Dispatch from Foreclosureland

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In August, I wrote about the Obama administration’s flawed $75 billion homeowner rescue effort, the Home Affordable Modification Program, and therein introduced readers to Florida homeowner Kristina Page. Page’s mortgage company, Saxon Mortgage Services, first told her it hadn’t heard of HAMP. Then, when Saxon finally admitted Page into the program, it lost her paperwork and told her multiple times to send more copies of the same information even though she knew the name of the employee who’d signed for the originals.

Page eventually made it into HAMP’s trial period, a test run during which she had to make to three lower payments on time to qualify for the permanently lower, more affordable payments. After the test run, Page’s mortgage company, per HAMP’s guidelines, re-examined her financial information and recalculated what her permanent mortgage payments would be. Here’s where, like so many other homeowners, Page ran into trouble. “As I feared,” she recently wrote me, “the permanent payment is much higher than the trial period estimate payments.” On the face of it, her new monthly payment will be $40 less—hardly much help when you consider the mess Page’s been through to participate in HAMP.

It gets worse. Here’s why, in Page’s own words, Saxon gave her higher—and as it turns out, incorrectly calculated—HAMP payments:

I couldn’t figure out how they had our income so high, so as I told you I contested the numbers. Saxon called this morning and I explained my problem. [The Saxon employee] checked into it and called me back with this gem. She said, “The extra income is because there is a letter in your file stating your sister Samantha will be contributing $1300 per month toward your household income”…I am an only child…I don’t have a sister Samantha or any other sister. She [the employee] apologized profusely and even said, “This is all our fault”…I almost dropped the phone.

Page’s case illustrates the biggest issue with HAMP. According to recent data released by the Treasury, there are nearly 730,000 trial modifications underway right now, but only 31,000 permanent modifications have occurred so far. HAMP is worthless if it doesn’t result in permanent modifications for homeowners; those homeowners who go through the trial period but don’t get lasting help are left with wrecked credit scores and the same unaffordable mortgage as before. Meanwhile, foreclosures continue to reach record levels and the housing crisis shows little sign of abating. The Congressional Oversight Panel, led by Elizabeth Warren, got it right when it concluded (PDF) in October that it “increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now.”

It looks highly unlikely, though, that Congress or the Obama administration plans to change its approach to tackling this crisis. Congress shot down the option of “cramdown”—allowing judicial modification of mortgages in bankruptcy court—with its recent financial regulatory legislation, and the Treasury continues to stand behind its losing program. At this rate, the effects of the foreclosure crisis may stretch out a lot longer than many of us expected.

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