FDIC's Blair: Millions of Foreclosures Could be "Infected"

The issues present in the many of the mortgages that are part of today's mortgage crisis have been much debated. It appears that there is much more yet to be debated or learned. In order to help resolve the mortgage crisis, many have urged mortgage servicers and the state Attorney Generals to reach a "global settlement." Among those is Chairman of the FDIC, Sheila C. Bair who testified on May 12, 2011 before the Senate Committee on Banking, Housing and Urban Affairs.

Chairman Bair states that one reason that she has "urged the servicers and the state Attorneys General to reach a global settlement" was that the

"Flawed mortgage banking processes have potentially infected millions of foreclosures, [emphasis added] and the damages to be assessed against these operations could be significant and take years to materialize. The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans."

Chairman Bair also stated that it is important for the mortgage lenders to "remedy the foreclosure backlog, which has become the single largest impediment to the recovery of the U.S. housing markets."

From Where Will Help Come for Homeowners ?

Yesterday's New York Times has an article "For the Jobless, Little U.S. Help on Foreclosure".

The article states or quotes those who suggest the following:

• That the present governmental housing efforts have been "plagued by delays, dubious benefits and abysmal participation."
• Data suggest that the task is only growing more difficult due to unemployment
• New job growth in May was weak
• A widely watched index found that housing price have dropped to their lowest level in almost a decade
• Foreclosures have slowed due to delays in processing, not a housing recovery
• The Treasury Department was given $46 billion to spend on helping homeowners, but has only spent about $2 billion
• Only 670,000 homeowners have received permanent modifications under HAMP program instead of the 3 to 4 million that were promised to be helped
• An official from the Boston Federal Reserve has called on the government to provide loans or grants to unemployed or underemployed homeowners
• The debate is playing out on the sidelines of partisan Washington politics
  

"Anatomy of a Financial Collapse"

On April 13, 2011, the United States Senate Permanent Subcommitte on Investigations, Committe on Homeland Security and Governmental Affairs issued its report "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse."

Change in Miami-Dade Foreclosure Mediation Program

The Miami Herald reports today that the 11th Circuit Court, which includes Miami-Dade County, has made a change in the organization that has been managing the mortgage foreclosure mediation program since its initiation. It has replaced the Collins Center with the Oasis Alliance Corporation, apparently based in Tampa. Herald quotes a director of the Collins Center that it operates in "six of Florida's judicial districts and receives $275 for each case it handles, [and] has managed about 8,000 foreclosure mediations in Miami-Dade over the past two years."

Change in Miami-Dade Foreclosure Mediation Program

The Miami Herald reports today that the 11th Circuit Court, which includes Miami-Dade County, has made a change in the organization that has been managing the mortgage foreclosure mediation program since its initiation. It has replaced the Collins Center with the Oasis Alliance Corporation, apparently based in Tampa. Herald quotes a director of the Collins Center that it operates in "six of Florida's judicial districts and receives $275 for each case it handles, [and] has managed about 8,000 foreclosure mediations in Miami-Dade over the past two years."

The Supreme Court's Decision in Ransom

The U.S. Supreme Court issued its 8-1 decision in Ransom today. Justice Kagan wrote for the majority and Justice Scalia wrote a dissenting opinion. It is reported that this is Justice Kagan's first opinion.

The majority opinion held that an over-median income debtor in chapter 13 is not entitled to the "ownership costs" deduction (approx. $471.00) in the computation of the means test (used to determine "disposable income") for a vehicle that is not encumbered by debt. The debtor is though is entitled to a deduction for the "operating costs" deduction (approx. $388.00) for an unencumbered vehicle.

Yet Further Congressional Hearings on the Foreclosure Crisis

As reported in the media, the House Committee on the Judiciary held a further hearing on the mortgage foreclosure crisis on December 15, 2010. The witness list included Senator Sheldon Whitehouse (D-RI). It is reported that Senator Whitehouse is seeking "to introduce legislation early next year that would give [Bankruptcy Court] judges comfort that they have the authority to force parties, including banks, to the table to discuss modifications."

Senator Whitehouse noted that in today's "age of securitization, the [mortgage] servicer merely serves as processing agent and may not work in the interests of the people who actually own the mortgage and in the age of corporate bureaucracy, the left hand may not know what the right hand is doing." He further reviewed his efforts to give bankruptcy court judges the power to modify mortgage on principal residences just as they are able to for other loans including those on vacation homes, cars, and boats. He reviewed efforts in various Bankruptcy Court loan mitigation programs and some mortgage servicer challenges thereto. He noted his proposal to pass legislation to clarify the power of Bankruptcy Courts to run foreclosure loss mitigation programs.

HAMP has "Failed to Make a Dent in the Foreclosure Crisis"

Today the Congressional Oversight Panel issued its oversight report of over 170 pages reviewing the Department of Treasury's Foreclosure Prevention Programs. The report reviews where HAMP stands today, reviews the future of HAMP, and sets forth conclusions and recommendations. Annex I to the report reviews lessons from the Home Owners' Loan Corporation of the 1930s and 1940s. The report states that despite the tweeking of HAMP since its April 2010 report, the concerns with the program have not been resolved. The report states that it presently estimates that HAMP will "prevent only 700,000 to 800,000 foreclosures - far fewer than the 3 to 4 million foreclosures that Treasury initially aimed to stop, and vastly fewer than the 8 to 13 million foreclosures expected by 2012." It further notes that since "Treasury's authority to restructure HAMP ended on October 3, 2010, the program's prospects are unlikely to improve substantially in the future." The report concludes that HAMP has failed to "make a dent in the foreclosure crisis" and that Treasury has "failed to acknowledge HAMP's shortcomings in time."

Professor Levitin Refutes the American Securitization Forum

Professor Adam Levitin posted this blog post on Creditslips.org refuting the position of the Tom Deutsche of the American Securitization Forum's testimony before the Senate Banking Committee last week. Professor Levitin also recently testified before Congress on November 16, 2010 and November 18, 2010.
One of the important involved issues is the "chain of title" problem in mortgage securitization, including whether an endorsement is required from every party in the securitization chain.

Yet More Congressional Hearings on Foreclosure Crisis

The House Committee on the Judiciary held a hearing on "Foreclosed Justice: Causes and Effects of the Foreclosure Crisis" today. Yesterday, the Senate Banking Committee held hearings on the foreclosure crisis. Further hearings are scheduled for December 8, 2010.

