Home & Garden Columns

Restoration Comedy- DC Or Not DC

By Jane Powell
Tuesday August 03, 2010 - 03:43:00 PM

Washington DC is a swamp in more ways than one. But an estimated 30,000 desperate homeowners have or will be coming to DC in the middle of a heat wave to attend the Neighborhood Assistance Corporation of America’s Save the Dream event. (NACA is one of many HUD-approved housing counseling agencies trying to help homeowners modify their mortgages under HAMP.) These events bring together housing counselors and representatives from lenders and mortgage servicers in one place so homeowners can meet face to face and attempt to work out a modification and avoid foreclosure. Homeowners started lining up Thursday night outside the Convention Center, though the event didn’t open till Friday morning. 

I didn’t get there till Friday at 6 a.m., having flown from Oakland the day before and not having camping equipment on me. That put my place in line about two blocks from the door. NACA estimated there were 3500 people attending the first day. This was my second attempt to modify my mortgage after my income tanked in the Second Great Depression. On my first attempt they were kind enough to offer me a three month forbearance- a suspension of mortgage payments for three months, which does nothing but ruin your credit and put you in an even deeper hole. When I refused the forbearance, my entire application was summarily rejected by my servicer (GMAC) via the internet with the cryptic comment "cannot reach an affordable payment." 

Before leaving, I had spent two days making copies of every document I could imagine they might possibly want in triplicate, and carefully placing them into divided binders: self-employment worksheets, six months of pay stubs, 72 pages of bank statements (including, of course, the pages that say “This page intentionally left blank”), copies of my entire tax return, copies of IRS Form 4506-T( which allows them to order a copy of my tax return from the IRS, since clearly on the one I am providing I would probably have whited out the numbers and replaced them with something that would look better), my mortgage statement, my property tax statement, my HELOC statement, the declaration from my homeowner’s insurance, rental agreements for my three housemates, a copy of my budget statement from NACA, and even a copy of the complaint I recently filed about all this with the Office of the Comptroller of the Currency. (When I got home today there was a letter from them- GMAC isn’t a national bank and so not under their jurisdiction, so they referred it to the Federal Trade Commission, which, they explained, tracks complaints but does not investigate them. That’s helpful.) 


And because I am apparently a masochist, I even included a Profit and Loss statement from my Quickbooks file. Those who have been following this series will know that NACA, at least, has consistently refused to even look at this, because I am so clever that I could have been keeping a completely false set of books this whole time, even though I can barely manage to operate Quickbooks at all. 


Since everything went to hell in 2008, I have taken a part-time retail job, tried to rent out more rooms in my house (I had to evict a deadbeat tenant the end of last year, but that’s a whole other story. Let’s just say it didn’t help my income…), cut out everything I could think of, tried to increase my self-employment income (so easy when you’re a writer who writes mainly about fixing up houses when no one has money to fix up their house),etc. Even renting out a room takes six months of advertising it on Craigslist. But I digress. Which I do often. 

HAMP was promoted as something that would reduce your mortgage payment to 31% of your income. They just didn’t mention the fine print. 

From the FAQ’s at www.makinghomeaffordable.gov


26. What will my servicer do to determine if I qualify for HAMP? 

* Determine whether your loan meets the minimum eligibility criteria (i.e., owner- occupied; originated on or before January 1, 2009; unpaid principal balance equal to or less the loan limit for the number of units involved, mortgage payment greater than 31% of gross income; and financial hardship). 

* If your loan meets the minimum eligibility criteria, the servicer will ask about current income, assets and expenses, as well as any specific hardship circumstances to determine if you are unable to make your mortgage payment. Your servicer may initially accept verbal income and expense information; however, you will need to provide verifying documentation before a final modification is approved. 

* Determine if your monthly first lien mortgage payment is greater than 31% of your gross or pre-tax monthly income. 

