Some say program incentivizing mortgage modifications is putting them in default and foreclosure.
One year ago this month, a program launched with great fanfare was supposed to come to the aid of struggling homeowners.
A central element of the Home Affordable Modification Program plan was to provide incentives for banks and loan servicers to help people at risk of default by lowering their monthly mortgage payments. Has it worked?
Homeowners Don and Jean Cohoon of Eureka said their finances were snowballing last year, with expenses growing and income shrinking. They say they managed to keep their home loan current, but saw themselves in danger of an imminent default. When a friend told them they should apply for a HAMP modification, Don Cohoon decided it was worth a try.
"It was just tough making it," he said. "Everything was going up, expense-wise. We were looking for a way to get some help and re-mortgage."
The process was excruciatingly slow, the couple said, but ultimately they got the news they had hoped for. Their loan payment was lowered several hundred dollars per month. They were put into the required trial period plan by their lender, Citimortgage, in September.
"Yes, thank God! We are going to be able to keep the house," recalled Jean Cohoon of her first reaction.
Three payments into the plan, the Cohoons said collection notices began arriving. While they were paying their note to one department at the bank, another department was telling them they were in default.
The couple says the bank came after them for the full amount of their original mortgage payments before ever telling them they did not qualify for a permanent modification.
Don Cohoon says the bank should have been able to figure out immediately that he and his wife did not qualify instead of stringing them along for months in a trial period plan.
"If they would have said, 'You don’t qualify,' we would have made other arrangements, figured something else out," he said. "Nobody told us during the process that your mortgage payment had to be less than 31 percent. If it was less than 31 percent, you wouldn’t qualify. We got no paperwork. We had no idea what the qualifications were."
A spokesperson for the U.S. Department of Treasury first told NBC Chicago that the bank appeared to be violating HAMP rules:
"Under the Administration’s modification program, services may not claw back any funds if borrowers are later determined to be ineligible. This borrower should reach out to 888-995-HOPE for assistance on this and to report any violations of program guidelines by servicers."
But a spokesman for Citimortgage disagreed, and asserted that the language of HAMP is clear on allowing servicers and lenders to pursue any and all funds owed to them.
So who was right?
After repeated statements regarding this scenario, the Treasury Department spokeswoman admitted the error was due to "bad information" and a "mix up" on her end.
At Neighborhood Housing Services of Chicago, executive director Michael Van Zalingen says this type of confusion and cat-and-mouse game is an all-too-common problem.
"It is unfortunate because the plan was announced with a lot of fanfare," he said. "It gave people hope that they could keep their home and when they were told they were going to get this modification, they were very excited and thought, 'Great! I can keep my home.' Then three months into it, to be told, 'No, I’m sorry, too bad,' is dashing a lot of people’s hopes and creating some frustration with the program, the administration and the lenders.”
There is some hope on the horizon: Van Zalingen said the HAMP rules are about to undergo a significant change in June. That is when banks and servicers will have to see documentation for modifications upfront. There will no longer be trial period plans launched over the phone, which should lower the likelihood a bank will say 'Yes' to a trial plan but then 'No' to a permanent modification.
That change will come too late for the Cohoons. Facing collection and foreclosure, they said they filed for bankruptcy last month.
To read an earlier report further explaining homeowners' difficulty with the HAMP, please visit IllinoisFamily.org.
During the month of March, NBC5 Chicago's Target 5 unit will take a look at the stories of Chicago-area homeowners and others affected by the housing crisis. Our series will culminate with a panel of housing industry experts who will be in-studio on Wednesday, March 24th, to answer phone calls and emails.