Among the speakers were officials from

• Department of Treasury
• Federal Housing Finance Agency
• Comptroller of the Currency
• New York State Supreme Court Judge F. Dana Winslow
• Louisiana Bankers Association
• American Securitization Forum
• Professor Christopher L. Peterson, University of Utah

Among the issues addressed were:standing to foreclose, "Robo-signing", MERS, and projected future foreclosures. Rep. John Conyers (D-Mich.) stated some project that up to 13 million more homes will be lost to foreclosure before the crisis is over.

Senate Hearing on "Problems in Mortgage Servicing - Part II"

The Senate Committee on Banking, Housing, and Urban Affairs will be holding a hearing on "Problems in Mortgage Servicing from Modification to Foreclosure, Part II" today.

The witnesses include representatives from

• US Treasury
• FDIC
• Federal Reserve
• Comptroller of the Currency
• FHFA
• Fannie Mae
• Freddie Mac
• American Sercuritization Forum
• Professor Kurt Eggert, Professor of Law

In 2007, Professor Eggert wrote on article entitled "Limiting Abuse and Opportunism by Mortgage Servicers"

Roundup of Recent Bankruptcy Scholarship

"Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations" - Gregory M. Duhl, William Mitchell College of Law, American Bankruptcy Law Journal, Vol. 84, No. 4.

"The Rise in Elder Bankruptcy Filings and Failure of U.S. Bankruptcy Law" - John Pottow, University of Michigan Law School, University of Michigan Public Law Working Paper No. 210

"The Costs of BAPCPA: Report of the Pilot Study of Consumer Bankruptcy Cases" - Lois R. Lupica, University of Maine School of Law, American Bankruptcy Institute Law Review, Vol. 18, 2010

"Is Chapter 15 Universalist or Territorialist? Empirical Evidence from United States Bankruptcy Court Cases" - Jeremy Leong, Wisconsin International Law Journal, Forthcoming

"Committee Capture? An Empirical Analysis of the Role of Creditors' Committees in Business Reorganization" - Michelle M. Harner and Jamie Marincic, Vanderbilt Law Review, Vol. 64, 2011, U of Maryland Legal Studies Research Paper No. 2010-47

House Committee on Financial Services Hearing

The House of Representative's Committee on Financial Services held a hearing today on "Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing."

Among the witnesses were:

• Mr. Adam Levitin, Associate Professor of Law, Georgetown University Law Center
  

• Mr. Anthony B. Sanders, Professor of Finance, Distinguished Professor of Real Estate Finance, School of Management, George Mason University

• Ms. Julia Gordon, Senior Policy Counsel, Center for Responsible Lending

• Ms. Linda Fisher, Professor of Law, Seton Hall School of Law

• Ms. Anne Anastasi, President, American Land Title Association

Also on the witness list were officials from the U.S. Department of Treasury, the Federal Reserve, U.S. Department of HUD, Office of the Comptroller of the Currency, the Federal Housing Finance Agency, Bank of America, Ally Financial Inc, JPMorgan Chase, Wells Fargo Home Mortgage Servicing, Citi Mortgage, and MERS.

American Securitization Forum - White Paper

On November 16, 2010, the American Securitization Forum has posted a white paper on the topic of "Transfer and Assignment of Residential Mortgage Loans in the Secondary Mortgage Market." The white paper was drafted to address "a number of legal theories questioning whether securitization trusts ...have valid legal title ... to the mortgage notes in those trusts."

The white paper asserts as one of its most critical principles is that when ownership of a mortgage note is transferred in accordance with common securitization processes, ownership of the mortgage is automatically transferred pursuant to the centuries old common law rule that "the mortgage follows the note." It further asserts that "this means that the assignment of a mortgage to a trustee does not need to be recorded in real property records in order for it to be a valid and binding transfer."

November Oversight Report

On November 16, 2010, the Congressional Oversight Panel issued its 127 page November Oversight Report - Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation

Another "Robo-Signer" Class Action Suit

Various "Robo-Signer" class action suits have been filed across the country. The case of Geoffrey Huber, et al. vs. GMAC, LLC, n/k/a Ally Financial, Case 10-2458-SCB was filed in the Federal District Court of the Middle District of Florida on November 2, 2010. The complaint alleges that the Defendant engaged in a fraudulent scheme to fabricate and falsify affidavits and other documents to support foreclosure complaints and judgments.

The action is being brought as a statewide class action on behalf of all other similarly-situated obligors who have been obligors on notes and mortgages in the State of Florida served by the Defendant within the previous three years. The relief sought is based on an alleged violation of constitutional rights under color of state law 42 U.S.C. 1983, abuse of process, and unfair and deceptive trade practices pursuant to Fla. Stat. 501.201 et seq.

House Judiciary Committee Sets Hearings on Foreclosures

The House Committee on the Judiciary has set a hearing for Wednesday, November 17, 2010 on "Foreclosure Justice: Causes and Effects of the Foreclosure Crisis." The list of witnesses is not yet available.

Senate Banking Committtee Sets Hearing on Foreclosures

The Senate Banking Committee has announced that it will hold a hearing on Tuesday November, 16 "to investigate allegations of improper and fraudulent mortgage servicing and foreclosure processing." The witnesses scheduled to testify are

• Attorney General of Iowa, Tom Miller
• President of Bank of America Home Loans, Barbara Desoer
• CEO of Chase Home Lending, David Lowman
• CEO of MERSCORP., Inc., RK Arnold
  
• Associate Professor of Law, Adam J. Levitin
• Counsel for National Consumer Law Center, Diane E. Thompson

Bankruptcy Technical Corrections Act of 2010

On September 29, 2010, the House of Representatives passed H.R. 6198, the "Bankruptcy Technical Correction Act of 2010" and referred it to the Senate Judiciary Committee. HR 6198 was introduced by Rep. John Conyers (D-MI) on September 23, 2010. The bill would make technical corrections to the Bankruptcy Code and bankruptcy-related crime statutes in Title 18. The bill "does not alter substantive rights" but only fixes spelling errors, incorrect cross-references, and minor language disagreements, many of which were enacted in the 2005 BAPCPA.

Insurer of Mortgage Backed Securities Sues Countrywide

A recent case provides some insight into the world of insurance obtained by subprime mortgage companies to back their mortgage backed securities. The insurance was purchased by the mortgage companies to enhance the credit worthiness of the mortgage-backed securities.


