The Housing Scene

Turned Down for a Loan Mod? Try It Again

If you've been turned down by your lender for a government-backed program that would allow you to refinance your mortgage at a lower rate and keep the foreclosure wolves from your door, you might want to give it another try.

The federal agency that runs the Home Affordable Modification Program (HAMP) says that as a result of unconscionable denial rates, it has tweaked the program several times to make it easier for underwater borrowers to qualify -- and more difficult for lenders and the companies that service their loans to reject them.

The program's improvements came to light recently when the office of the Special Inspector General for the Troubled Asset Relief Program -- better known in Washington circles as SIGTARP -- revealed HAMP's abysmal performance record. It reported that 7 out of 10 borrowers who applied for assistance under HAMP were rejected.

That is, from 2009 through this April, 4 million of the 5.7 million beleaguered borrowers who sought help were turned down.

One of the Obama administration's key programs aimed at helping borrowers stave off foreclosure, HAMP is designed to provide deep and meaningful savings for homeowners tripped up by unaffordable increases in expenses or reductions in income.

The voluntary program calls on lenders and servicers to change the terms of loans to a level that is affordable for borrowers now, as well as sustainable over the long term. It provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

But despite the fact that it includes monetary incentives for servicers, and for the investors who own the loans, the program's track record is pretty poor.

Many borrowers were rejected through no fault of their own. In its study, SIGTARP found that fully a quarter of all applicants were turned away because their applications were labeled "incomplete," even after servicers required them to resubmit the same paperwork several times. Often, servicers extended the time it took to make a final decision, outlasting borrowers who gave up in frustration.

Some 18 percent of owners dropped out of the running by failing to accept the servicer's loan-modication offer.

Another top reason for turning people down was that their incomes were deemed too high. But the report said the program has long been plagued by servicers' income miscalculations.

For borrowers who are still trying to save their homes, the SIGTARP report isn't as important as the response from the Treasury Department, which runs HAMP. Treasury said that things aren't as bad they seem, and they certainly aren't as bad as they once were.

And therein lies an underlying message to those who have been rejected: Give it another try.

"Treasury closely monitors the number of HAMP denials and has made changes to the program to simplify documentation requirements and expand eligibility criteria to assist more homeowners," said Mark McArdle, chief of Treasury's Homeownership Preservation Office.

Among the improvements: Documentation requirements have been simplified multiple times, most recently in a "streamlined" version that targets seriously delinquent borrowers who have yet to complete a modification application.

Also, eligibility requirements have been expanded to provide a more flexible debt-to-income ratio, and allow modifications on certain rental properties.

As a result, McArdle said, "We have seen significant improvement in servicers' compliance with program guidelines, including proper evaluations and denial decisions."

So, if you are still having trouble paying your mortgage and you meet the eligibility requirements -- chief among them is that your loan is owned, insured or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the Department of Veterans Affairs or the Department of Agriculture -- you might look into giving HAMP a shot, even if you've been unsuccessful in the past. The program's life has been extended three times and now runs through Dec. 31, 2016.

Even if your loan is a conventional mortgage, not of the government-backed variety, you might want to consider asking your servicer for a modification.

As McArdle maintains, HAMP has not only helped more than 1.5 million homeowners modify their mortgages, it has also "indirectly assisted millions more by setting new standards for the mortgage industry that have led to more affordable and sustainable private modifications."

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