Fine Print In Standard HAMP Loan Mod Deal Allows Lenders To Sell Homes Out From Under Borrowers In Foreclosure, Despite Prompt Trial Period Payments

McClatchy Newspapers reports:

• Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.

• These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won't get help after all. How many is hard to tell. Lenders participating in the administration's Home Affordable Modification Program, or HAMP, still don't provide the government with information about who's rejected and why.

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• In the fine print of the form homeowners fill out to apply for Obama's program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights. This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

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• A glance past [the lender's] hopeful promise [to save a home from foreclosure] finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders. The document warns that foreclosure "may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law."

• This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn't qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner. Until now, lenders haven't even had to notify borrowers in writing that they'd been rejected for permanent modifications.(2)(3)

For more, see Homeowners often rejected under Obama's loan plan.

(1) Reportedly, more than 759,000 trial loan modifications have been started to date, but just 31,382 have been converted to permanent new loans. That's averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks, the story states.

(2) In January, 11 months after Obama's plan was announced, homeowners will begin receiving written rejection notices, and the Treasury Department finally will begin receiving data on rejection rates and reasons for rejections, the story states.

(3) In the case of one homeowner highlighted in the story, Bank of America reportedly backed down from an alleged threat to sell the home out from under after receiving an inquiry from the media about the situation.