Businessweek reported yesterday about the civil action filed on September 28, 2010 in the New York state trial court, by Ambac, the insurer of mortgage backed securities issued by Countrywide entities. The insurer, Ambac Assurance Corp. alleges that Countrywide fraudulently induced Ambac to insure bonds backed by improperly made loan. Ambac alleges that the "secret of Countrywide's short-term success-and long-term demise-has become clear," - it abandoned its underwriting standards and condoned fraud by its employees and others.

Its reported that Ambac's division that wrote the policies was placed in rehabilitation in March, 2010 by Wisconsin's insurance commissioner.

Securitization

The lawsuit involves twelve Countrywide sponsored residential mortgage securitization transactions that closed between 2004 and 2006, involving second mortgages. The twelve transaction contained 268,000 loan that served as collateral for about $16.7 billion in securities. Certain of the classes of securities were insured by Ambac. Ambac alleges that to date, over 35,000 loans with an aggregate principal balance of more than $1.95 billion has defaulted or been charged off and as a result, Ambac has been forced to make more than $466 million in claim payments to Countrywide.

Ambac alleges that its review of the defaulted mortgage shows that over 97% of the loans reviewed breached Countrywide's representations regarding the quality of the mortgages and conformance to Countrywide's purported underwriting guidelines. Pursuant to the agreement, Ambac demanded that Countrywide cure the breaches or substitute or repurchase the "breaching loans." Countrywide is alleged to have refused to do so.

Predatory Lending

Ambac further alleges that Countrywide engaged in "predatory and abusive lending practice in marketing its products to borrowers who could not afford them." It alleges that "Countrywide enticed borrowers to borrow beyond their means by promoting loans with low introductory 'teaser' interest rates while obfuscating the steep increase in monthly payments that would occur when these teaser rates reset at higher levels."

Vicarious Liability

Ambac alleges that Bank of America is liable for its damages as Countrywide's successor. Bank of America acquired all of Countrywide's assets through an all-stock merger on Ju

Modifying Your Mortgage in Chapter 13 Bankruptcy

New mortgage modification rules make it easier to combine a HAMP or "Obama Plan" mortgage modification with a Chapter 13 Bankruptcy. Combining a HAMP mortgage modification may be beneficial to many homeowners.

The filing of a chapter 13 bankruptcy generally stays all foreclosure and collection actions by mortgage companies and other creditors. This allows a person to formulate a chapter 13 plan to reorganize their financial situation.

A typical homeowner who owes more on their home than it is valued at will propose a chapter 13 plan to avoid their second mortgage lien and categorize it with other unsecured claims, such as credit cards. The homeowner will also file a HAMP mortgage modification request if they haven't already file it. The chapter 13 plan will provide for payment of the estimated and anticipated HAMP modified mortgage payment. The chapter 13 plan provides also provides for a percentage dividend to unsecured creditors.

Filing for a HAMP modification together with a chapter 13 bankruptcy may increase the likelihood of obtaining a HAMP modification for various reasons, including the increased feasibility of making the new payment for the first mortgage, as the second mortgage is avoided and categorized as an unsecured creditor. Also, as the HAMP is being filed in the context of the chapter 13 case, it may receive more prompt review by the mortgage company.

A typical HAMP modified mortgage payment is calculated as 31% of the homeowner's gross income. The 31% amount would cover principal, interest, taxes, insurance and associations.

Mortgage Modification and Chapter 13 Bankruptcy

The new HAMP rules that went into effect June 1, 2010 greatly increased the attractiveness of Chapter 13 as a platform to obtain a HAMP mortgage modification. Basically, by filing both a HAMP mortgage modification and a chapter 13 bankruptcy at the same time, one may be able to do all of the following at the same time:

1. Obtain a modification of the first mortgage
2. Avoid the second mortgage (ie. "equity line") if it is "underwater" due to a fall in value
3. Reorganize unsecured debt
   

The new HAMP guidelines provide the following new provisions:

• Bankruptcy - Homeowners in chapter 13 are required to be considered for HAMP upon request.
  

• Chapter 13 Plan - The chapter 13 plan may provide for anticipated or estimated HAMP modified mortgage payment which is normally 31% of gross income.
  

• Waiver of Application - The mortgage servicer may accept the bankruptcy schedules in lieu of the Request for Modification and Hardship Application to determine eligibility for HAMP.
  

• Cooperation Required - Mortgage servicer must work with the homeowner to obtain Bankruptcy Court approval.
  

• Waiver of Trial Period - Mortgage servicer may waive trial period mortgage modification and provide a permanent mortgage modification if the chapter 13 plan had been providing the amount of the proposed modified mortgage payment.
  

• Investor Approval - Mortgage servicers must use "reasonable efforts" to obtain approval from investors to participate in HAMP.
  

• Reconsideration - Ability to seek reconsideration of HAMP denial.
  

Observations on the South Florida Foreclosure Crisis

The mortgage foreclosure crisis in South Florida is far from resolved. I offer the following observations.

• It is astounding to note that about 30% of all foreclosure sales in Miami-Dade County, Florida are being canceled on recent calendars. Not clear whether this is an indication that the mortgage holders are not that eager to become the owners of more South Florida real estate or whether they are cooperating more in efforts by homeowners to modify their mortgages.

• The Federal Reserve Bank of Cleveland issued a report on August 3, 2010 on the mortgage cramdown policy debates and lessons that may be learned from the chapter 12 agricultural bankruptcy reform in the 1980's.

• Miami condos for less than the price of a car.

• Foreclosure crisis and abandoned homes contributes to Miami being rated 9th worst place to live in the USA, behind El Centro, California, Cleveland, Detroit, and Las Vegas

"The Dodd-Frank Wall Street Reform and Consumer Protection Act" - Some Residential Mortgage Provisions

H.R. 4173

The Dodd-Frank Wall Street Reform and Consumer Protection Act - was signed into law by President Obama on July 21, 2010 as Public Law 111-203. It contains various residential mortgage provisions.

Section 4 - General Effective Date - one day after enactment

Section 941 - Regulation of Credit Risk Retention - Regulations are to be prescribed "to require any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells or conveys to a third party." The securitizer is also to be prohibited from "hedging or otherwise transferring the credit risk that the securitizer is required to retain" and the securitizer is to be required to retain not less than 5 percent of the credit risk for certain assets.

Section 1001, et seq. - The Consumer Financial Protection Act of 2010.

Section 1400, et seq. - The Mortgage Reform and Anti-Predatory Lending Act

Section 1411 - Ability to Repay - The Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended that, in accordance with regulation, creditors may not make a residential mortgage loan unless it makes a "reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance...and assessments."

