Sep 15th, 2010
One month ago, I wrote about the incredible deal that One West appeared to get when it took over IndyMac from FDIC. http://stevebeede.com/2010/08/are-modifications-or-short-sales-possible-with-onewest-bank/. Most readers agreed that this sweetheart deal seemed improper and led to more foreclosures. Others said that merely because OneWest could possibly make more money by foreclosing rather than by modifying, did not prove they actually did it. Evidence may now be here and OneWest justifies the practice.
One of our clients has been seeking a loan modification on her IndyMac loan (now owned by OneWest). She sought this through the Home Affordable Modification Program (HAMP) set-up by our government to help people keep their homes. She appeared to meet all HAMP requirements: her debt to income was well over 31% (actually 46%) and she had stayed current on her loan. Yet, she was rejected on the grounds that the “Net Present Value” (NPV) of the deal didn’t warrant modification. When she called IndyMac to challenge the rejection, she was told “The NPV test is an economic loss test that basically is seeing if the modification is better for the investor than foreclosure”. Further, in her rejection letter she was told that she could request the values which IndyMac used in its NPV calculation. When she requested these values, she was told “There is not anything that can be sent to you”.
A review of the HAMP guidelines on https://www.hmpadmin.com/portal/programs/hamp.html indicates that our client met the criteria. However, the NPV instructions available on the site appear to leave discretion to the investor whether to participate or not or how to create its NPV values. Thus, while the HAMP guidelines have made for good political soundbites making it sound like modifications were available, the underlying NPV structure gives lenders an out. OneWest/IndyMac certainly appears to be going through the motions only but without any real intent of modifying. Given the better results from foreclosure under their FDIC deal, this is understandable but I very much doubt that this is what our government really expected in promoting the HAMP modification program.
So where does HAMP stand now? We have reported that only 4.5% of HAMP applicants get a modification. Other say that the ultimate number may be more like 2-3%. With most HAMP modifications not including any principal reduction, failure rates are running at 50%. Meanwhile, there appears to be no pressure on banks to do anything more. As recently reported by Alyssa Katz of Housing Watch: “The illusion that HAMP is helping most troubled borrowers while preventing big losses among banks and investors in mortgage-backed securities is part of what’s stopping Treasury from taking the kind of aggressive action it needs to – namely, reducing principal owed”. http://www.housingwatch.com/2010/08/03/hamp-program-success-rate-much-lower-than-first-reported/
The bottom line for upside-down borrowers is that a home saving loan modification will remain unlikely. While it is still worth the attempt, owners should be prepared to face the reality of moving on either through a short sale or foreclosure. Although many of these same issues plague short sales (particularly mortgage insurance), most are successful in helping owners avoid foreclosure and potential deficiency liability.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re having problems communicating with OneWest or Indymac, get competent legal advise in your State immediately so that you can determine your best options.
If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at firstname.lastname@example.org. We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.