Friday, August 13, 2010

Debt Defense 101 : Whistle Blower Says Fannie Mae Took Homeowner's "Trial Mod" Payments With No Intention Of Permanently Modifying Loans

Now this is an issue for anyone who is considering a strategic default or trying to get a loan modification. Many times, a person decides to strategically default after being refused a loan modification. In certain circumstances the homeowner has made monthly "trial mod" payments while waiting for approval of a permanent loan modification ONLY to be rejected later. This happens quite often under the Federal Government's HAMP (Home Affordable Modification Program) aka Making Home Affordable program. The HAMP program was created for homeowners to avoid foreclosure. Instead, it has lined the "wallets" of Fannie Mae and other lenders with tax payer money.

Now why would homeowners make monthly "trial mod" payments if they knew they would be rejected? They wouldn't. However, homeowners are duped into making the payments.

Consider this: If a homeowner is able to make monthly "trial mod" payments as agreed, why doesn't the lender agree to a permanent loan modification. What better proof does a lender need regarding a homeowners ability to pay then the fact that the homeowner is actually making the payments under a "trial mod".

The purpose of this post is to show you how to use lending institutions "clear and convincing malfeasance, unfair negotiating and delay tactics, and outright bad faith" against them as a defense to collection efforts and foreclosure. On top of that it can be an offensive tool to get a permanent loan modification.

The defense rule is this: If a lender is unwilling to negotiate a loan modification in good faith (which includes being treated with respect during the application process), then you have the right to use any and all available defenses against a lender to keep your property even if you are not paying.

So let's begin...

The Center for Public Integrity reports that a Fannie Mae whistle blower has claimed that Fannie Mae executives mismanaged the HAMP program and wasted public funds.

The key quote from the article is as follows: "One issue inside Fannie was its push to put as many borrowers as possible into short-term trial modifications, at the expense...of getting qualified borrowers into permanent modifications...Herron charges that Fannie Mae continued in headlong pursuit of 'trial mods' even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial...Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009."

Based upon these allegations, we now know the following:
1. Fannie Mae took monthly "trial mod" payments from homeowners even though Fannie Mae had no intention of providing permanent loan modifications.
2. Fannie Mae was paid by the Treasury Department (with your tax money) for taking home owner's monthly "trial mod" payments.
3. Fannie Mae made "double the money". Fannie Mae had both hands in your pockets and cleaned you out. Fannie Mae took "trial mod" payments while it took tax payer funded incentive payments despite rejecting over 70% of home owner's seeking a permanent loan modification.

So let's do a little math. It was estimated that 1,000,000 homeowners were placed on monthly "trial mod" payments under HAMP through March 2010. So if, on average, each homeowner was making a payment of $1500 per month then Fannie Mae and other lenders were collecting $1.5 billion dollars per month. If the Fannie Mae and other lenders received a $500 to $1000 incentive payment from the Treasury Department for each borrower in a monthly "trial mod" program then these entities collected $500 million to $1 billion dollars.


And let's not forget, Fannie Mae recently implemented rules to "punish", to "chase" and to "spy on" any homeowner who decides to strategically default.

My Opinion: This can be a strong defense to a foreclosure case, debt deficiency case, or loan modification rejection under the following conditions:

If the homeowner:

1. applied for HAMP aka Making Home Affordable.
2. has made or continues to make monthly "trial mod" payments.
3. has been rejected for a loan modification or has experienced a long delay in a decision to modify their loan.

Then the homeowner can raise the following defenses under the following circumstances:

1. If foreclosure papers are served on a homeowner then one of the defenses should state: "The lender refused to approve me for a loan modification under HAMP aka Making Home Affordable even though the lender took 'trial mod' payments and even though the lender was paid my tax dollars to set me up with a 'trial mod' payment. The lender had no intention of giving me a permanent loan modification. This was claimed by a Fannie Mae whistle blower."
2. If a lender or third party debt collector seeks a deficiency judgment, then one of the defenses should state "At some point in time, the lender took my 'trial mod' payments and received my tax dollars in the form of incentive payments to set me up with a 'trial mod'. The lender should give me back my money because the lender acted in bad faith. The lender knew that it would not give me a permanent trial modification. On top of that the lender has been paid back the loan with my tax dollars. This was claimed by a Fannie Mae whistle blower."
3. When you apply for a loan mod and it's through the HAMP aka Making Home Affordable program ask your lender..."Do you receive incentive payments from the US government if I make monthly 'trial mod' payments? How much are you paid? Will you return my 'trial mod' payments if I am not accepted for a permanent loan modification? Will you continue collection efforts, including foreclosure, while I apply for a loan modification? Will you send me a response to my questions in writing? What address can I send my questions to?"

By the way, these defenses may be applied to any other lender or servicer. Fannie Mae is not the only mortgage company getting incentives under the HAMP program.

Save the outrage for later. This is about minimizing the consequences of a strategic default. This is about keeping and protecting your cash, savings, and investments.

Keep me posted.

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