Section 1442 - Establishment of Office of Housing Counseling

Section 1446 - Study of Defaults and Foreclosures - HUD is to conduct an extensive study of the causes of default and foreclosure of residential home loans, including the role of escrow accounts and the role of "computer registeries of mortgage" (that must refer to MERS)

Section 1471 - Property Appraisal Requirements

Section 1482 - HAMP Guidelines - the HAMP supplemental directives and other guidelines are to require the mortgage servicer to provide the borrower whose request for mortgage modification is denied, "all borrower-related and mortgage-related input data used in any net present value (NPV) analyses". The input data is to be provided "at the time of such denial." A website is to be established to provide a calculator of the NPV analyses of a mortgage so that a homeowner can enter the information regarding their own mortgage and make a determination regarding whether their mortgage would be accepted or rejected for a HAMP modification.

Section 1483 - Public Availablity of HAMP Data

Update on HAMP

Testimony Before the Senate Committee on Finance on July 21, 2010

• Neil Barofsky - Special Inspector General of TARP
  
• Elizabeth Warren - Chair of the Congressional Oversight Panel
  
• Richard Hillman - Managing Director of Financial Markets and Community Investment Team for the GAO
  

Improper HAMP Denials and Servicer Noncompliance - The GAO Report to Congress

On June 24, 2010, the U.S. Government Accountability Office ("GAO") released its report to the Congressional Committees entitled "Troubled Asset Relief Program - Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs." The report reviewed various issues, including the extent to which HAMP servicers have treated borrowers consistently and the action that Treasury has taken to address "the challenges of trial modification conversion, negative equity, redefaults, and program stability." The GAO report issued several recommendations to Treasury, including that it establish increase efforts to inform borrowers to use the HOPE Hotline if they have been incorrectly denied HAMP and to clarify the consequences for mortgage servicers for noncompliance with HAMP.

HAMP Inquiries and Complaints

The GAO report notes that Treasury directed the HAMP servicers to establish procedures to respond to borrower inquiries and complaints. To that end, HAMP contracted with the "HOPE Hotline" to handle incoming borrower calls about HAMP, including complaints about potentially incorrect denials. The present hierarchy of referrals is as follows:

1. Borrower to call HOPE Hotline at (888) 995-4673
   
2. Referral by HOPE Hotline to HUD Approved Counseling Agency or its "Making Home Affordable Escalation Team"
   
3. Escalation, as needed, to HUD Approved Counseling Agency's Management
4. Escalation, as neeeded to, Fannie Maes' HAMP Solution Center
   

HUD-Approved Counseling and MHA Escalation Team

The HOPE Hotline may refer the borrower to a HUD-approved counseling agency or a Making Home Affordable ("MHA") Escalation Team (which is "housed within a HUD-approved counseling agency") if there is an assertion that they have been wrongfully denied a modification or if their servicer has not applied the HAMP guidelines appropriately.

HUD-Approved Counseling Management

If "additional intervention is needed", the HUD-approved counsel is to "'escalate' the complaint to the housing counseling agency's management." The GAO report states that [a]s of mid-April, 2010, more than 37,000 borrower complaints had been escalated to the MHA Escalation Team."


Fannie Maes' HAMP Solution Center

If the counseling agency's management is unable to resolve the complaint, the case is "referred to an escalation team within Fannie Mae known as the HAMP Solution Center" which also handles escalations referred by "housing counselors and government agencies outside of the HOPE hotline." The GAO report states that as of April 1, 2010, more than 3,700 complaints had been escalated to the HAMP Solution Center of which 2,900 were resolved with 19% resulting in the initiation of a modification, 35% with a determination of ineligibility, and 17% being referred back to the servicers or the HOPE Hotline. The report notes that "Fannie Mae has set a goal of 7 business days for the HAMP Solution Center to resolve complaints, but as of mid-April 2010, the average resolution time was 23 days."


GAO on the Effectiveness of the HOPE Hotline and Escalation Processes

The GAO report states that [i]t is unclear whether the HOPE Hotline and the escalation processes are effective mechanisms for resolving concerns about potentially incorrect HAMP denials" and notes that neither "the MHA Escalation Team counselor nor [the] HAMP Solution staff review the borrower's application or loan file." Treasury advised the GAO that it "would be difficult to obtain borrower's loan files because they are so large" but that they are working toward access to at least some information from the loan files.

The GAO report also states that Treasury has not explicitly informed borrowers that the HOPE hotline can be used to raise concerns about their HAMP applications and potentially incorrect denials.


Servicer Noncompliance with HAMP Program Requirements

The GAO report notes that while Treasury has taken "some steps to ensure that servicers comply with HAMP program requirements," it has "yet to establish specific consequences or penalties for noncompliance with HAMP guidelines." Although the Treasury's HAMP Compliance Committee drafted a policy to establish consequences for servicer noncompliance with HAMP program requirements, the policy has not yet been finalized. In the meanwhile, issues of servicer noncompliance are to be reported to the Treasury's HAMP Compliance Committee for evaluation, with resulting "financial remedies," "targeted reviews"and requirements for servicers to "take action to correct areas of noncompliance."

In its April, 2010 report, the Congressional Oversight Panel "recommended that Treasury ensure compliance through established enforcement mechanisms that provide a clear message of the consequences for servicer actions."

GAO Recommendations


The GAO report's recommendations include recommendation that the Secretary of Treasury "finalize and issue consequences for servicer noncompliance with HAMP requirements as soon as possible."

Palm Beach County Mortgage Foreclosure Mediation

Palm Beach County Circuit Court Foreclosure Mediation

The Circuit Court of the 15th Judicial Circuit of Palm Beach County issued administrative order number 3.308-6/10 dated June 28, 2010, to take effect on July 12, 2010, providing for certain "Case Management of Residential Foreclosure Cases and Mandatory Mediation Referral."


Scope

The administrative order is to generally apply to "all residential mortgage foreclosure actions filed in the Fifteenth Judicial Circuit" as of the effective date of the order, in which the involved mortgage was subject to the federal Truth in Lending Act, Regulation Z. All mortgage foreclosure actions against homestead residences are to be referred to the Residential Mortgage Foreclosure Program ("RMFM Program") unless otherwise agreed or unless certain pre-suit mediation was previously conducted. Other procedures apply to non-homestead foreclosure actions. The Court may order mortgage foreclosure actions filed prior to order's effective date to be subject to this Administrative Order.

