800,000 Homes May Have Been Unnecessarily Foreclosed Upon

The housing crisis has been traumatic for millions of people. Many have lost their homes through foreclosure and have been forced into bankruptcy. Thankfully, some homeowners have had the benefit of mortgage modifications to help them keep their homes. But a new report found that nearly 800,000 homes may have been unnecessarily forced into foreclosure because banks were not properly staffed or organized.

High Hopes

In 2009, the Obama Administration launched the Making Home Affordable (MHA) Program. The Home Affordable Modification Program (HAMP) is one part of the program. Run by the U.S. Treasury Department, HAMP pays subsidies to mortgage providers to get them to work with struggling homeowners in modifying their mortgages to avoid foreclosure. President Obama estimated HAMP would facilitate between three and four million modifications, keeping families in their homes.

During the next two years, many homeowners were frustrated with the delays, errors and general sense of confusion that accompanied the modification process. Part of the problem has been HAMP's strict screening guidelines requiring proof of income and a lot of other paperwork to sift out "irresponsible" homeowners. Nevertheless, HAMP will have resulted in the modification of around 1.2 million mortgages by the end of 2012.

Inefficiency

A Treasury Department spokesperson said that HAMP had resulted in "one of the most comprehensive compliance reviews of mortgage servicing operations in the country." However, a recent report authored by employees of the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago did not give HAMP's efforts or results such a glowing review.

The study revealed that some of the largest mortgage servicers were the least efficient at the mortgage modification process. Some servicers offered only half as many modifications as others. The less-efficient banks had significant problems with disorganization and understaffing. The modification process itself did not help; the excessive paperwork required to prove a homeowner's income level clogged the already slow gears.

The report found that had those slower banks processed modifications at the same rate as the better performing banks, HAMP would have resulted in 2 million modifications instead of just 1.2 million. In other words, 800,000 more homeowners could have kept their homes instead of presumably being pushed into foreclosure. The thought of hundreds of thousands of families losing their homes because of poor bank management is heart wrenching.

Bankruptcy

Many homeowners are caught in the middle of a foreclosure and do not know what to do. If a homeowner has significant equity in a home and he or she is less than 90 days late on payments, there are many ways to stop the foreclosure process, including refinancing the mortgage. However, once a mortgage payment is past-due 90 days, the options dwindle. At that point, filing for bankruptcy may be the best plan.

Chapter 13 bankruptcy is essentially a way to get time to catch one's breath during a financial storm. Immediately upon filing, the bankruptcy court issues a stay of the foreclosure, and all other court proceedings. The court will reorganize debts and begin a repayment plan over the following three to five years. Unlike Chapter 7 bankruptcy, Chapter 13 allows the filer to keep their home.

If you are facing foreclosure, contact an experienced attorney to discuss your situation, examine your options and ultimately determine the best way to help keep you from losing your home.