Dual Tracking Endures

When home borrowers allegedly default on their mortgages, TBTF banks often Dual Track.  Banks will begin the loan modification process for the homeowner.  At the same time, banks will refer the account to an attorney for foreclosure.  This Dual Track procedure allows banks to more easily reject loan modifications.  Dual Tracking seriously prejudices home borrowers.  
Early this month, California Monitor Katherine Porter released her first report (.pdf) associated with the National Mortgage Settlement.  Ben Hallman has provided a helpful synopsis of the report.  

Porter, who was appointed by California Attorney General Kamala Harris to oversee the settlement, focused on dual-tracking she said because it is one of the most harmful servicing practices that banks were required to reform. Dual-tracking also suggests broader institutional problems that have plagued the foreclosure industry for years, including a lack of communication between various departments at mortgage companies, she said. "Dual-tracking costs people their homes," Porter said. She has "tempered optimism" that banks will stop dual-tracking and make other reforms required by the settlement.

Porter wisely tempered her optimism.  The Consumer Financial Protection Bureau (CFPB) has retreated from banning Dual Tracking as part of its proposed new regulations.  Although the National Mortgage Settlement Five must cease Dual Tracking, the rest of the industry may continue this harmful practice.  A recent New York Times editorial asks, Will Foreclosure Abuses Ever End?

[The Consumer Financial Protection Bureau's] proposal retreats from many existing requirements. It does not impose any meaningful standards for loan modifications beyond those already required by various federal programs and agreements, many of which will expire in the future and none of which apply to the entire industry. In a stunning reversal, the proposal actually permits dual tracking.

The CFPB's actual loss mitigation proposal is quite tame.  

9. Loss mitigation procedures. Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure sale. The proposal would require servicers to exercise reasonable diligence to secure information or documents required to make an incomplete loss mitigation application complete. In certain circumstances, this could include notifying the borrower within five days of receiving an incomplete application. Within 30 days of receiving a borrower's complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer's decision, and provide the borrower with at least a 14-day period within which to appeal the decision. The proposal would require that appeals be decided within 30 days by different personnel than those responsible for the initial decision. A servicer that receives a complete application for a loss mitigation option could not proceed with a foreclosure sale unless (i) the servicer had denied the borrower's application and the time for any appeal had expired; (ii) the servicer had offered a loss mitigation option which the borrower declined or failed to accept within 14 days of the offer; or (iii) the borrower failed to comply with the terms of a loss mitigation agreement. The proposal would require that deadlines for submitting an application for a loss mitigation option be no earlier than 90 days before a scheduled foreclosure sale. 

The CFPB may permit Dual Tracking, but state-level consumer protections and the common law should not.  Victims of Dual Tracking still have a variety of legal remedies available to them even if the Federal government refuses to regulate its TBTF banking enterprises.    

The Hardest Hit Fund

As part of the financial relief package known as TARP, the Federal government has an array of homeowner assistance programs.  You may have heard of some of them: the Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), and possibly even the FHA Second Lien Program (FHA2LP).  

You probably remain unaware of the Hardest Hit Fund (HHF).  In 2010, Treasury allocated $7.6 billion to the HHF for distribution to the following 18 States and D.C.:

Alabama Arizona California Florida Georgia Illinois Indiana Kentucky Michigan Mississippi

Nevada New Jersey North Carolina Ohio Oregon Rhode Island South Carolina Tennessee Washington D.C.

In its most recent report (.pdf), the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) came down hard on Treasury's neglect of HHF.  

SIGTARP reported that as of December 31, 2011, the latest data then available, HHF had spent only $217.4 million to provide assistance to 30,640 homeowners — approximately 3% of the TARP funds allocated to HHF and approximately 7% of the minimum number of homeowners the state HFAs estimate helping over the life of the program. 

Treasury has not set measurable goals and metrics that would allow Treasury, the public, and Congress to measure the progress and success of HHF. Treasury set a single goal for HHF: help prevent foreclosures and help preserve homeownership. Treasury deferred to individual states to set goals but did not require those states to set measurable goals. 

Treasury has stated that establishing static numeric targets is not suited to the dynamic nature of HHF. Taxpayers that fund this program have an absolute right to know what the Government’s expectations and goals are for using $7.6 billion in TARP funds. By refusing to set any goals for the programs, Treasury is subject to criticism that it is attempting to avoid accountability.

[bold is mine]

The SIGTARP report also remarks that Treasury has failed to even track the progress of the program and has refused to publish the progress recorded by the various states.

States have experienced various amounts of success with HHF.  For example, Kentucky's Unemployment Bridge Program (UBP) has averted 1,500 foreclosures.  The UBP has broad eligibility and provides generous benefits.

The maximum amount of assistance is $25,000 or 12 months, whichever occurs first.  Of the $25,000, the maximum amount that may be used for reinstatement, all related fees and payments to bring your loan(s) current, is $12,500 (effective with closings on or after May 7, 2012).  To get started, click on Get Free Help at the top of the page.
Applicants must meet the following guidelines and the mortgage must be with a participating servicer.

• Maximum amount of liens on the property cannot exceed $275,000.

• Maximum of two liens permitted on the property.

• Applicant(s) must demonstrate a need for assistance.

Notably, Kentucky's UBP still has $93 million left to disburse.  

South Carolina's Homeownership and Employment Lending Program (HELP) extends relief even to those who have suffered divorce, a death in the family, or medical disaster. But HELP has only expended 12% of its total reserves. Officials speculate on why the South Carolina has delivered so little aid:

The reasons range from people being too embarrassed to seek help to those assuming the free, too-good-to-be-true offer is a scam, he said. 

An advocate for the poor says South Carolina's program is too limited in who it can help, while a legislator in charge of the House budget for economic development blames poor marketing. 

"A lot of people don't believe it will help them," Ingram said. "We're constantly telling people not to self-exclude. At least apply. The worst that can happen is you're turned down. The best is, you'll save your home."

Treasury deserves only some of the blame for HHF's obscurity, as states reveal varying degrees of participation. Through HHF, California has averted over 16,000 foreclosures, North Carolina nearly 8,000, Ohio over 7,000, but New Jersey's Homekeeper a paltry 750.

In the larger scheme of financial relief, HHF's $7.6 billion constitutes a mere drop in the bucket. Last month, the Federal Reserve launched QE3. Banks appear to reap the lion's share of the benefit from the Federal Reserve's $40 billion per month purchase of Mortgage-Backed Securities. Too Big to Fail's corollary may well soon become Too Small to Save.