Program Manager

The administrative order appoints the Palm Beach County Bar Association as the Program Manager of the "Residential Mortgage Foreclosure Mediation Program." The mediations will be held at 1601 Belvedere Rd., Suite 304, West Palm Beach, Florida. It is to manage the program in accordance with the administrative order and the Florida Supreme Court's Administrative Order SC09-54.

Disclosure for Mediation

The homeowner may request the following information and documents from the lender prior to the mediation session:

• proof of ownership and status as holder in due course as to note and mortgage


• history of application of payment


• lender's position on the present net value of the mortgage loan


• lender's most current appraisal of the property

Pre-Suit Mediation

Mortgage lenders are encouraged to use alternative dispute resolution, including mediation, prior to filing a mortgage foreclosure action.

U.S. Supreme Court in Lanning Adopts "Forward Looking Approach"

The U.S. Supreme Court issued its decision today on an important issue of chapter 13 bankruptcy law in the case of Hamilton, Chapter 13 Trustee v. Lanning. Justice Samuel Alito authored the Court's decision in which only Justice Scalia dissented. The issue involved was how "a bankruptcy court should calculate a debtor's 'projected disposable income'" which is one of the factors upon which the amount of a chapter 13 debtor's monthly plan payment is based. The Court rejected the "mechanical approach" and adopted the "forward-looking approach" pursuant to which the Court may, in the "the most unusual cases," go beyond the statutory formula for determining "disposable income" and "take into account other known or virtually known certain information about the debtor's future income or expenses."

The Court first reviewed the pre-BAPCPA (which was enacted in 2005) situation in which the Bankruptcy Code only "loosely defined 'disposable income'" and did "not define term 'projected disposable income.'" The Court stated that "in most cases, bankruptcy courts used a 'mechanical approach' in calculating projected disposable income" pursuant to which monthly income was multiplied by the number of the months of the plan and then the portion of the result that was "excess" or "disposable" was determined for dedication to the chapter 13 plan. "In exceptional cases, the bankruptcy courts took into account foreseeable changes in a debtor's income or expenses."

The Court noted that the BAPCPA "left the term 'projected disposable income' undefined but specified in some detail" the manner in which it is to be calculated. In general "disposable income" is based upon "current monthly income" less certain "amounts reasonably necessary to be expended" for maintenance and support and other items. The term current monthly income is statutorily defined and generally based on the 6-month period prior to the date preceding the filing of the bankrkuptcy case. "Amounts reasonably necessary to be expended" is calculated in a different manner for those below and those above the State median income amount.

The Court adopted the "forward-looking approach" which would allow for the consideration of the debtor's actual projected income in addition to the historically based "current monthly income." The court held that this approach is supported by the "ordinary meaning of the term 'projected.'" The Court noted that the term "projected" is not defined in the statute and that in "ordinary usage future occurrences are not 'projected' based on the assumption that the past will necessarily repeat itself.

The Court also noted the usage of the word "projected" in other federal statutes and stated that "Congress rarely used it [the phrase "projected"] to mean simple multiplication." In contrast, the Court referred to certain provisions in the Bankruptcy Code and noted that when Congress wished to mandate "simple multiplication, it does so unambiguously-most commonly by using the term 'multiplied'".

The Court remarked that pre-BAPCPA case law favors the "forward-looking" approach in that the general rule was that "courts would multiply a debtor's current monthly income by the number of months" of the plan as the first step in determining projected disposable income. But the Court also observed that the courts also "had discretion to account for known or virtually certain changes in the debtor's income." The Court noted that pre-BAPCPA practice is telling based on the principal that it "will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure."

The Court also observed that the mechanical approach "clashed" with the terms of 11 U.S.C. section 1325 in that it would read out of the statute the phrase "to be received in the applicable commitment period" and the direction to determine projected disposable income "as of the effective date of the plan" (as opposed to the filing date).

But the Court noted that the statutory formula for determining "disposable income" still plays an important function under the forward-looking approach in that in "most cases, nothing further is required" and that only "in the most unusual cases" may a court "go further and take into account other known or virtually certain information about the debtor's future income or expenses." In short, the Court adopted the Tenth Circuit's analysis that "a person making a projection uses past occurrences as a starting point."

The Court further noted that the mechanical approach would "produce senseless results that we do not think Congress intended" where the debtor's income has changed since the historical six month period.

Justice Scalia dissented and held that the Court's conclusion is "contrary the Code's text" and "refus[es] to hold that Congress meant what it said."

Options for Distressed South Florida Homeowners

The following are some of the options open to the South Florida distressed homeowner:

1. Mortgage Modification - HAMP or otherwise. As the mortgage companies have ramped up their staffing, the ability to achieve a HAMP or other modification has been increasing. The government regulations have also been improved over time to increase the achievement of modifications.

2. Short Sale - often favored by real estate brokers, but may soon have more actual benefit for homeowners if FNMA guidelines are changed to allow for better future credit for short sales rather than foreclosure.

3. Deed in Lieu of Foreclosure - the homeowner gives a deed to the mortgage company to avoid a full judicial foreclosure. Often not requested by mortgage companies due to possible title issues.

4. "Walk Away" from Home

5. Chapter 13 Bankruptcy - often combining a HAMP modification for the first mortgage and an avoidance of the second mortgage. Recent changes in HAMP rules has approved the use of HAMP within chapter 13 bankruptcy.

Making Home Affordable Program Updates

• April 27, 2010, hearings before the Senate Permanent Subcommittee on Investigations, "Wall Street and the Financial Crisis: The Role of Investment Bank"

• April 23, 2010, hearings before the Senate Permanent Subcommittee on Investigations, "Wall Street and the Financial Crisis: The Role of Credit Reporting Agencies"

• April 14, 2010, House Financial Services Committee hearings on the "Recently Announced Revisions to the Home Affordable Modification Program (HAMP)"

• April 13, 2010, House Financial Services Committee hearings on "Second Liens and Other Barriers to Principal Reductions as an Effective Foreclosure Mitigation Program"

• On March 25, 2010, Neil Barofsky, Special Inspector General of Sigtarp, the "Office of the Special Inspector General for the Troubled Asset Relief Program" released his 60 page report on "Factors Affecting Implementation of the Home Affordable Modification Program." The report states that "the number of permanent modifications entered into during HAMP's first year has been below expections."