* Apply a Net Present Value (NPV) test to determine whether the value of the loan to the investor will be greater if the loan is modified (factoring in the government’s incentive payments). If the modified loan is not of greater value, the investor and servicer may still modify the loan. However, modification in such cases is not required. Please note: Your servicer may re-run the NPV test before the modification becomes official if they receive new information that could affect your NPV score. 

* If the modified loan is of greater value, the servicer must offer you a modification under HAMP, and, if you accept the offer, will put you on a trial modification (typically three months) at the new payment level. 

* If you successfully make all of the required trial payments during the trial period and the income and expense information you provided is determined to be accurate, your servicer will execute an official modification agreement. 


It all sounds just swell, doesn’t it? 

In reality, if reducing your interest rate to 2%, extending the loan term to 40 years, and even doing a "principal reduction" (in which they theoretically reduce the principal but really simply add that amount on as a balloon payment at the end of the loan) isn’t enough, they don’t have to eat the principal. They can tell you to take a flying leap- either you somehow increase your income (by taking a third non-existent job?) or prepare to lose your house. Because, as it turns out, it’s often a better deal for the investor, and invariably a better deal for the servicer, to foreclose. They run a calculation called NPV (net present value): 

# Apply a Net Present Value (NPV) test to determine whether the value of the loan to the investor will be greater if the loan is modified (factoring in the government’s incentive payments). If the modified loan is not of greater value, the investor and servicer may still modify the loan.However, modification in such cases is not required.  

Many of the inputs used in the NPV test are a closely guarded secret, which essentially means they can plug in whatever numbers they want to get whatever result they feel like getting. 


I’m not even going into trial modifications lasting far longer than three months, refusals to make modifications permanent, or the up-and-coming scam of rescinding permanent modifications after the fact based on technicalities (they apparently have taken a page from the health insurance industry playbook on rescissions). 

I spent my three and a half hours in line talking to the people around me. Others had come from as far away as Florida and Georgia, though most were from nearer DC. Their stories were of varied hardships, but it was clear they had played by the rules and now were getting screwed. Their anger at the financial industry was palpable. Discussions about whether Bank of America was worse than Chase (or substitute bankster of your choice) abounded. 

Once we got inside, we were sorted into groups and sent to talk to counselors or servicers depending on our situations. There was a good deal of waiting. The GMAC representative was nice enough, but couldn’t really do anything except send my file to someone at Fannie Mae (the investor). Although the affordable 31% payment would have been $1147, she said it was unlikely they would go for it, because the 2%/ 40 year term extension wouldn’t be enough to get there, and they were unlikely to take $100K off my loan, even as a balloon payment. (Yeah, I’d be able to pay that off when I’m 84, using my non-existent Social Security, courtesy of President Obama’s Cat Food-oops, I mean Deficit Reduction Commission) She said maybe they could go to 38% of my income- more like $1800. Well, it ain’t great but it’s damn sight better than the $2600 I’m paying now. She said it would take about a week to get an answer- apparently they do respond a little faster to requests that come from these events. 

Even if they say yes, the Treasury Dept. has conveniently placed many land mines in the road. A temporary modification ruins your credit, so if you don’t get a permanent modification, any financial flexibility you might have had through credit cards will be over, so anyone with existing credit card debt will end up in an even deeper hole as their interest rate gets jacked up and their credit limit reduced. Not to mention their ability to get a job, since employers are now checking credit ratings before hiring. If it wasn’t all so evil, you could almost admire the beauty of their plan to sentence us all to a lifetime of indentured servitude. 

One moment at the event really brought it all home. While I was waiting, I noticed what appeared to be a vending machine on the other side of the room. Since it was well into the afternoon, and I hadn’t had anything but water since having breakfast at 5 a.m., some juice or soda would have helped. I walked over to check it out. As I got close, I could see a large sign taped to the front. It said "Bank of America employees only." 

Jane Powell writes for the Planet whenever she feels like it. Right now she feels happy to be home from the DC swamp, and you can contact her at hsedressng@aol.com.