Foreclosure Prevention Returns to the Unknown

The New York Times | January 25, 2017        After an eight-year run, a troubled government effort to prevent foreclosures and keep struggling borrowers in their homes came to an end last month.

What happens next will be a Trump-era laboratory experiment in how financial services companies conduct themselves when the regulatory fetters are loosened.

The expired Obama-era program — known as HAMP, the Home Affordable Modification Program — was widely criticized for its poor execution. Participation was voluntary for banks, and many that opted in did so unenthusiastically. (At one bank, “the floor of the room in which the bank dumped the voluminous unopened HAMP applications actually buckled under the packages’ sheer weight,” according to a scathing oversight report.)

Consumer advocates were also not thrilled; many felt that the program did not go far enough to help troubled homeowners or hold accountable the banks that contributed to their predicaments.

But Republican-led Washington has no intention of replacing it. So now it will be entirely up to the private sector to address a lingering social ill that was brought on by the financial crisis.

Banks and mortgage lenders say they are ready to step in with their own foreclosure-prevention programs, modeled on what they learned from the Obama administration’s effort. Armed with years of new data, financial companies say they now know how to make loan-modification programs successful, for both borrowers — who want to protect their homes — and lenders, who want to limit their losses on delinquent loans headed for default.

“There’s tremendous public good in having an industrywide approach,” said Justin Wiseman, the director of loan administration policy at the Mortgage Bankers Association, a trade group. “No one wants things to revert to what we had before.”

Still, housing advocates are skeptical, and for good reason: The mortgage industry was largely responsible for HAMP’s shortcomings (as well as for creating the need for the program in the first place). The business has long been littered with errors, confusion and outright abuses.

“We’re going back into uncharted territory,” said Jacob Inwald, the director of foreclosure prevention at Legal Services NYC, which helps low-income residents fight foreclosures and evictions.

Before the government stepped in “it was like the Wild West, with every servicer having their own program,” he said.  Read more here.