• March 25, 2010 testimony before the Committee on Oversight and Government Reform, "Foreclosure Prevention: Is the Home Affordable Modification Program Preserving Homeownership?"

• Home Affordable Modification Program ("HAMP"), Supplemental Directive 10-02

• On March 8, 2010, the Home Affordable Modification Program ("HAMP") issued 38 pages of updated "frequently asked questions."
  
  
• It also released its "Servicer Performance Report" through February, 2010.
  
  
• The Federal Reserve Board issued a public statement dated December 3, 2009 that advises that a "adverse action" notice under Regulation B of the Equal Credit Opportunity Act is required for a mortgage declination of a mortgage loan modification under the U.S. Treasury's Making Home Affordable Modification Program ("HAMP") if the mortgage is not in default or delinquent. The letter notes that even if an adverse action notice is not required under Regulation B as to borrowers who are in default or delinquent, that it "understand[s] that Treasury has directed HAMP services to provide written notice to a borrower that has been evaluated form HAMP but is not offered a trial period plan or modification, or is at risk of losing eligibility for HAMP because the borrower has failed to provide the required financial documentation" HAMP Supplemental Directive 09-08 at 1 Nov. 3, 2009)

• "HAFA" - the Home Affordable Foreclosure Alternatives - Short Sale and Deed-in-Lieu of Foreclosure, Supplemental Directive 09-09

Other Interesting Recent Updates

Alan Greenspan, "The Crisis", Brookings Institute, March 9, 2010.

Proposed Changes to HAMP

It was reported earlier this week, that the Obama administration may seek further changes to its Home Affordable Modification Program ("HAMP"). These change may prohibit the referral to foreclosure "until a borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed."In testimony before a House Committee, a Treasury representative testified that the administration expects to release new guidance for improved protection of borrowers under HAMP. The proposal include

• Requirement of a reasonable effort to solicit borrower for HAMP (already implicit under present policy)
• Prohibition of referral to foreclosure until the borrower is evaluated for HAMP or reasonable contact efforts have failed
• Cessation of foreclosure action once borrower in trial period plan
• Written certification that a borrower is not eligible for HAMP before an a foreclosure sale may proceed

Among the reported HAMP changes as to bankruptcy are:

• Servicers must consider borrowers in bankruptcy upon request
• Servicers may use bankruptcy schedules instead of "request for modification" form
• Trial period waived for borrowers that have completed three or more months on bankruptcy plan where payment is greater than HAMP payment
  Trial period may be extended up to 5 months in order to obtain delay in obtaining needed court approvals.
  

HAMP presently sets a standard for affordablity and sustainable modification at 31% of gross monthly income. HAMP matches the reductions in monthly payments dollar-for-dollar with the investor in reducing the payments from 38% to 31% of gross monthly income. HAMP requires participatingn servicers to evaluate every eligible mortgage using a Net Present Value test. If the test is positive, "the servicer must modify the loan."


HAMP offers services a "pay for success" incentives with an up-front payment of $1,000.00 for each modification after completion of the trial modification period, and up to $1,000.00 a year for three years. Homeowners may also earn up to $1,000.00 toward principal reduction for each year, up to five years, that they remain current on the mortgage payments.


Over a hundred servicers together with thousands of Fannie Mae and Freddie Mac servicers are participating in HAMP and about 89% of all outstanding residential mortgage are covered by the HAMP program. The U.S. Treasury Dept. reports though that only about 116,000 homeowners have received permanent modifications.

Some "Chatter" on Mortgage Principal Reduction

The Washington Post reports today that the FDIC is developing a program to test whether principal reduction on "underwater" mortgage balances owed by distressed homeowners "is an effective method for saving homeowners from foreclosure." The program would reportedly only apply to loans acquired by the FDIC from a failed bank, which would amount to less than one percent of outstanding mortgage.

But the Washington Post notes that this "effort adds to the growing debate about whether principal reductions should become a large part of mortgage-relief efforts." Apparently, some in the mortgage industry have recently become more willing to grant principal reductions. It is reported that during the third quarter of 2009, thirteen percent of mortgage modifications included a reduction in principal. It is also reported that Wells Fargo has increasingly used principal reductions with option ARM mortgages, which it primarily acquired from Wachovia in 2008.

Keeping Your Florida Roof Over Your Head - HAMP and Chapter 13

One way for the distressed homeowner to keep his roof over his head, is to combine the use of HAMP and chapter 13 bankruptcy reorganization. HAMP is used to modify the first mortgage down to 31% of one's gross monthly income and chapter 13 is use to avoid the second mortgage if it is "underwater" and to pay usually only a small dividend to unsecured creditors.

• If one can obtain a HAMP mortgage modification before filing chapter 13, it would usually be preferrable, but otherwise, many mortgage servicers will consider a HAMP mortgage modification request during the chapter 13.


• An "automatic stay" against creditor action is imposed upon the filing of chapter 13 bankruptcy.


• First Mortgage - until the HAMP mortgage modification request is approved or denied, you pay the anticipated HAMP modified payment under your chapter 13 plan to the chapter 13 trustee


• Second Mortgage - in most cases, you are able to stop paying it in a chapter 13 plan as it is avoidable due to being "underwater," the debt is modified to be unsecured


• Unsecured debt, such as credit cards and personal loans - you only usually pay back a percentage of such claims under a chapter 13 plan.

Another Mortgage Modification Proposal

The Mortgage Bankers Association (MBA) announced today a proposal for a new voluntary forbearance program that would allow qualified borrowers who have lost their jobs to remain in their homes while they seek new employment.

According to the proposal, loan servicers would reduce the borrower's mortgage payment to an affordable amount for up to nine months while the homeowner seeks employment. "The program is designed to allow borrowers time to find a new job, after which they could hopefully qualify for a loan modification." The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the federal government's Home Affordable Modification Program (HAMP).

December Treasury-HUD Report on the HAMP

Yesterday the Department of Treasury and HUD released a report that there has been a "significant acceleration in the rate" in which Home Affordable Modification Program ("HAMP") trial period mortgage modifications are being converted into permanent modifications. The report that as of December, more than 110,000 permanent modification have been approved of which 66,000 have been accepted by the borrowers. The HAMP was "designed to offer through 2012 up to 3-4 million homeowners reduced mortgage payments that are affordable and sustainable."

The administration estimates that several million homeowners are eligible for the program. During the 4th quarter of 2009, the number of servicers agreeing to participate in the HAMP with respect to their non-GSE loans rose from 63 to 102. This is in addition to the approximately 2,300 other lenders who service GSE loans (owned or guaranteed by Fannie Mae or Freddie Mac).

