The lack of transparency surrounding mortgage lenders' modification decision processes is legendary, and the failure of HAMP is well-documented. Mortgage servicers say they're overwhelmed with multiple changes to the program. They claim the reason the many folks get kicked out of the program and don't receive modifications is that they fail to return paperwork. Borrowers counter that they send the same stuff in over and over and that servicers repeatedly "lose" it, then send out a HAMP denial because "documentation not provided." Mortgage counselors agree, with 100% of those surveyed claiming to receive multiple requests for the same documents.

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So how would HAMP be run if servicers actually wanted to accomplish the modifications?

I. Approval would be automated. When lenders want to make a fast decision, for example, when they want to approve, fund, and collect fees on as many mortgage applications as possible, they use an automated underwriting system (AUS). The loan agent inputs the borrower's application, the software analyzes the credit, asset, equity, and income in seconds, and renders a decision. the applicant gets a list of conditions required to complete the loan. For example, a funding conditions list for a wage earner might read:

a. Bank statements for most recent two months showing at least $56,700 balance.

b. Most recent pay stubs and last two years W-2s documenting at least $6,781 per month income.

c. Declarations page for hazard insurance.

d. Acceptable property appraisal.

II. Borrowers would have assigned contacts and there would be incentives for applications to be resolved promptly.

Once these things are turned in and approved by a human underwriter, the loan documents are drawn, the paperwork is signed, and the loan funds. When I was a mortgage loan officer, good credit loans could be completed start to finish in eight days. bad credit mortgage loan applications took no more than thirty days. Wouldn't it be nice if you could go online, fill out a form (or have a counselor help you do it), get a decision and a list of required documents in seconds, send them to the lender, and get a final decision in a few days or weeks? It's possible.

So why do mortgage modification applications take over a year to complete in many cases?

If lenders truly wanted to make the process more efficient, they could automate their decision-making process. Why shouldn't applicants be able to input their information (it's the same information that's required to apply for a mortgage), document their hardship, and get an automated decision and a list of conditions to finalize their mod? Why do they have to spend hours on the phone repeating the same explanations to different agents every time, when a mortgage applicant gets a single contact who knows the whole file? Why do servicers make the process so difficult? Are they hiring dyslexics to do their filing? Is it really possible to lose that many documents?

Servicers, investors, and borrowers not on the same page

I spent yesterday reviewing the documents and tutorials that HAMP Admin has created for mortgage servicers. They say that the biggest benefit of HAMP for servicers is that they get a whopping $1,500 for modifying a loan, and that they "are doing their part" to help the US economy. Somehow I don't think that's terribly motivating. Investors may be better off with a reduced income stream than they would be with a foreclosure, but that's not the case with servicers. According to Elizabeth Warren, the frontrunner for heading up the new consumer financial protection bureau, mortgage servicers make ten to twenty times more by foreclosing on you than they ever would by modifying your loan. And they get paid first -- before the investors.

As long as mortgage modification is left to the discretion of servicers, private companies that owe their loyalty to stockholders, not the American public, their investors, or their mortgage borrowers, they will not proceed in an efficient way -- the way that loans move through the system when lenders are actually motivated to do the job.