In 2009, the Congress and the Obama administration revealed their newest plan to help families save their homes from foreclosure by encouraging mortgage modifications. This plan, called the Home Affordable Modification Program (HAMP) was designed to create broad guidelines for the mortgage industry on modifying loans, as well as provide incentives to lenders and services to offer modifications.
Participation in the HAMP plan, as with most of the other federal foreclosure help programs, is voluntary for most servicing companies and lenders. Many of the largest servicers, though, have signed agreements to engage in the program. Companies that received funds from the government under the Financial Stability Plan are also required to participate in the program, along with Fannie Mae and Freddie Mac.
One of the main benefits of the program to homeowners is that it essentially requires participating mortgage servicing companies to review the eligibility of homeowners for a loan modification before being able to conduct a sheriff sale. In fact, servicers participating in the HAMP plan should not even begin the process of foreclosure until the review has been complete and the borrowers have been determined to be ineligible for a modification.
Loss mitigation efforts are required under the plan, and the guidelines for loss mitigation are similar to those required for FHA loans. In cases of default of an FHA loan, the servicer is supposed to negotiate with borrowers for an alternative to losing the home. The same is true with the new HAMP program, as both plans are designed to help homeowners remain in their properties at affordable rates.
Due to this program, there are a few new defenses to foreclosure that homeowners may raise due to a lender or servicing company’s failure to comply with the requirements of the program.
For instance, if a servicing company participates in the Home Affordable Modification Program but does not review a borrower’s financial material to determine whether a modification will make sense for the investor and the homeowners, the foreclosure should not be allowed to move ahead. The failure to comply with the guidelines of HAMP before foreclosing may mean that the homeowners are not even in default of the mortgage contract.
Also, the Congress, in the regulation itself, has declared the HAMP guidelines to be “standard industry practice for purposes of all Federal and State laws.” This means that a lender’s failure to comply with standard industry practice should create a defense to foreclosure that homeowners can raise in court. Unless prohibited by the pooling and servicing agreement itself, lenders are now required to follow HAMP guidelines.
Thus, because of the new regulation that the Obama administration has put into effect for the residential mortgage servicing industry, homeowners may have additional opportunities to qualify for a loan modification or defend their property from foreclosure. Although many of the government foreclosure assistance programs have failed to deliver so far, it is possible that borrowers can use these laws in self-defense, if not actually to qualify for workout solutions to save their homes.
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