The report relates the following steps made in the permanent mortgage modifications (by "waterfall steps") : 1. interest rate reduction (100% of mortgages), 2. term extension (43.2% of mortgages), and 3. principal forbearance (26.6% of mortgages).

HAMP Notes

Housing Wire reports that the number of permanent mortgage modifications that the Bank of America has made after a trial loan modifications under the Home Affordable Modification Program ("HAMP") rose from 98 mortgage as of the end of November, 2009 to 3,200 by January, 2010. The HAMP program began in March, 2009.

Bank of America reportedly has more than 200,000 customers in HAMP trial modifications and started more than 34,000 new trial modification in December, 2009.

HAMP Mortgage Modification and Chapter 13 Bankruptcy

The effectiveness of the HAMP or "Obama Plan" for mortgage modification has been widely criticized. Many homeowners complain that it is extremely difficult to communicate with their mortgage servicers.

One way to attempt to overcome this difficulty is to combine a request for a HAMP mortgage modification with a chapter 13 bankruptcy filing. Although the bankruptcy laws cannot force a mortgage servicer to approve a HAMP mortgage modification request, the filing of a chapter 13 bankruptcy in conjunction with a HAMP request may be of benefit in many cases. In fact, the Bankruptcy Court in the Southern District of Florida has recently begun to confirm some chapter 13 plans that provide for the anticipated payment under a HAMP modification request. Although the Bankruptcy Court cannot require a mortgage modification, it can prohibit the mortgage servicer from resuming a mortgage foreclosure until it properly considers a HAMP modification request and duly denies or accepts it.

A typical chapter 13 plan would provide for the anticipated HAMP modified mortgage payment as 31% of the homeowner's gross income. The 31% amount would cover principal, interest, taxes, insurance and associations.

The chapter 13 plan would also provide for the avoidance of any second mortgage that is wholly "under-water" and for a dividend to unsecured creditor. Some mortgage servicers may be more favorable to the modification of the first mortgage if the homeowner is no longer required to pay the full amount of his second mortgage, credit cards, and other unsecured debt.

Third Quarter 2009 "Mortgage Metrics"

The Office of the Comptroller of the Currency and Office of Thrift Supervision just released its "Mortgage Metrics Report for Third Quarter 2009" which provides "performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts." It reports that

• the percentage of current and performing mortgages dropped for the sixth consecutive quarter to 87% of the servicing portfolio
• only 67.7% of "option ARM" mortgages were current and performing
• serious delinquencies (more than 60 days past due) rose to 6.2%
• 3.2% of the servicing portfolios were in the process of foreclosure
• deterioration among prime mortgages of which 3.6% were in serious delinquency
• only 781 or less than 1% of HAMP trial period plans have been converted to permanent HAMP modifications

Mortgage Bankruptcy Amendment Defeated

On Friday, the House of Representatives rejected an amendment to the "Wall Street Reform and Consumer Protection Act of 2009" that would have added provisions to allow bankruptcy judges to modify home mortgages in chapter 13. The amendment was similar to that previously passed by the House on March 5, 2009 in H.R. 1106, the "Helping Families Save Their Homes Act of 2009" but was rejected by the Senate.

Under present law, mortgages that are secured only by a principal residence may not be modified, but mortgages on investment property may be modified.

It should be noted that some homeowners may be able to obtain a mortgage modification under present chapter 13 or chapter 11 bankruptcy law by changing the use of their home from being their principal residence to investment property. A modification in chapter 13 or chapter 11 bankruptcy may involve a reduction in principal balance and changes in interest rate, monthly payment and term.

Proposed Bankruptcy Reform and Mortgage Modification

It was reported yesterday that Congressman John Conyers (D-Mich.) has submitted Amendment 201 to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 1473) that would allow the modification of home mortgages in bankruptcy. This modification would include a principal reduction and interest rate changes.

The House Rules Committee was to meet today regarding this measure and debate on the legislation may start this week. The House passed similar bankruptcy measures earlier this year but they were defeated in the Senate.

House Hearings on Mortgage Crisis

Today the House Financial Services Committee held a hearing on "The Private Sector and Government Response to the Mortgage Foreclosure Crisis".

Rent Out Your House and Get the Ability to Modify Your Mortgages in Chapter 13 or 11 ??

Contrary to some logic, owners of investment properties have more rights to modify their mortgages in a chapter 13 and 11 bankruptcy reorganization case than do homeowners.

Due to the economic crisis, some Florida homeowners have begun to move out of their homes and rent them out to reduce expenses. The renting out of one's principal residence may have a significant benefit under chapter 13 or 11 bankruptcy -- the much sought ability to "cram down" one's mortgages.

Mortgages secured only by a principal residences are protected from modification in chapter 13 and 11 (wholly unsecured second mortgages though may be avoided), but mortgages on investment property may be modified by reducing their principal down to the present value of the real estate. The interest rate and term of the mortgages may also be modified. In short, once the property is no longer a "principal residence" -- the mortgages may be "modified."

The renting out of one's home before filing for bankruptcy may be sufficient to constitute a change in status from "principal residence" to non-principal residence. There may be arguments though that this is not sufficient. The change in status would certainly have to be in "good faith" and not a sham to be accepted by a bankruptcy court.

It would seem, though, that homeowners have a strong argument that they have the right to rent out their homes and convert them into a status of non-principal residence as most standard mortgages contain a provision that requires homeowners to maintain the property as their principal residence only for a certain short period of time. Paragraph six of a typical Fannie Mae mortgage only provides that the homeowner shall "continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy..." Indeed even this one year period may be waived by the mortgage company's consent or if there are extenuating circumstances. In short, the ability to convert from usage as a principal residence to to a non-principal residence was contemplated and provided for in the original mortgage agreement.

The ability to modify a mortgage under chapter 13 gives one broad powers -- the mortgage payoff may be "bi-furcated" into "secured" and "unsecured" portions. The unsecured portion would be provided for with the other unsecured claims such as credit cards. Unsecured claims typically receive only a small percentage dividend in a chapter 13 plan. For example, if the payoff on the mortgage is $400,000.00 and the value is $150,000.00, the mortgage company would have a $150,000.00 secured claim and a $250,000.00 unsecured claim.

