Improper HAMP Denials and Servicer Noncompliance - The GAO Report to...


On June 24, 2010, the U.S. Government Accountability Office ("GAO") released its report to the Congressional Committees entitled "Troubled Asset Relief Program - Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs." The report reviewed various issues, including the extent to which HAMP servicers have treated borrowers consistently and the action that Treasury has taken to address "the challenges of trial modification conversion, negative equity, redefaults, and program stability." The GAO report issued several recommendations to Treasury, including that it establish increase efforts to inform borrowers to use the HOPE Hotline if they have been incorrectly denied HAMP and to clarify the consequences for mortgage servicers for noncompliance with HAMP.

HAMP Inquiries and Complaints

The GAO report notes that Treasury directed the HAMP servicers to establish procedures to respond to borrower inquiries and complaints. To that end, HAMP contracted with the "HOPE Hotline" to handle incoming borrower calls about HAMP, including complaints about potentially incorrect denials. The present hierarchy of referrals is as follows:

  1. Borrower to call HOPE Hotline at (888) 995-4673
  2. Referral by HOPE Hotline to HUD Approved Counseling Agency or its "Making Home Affordable Escalation Team"
  3. Escalation, as needed, to HUD Approved Counseling Agency's Management
  4. Escalation, as neeeded to, Fannie Maes' HAMP Solution Center

HUD-Approved Counseling and MHA Escalation Team

The HOPE Hotline may refer the borrower to a HUD-approved counseling agency or a Making Home Affordable ("MHA") Escalation Team (which is "housed within a HUD-approved counseling agency") if there is an assertion that they have been wrongfully denied a modification or if their servicer has not applied the HAMP guidelines appropriately.

HUD-Approved Counseling Management

If "additional intervention is needed", the HUD-approved counsel is to "'escalate' the complaint to the housing counseling agency's management." The GAO report states that [a]s of mid-April, 2010, more than 37,000 borrower complaints had been escalated to the MHA Escalation Team."

Fannie Maes' HAMP Solution Center

If the counseling agency's management is unable to resolve the complaint, the case is "referred to an escalation team within Fannie Mae known as the HAMP Solution Center" which also handles escalations referred by "housing counselors and government agencies outside of the HOPE hotline." The GAO report states that as of April 1, 2010, more than 3,700 complaints had been escalated to the HAMP Solution Center of which 2,900 were resolved with 19% resulting in the initiation of a modification, 35% with a determination of ineligibility, and 17% being referred back to the servicers or the HOPE Hotline. The report notes that "Fannie Mae has set a goal of 7 business days for the HAMP Solution Center to resolve complaints, but as of mid-April 2010, the average resolution time was 23 days."

GAO on the Effectiveness of the HOPE Hotline and Escalation Processes

The GAO report states that [i]t is unclear whether the HOPE Hotline and the escalation processes are effective mechanisms for resolving concerns about potentially incorrect HAMP denials" and notes that neither "the MHA Escalation Team counselor nor [the] HAMP Solution staff review the borrower's application or loan file." Treasury advised the GAO that it "would be difficult to obtain borrower's loan files because they are so large" but that they are working toward access to at least some information from the loan files.

The GAO report also states that Treasury has not explicitly informed borrowers that the HOPE hotline can be used to raise concerns about their HAMP applications and potentially incorrect denials.

Servicer Noncompliance with HAMP Program Requirements

The GAO report notes that while Treasury has taken "some steps to ensure that servicers comply with HAMP program requirements," it has "yet to establish specific consequences or penalties for noncompliance with HAMP guidelines." Although the Treasury's HAMP Compliance Committee drafted a policy to establish consequences for servicer noncompliance with HAMP program requirements, the policy has not yet been finalized. In the meanwhile, issues of servicer noncompliance are to be reported to the Treasury's HAMP Compliance Committee for evaluation, with resulting "financial remedies," "targeted reviews"and requirements for servicers to "take action to correct areas of noncompliance."

In its April, 2010 report, the Congressional Oversight Panel "recommended that Treasury ensure compliance through established enforcement mechanisms that provide a clear message of the consequences for servicer actions."

GAO Recommendations

The GAO report's recommendations include recommendation that the Secretary of Treasury "finalize and issue consequences for servicer noncompliance with HAMP requirements as soon as possible."