing industry.
Unfortunately at this time, Treasury has clearly stated it has no intention of performing this function even though it is mandated by HAMP. Doesn't it make sense to actually "review" a file for accuracy? Without this, what recourse is left to the investor and homeowner? The answer is possibly "the Courts," but that would only slow the housing recovery process even more. This does not benefit anyone but the servicer. This "Fatal Flaw" needs to be corrected.