One issue would be how to provide for the portion that is secured claim. Some mortgage companies simply agree to a reduction in monthly principal and interest payments based on the reamortization over the original term based on the reduced secured claim. Others may insist on the "maintenance" of the originally monthly payment which was computed on the full payoff. This would result in the now reduced mortgage being paid off in a shorter period of time.

The media continues to report that "Florida Still Leads in Foreclosures" and that few homeowners are receiving trial modification under the administration's HAMP program and even fewer permanent modifications. Perhaps, the rental of one's property and change in status to non-principal residence may be of use to obtain mortgage modifications and help save homes.

Florida Mortgage Foreclosure and Liability

A topic of much concern is liability in a residential mortgage foreclosure in Florida.

In the origination of a typical residential mortgage transaction, there are two instruments - the promissory note and the mortgage. The promissory note documents the actual terms of borrowing and the mortgage provides for a lien on the real property to secure the debt of the promissory note.

In a typical residential mortgage foreclosure action in this part of Florida, the foreclosure case initially usually only seeks a judgment setting a foreclosure sale of the involved real estate. This judgment of foreclosure seeks the setting of a foreclosure auction sale by the Clerk of the Court. A typical judgment of foreclosure is not a "money" judgment upon which the mortgage company can seek "execution" or collection of the sum due other than via the proceeds of the foreclosure auction. It should be noted though, that some residential mortgage foreclosure cases contain an additional count for a judgment on the promissory note which would be a "money" judgment and allow the mortgage company to seek "execution" or collection from any non-exempt assets

After the foreclosure sale, the mortgage company may be able to seek a "deficiency" judgment or otherwise sue for the balance due on the promissory note that was not paid from proceeds of the foreclosure sale. In recent times in South Florida, most mortgage companies have not pursued deficiency judgments for a variety of reasons. This policy though could change.

In a situation of a first and second mortgage on a property in today's market, often the second mortgagee will not pursue a foreclosure but will sue on the promissory note to obtain a "money" judgment upon which it may seek collection.

Where a husband and a wife own a property, it needs to be clarified if both parties actually signed the promissory note. Often one of the spouses only signed the mortgage and not the promissory note and such spouse would not generally face liability for a deficiency or on the promissory note. The spouse would have signed the mortgage but not the promissory note if he or she was a title holder or even if not on title, due to the Florida homestead provisions.

Senator Reed Introduces Bill to Strengthen Mortgage Modification Efforts

On September 30, 2009, Senator Jack Reed (D-RI) issued a press release that he introduced "Preserving Homes and Communities Act of 2009" (S. 1731) which is a bill to help "keep families in their homes and prevent communities from deteriorating as a result of skyrocketing mortgage defaults." The bill is cosponsored by Senators Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR).

One aspect of the bill will require that "qualified homeowners are evaluated for and offered loan modifications." The bill will apparently prohibit foreclosure while the homeowner waits for loan modification analysis and provide legal relief where lenders fail to follow the mortgage modification program rules. The bill will apparently "force lenders to modify qualified mortgages."

On September 30, 2009, the bill was referred to Senate Committee on Banking, Housing, and Urban Affairs.

Update on Proposed Bankruptcy Cramdown

At a House subcommittee meeting this week, Congressman Barney Frank stated that if the mortgage servicers do not act to stem the foreclosure crisis by modifying more mortgages, there would be an increased chance that Congress will enact bankruptcy laws allowing certain mortgage modifications. Frank stated that “the best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified.”

Frank reportedly told the Wall Street Journal that he intends to eventually include a mortgage modification provision in legislation that will overhaul the financial system. He also stated that legislation should address the problem of mortgage service's claiming lack of authority due to securitization. Frank also argued that proposed bankruptcy mortgage modification will not affect the flow of credit as it will be limited to mortgages already in existence.

It is also reported this week that Michigan Congressman John Conyers told a House panel that it is time to reconsider the proposed bankruptcy mortgage modification bill - the Helping Families Save Their Homes in Bankruptcy Act.

HAMP Hearing by House Subcomittee

The House Subcommittee on Housing and Community Opportunity held a hearing yesterday on the "Progress of the Making Home Affordable Program: What are the Outcomes for Homeowners and What Are the Obstacles to Success?"

Assistant Treasury Secretary Michael Barr's written testimony outlined the steps being taken by the Administration to strengthen the housing sector and help homeowners. He referenced the new home buyers tax credit and the Making Home Affordable Program, including the Home Affordable Modification Plan ("HAMP") which is a "$75 billion program to lower mortgage payments for at risk borrowers" for up to 3 to 4 million borrowers. He stated that forty-five servicers have sign up for HAMP, that offers have been extended on over 570,000 trial modifications, and that over 360,000 trial modifications are already underway. But the Wall Street Journal reports that these figures amount to only 12% of eligible borrowers having started trial loan modifications under HAMP according to a Treasury report and that there are increasing concerns about the number of borrowers who will actually receive a permanent modification after receiving three month trial period modification.

Assistant Secretary Barr stated that HAMP's guidelines require servicers "to service all loan in their portfolio according to HAMP guidelines, unless explicitly prohibited by pooling and servicing agreements, and further must make reasonable efforts to obtain waivers of any limits on participation."

He also that that the parties are working on "establishing denial codes that will require servicers to report the reason for modification denials, both to Treasury and to borrowers." He expects the denial codes to become operational on October 1.

Alys Cohen of the National Consumer Law Center also offered written testimony. She testified that the HAMP program is not providing a sufficient number of loan modifications and that the offered modifications often do not meet the HAMP guidelines. She also stated that the implementation of HAMP has been slow and sporadic. She advocates that Congres should mandate a stronger approach to loan modification, including allowing bankruptcy judges to modify appropriate mortgage loans. She suggested the following improvements: 1. the Net Present Value model for qualifying homeowners should be made public, 2. the HAMP guidelines and directives should be consolidated and clarified, 3. institution of an independent review process upon denial, and 4. access to an ombudsman for complaints.

Congressman Barney Frank argued that proposed bankruptcy mortgage modification will not affect the flow of credit as it will be limited to mortgages already in existence. He stated that if the mortgage servicers do not act to stem the foreclosure crisis by modifying more mortgages, there would be an increased chance that Congress will enact bankruptcy laws allowing certain mortgage modifications. Frank stated that “the best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified.” Frank reportedly told the Wall Street Journal that he intends to eventually include a mortgage modification provision in legislation that will overhaul the financial system. He also stated that legislation should address the problem of mortgage service's claiming lack of authority due to securitization.