Indiana Homeowner Kicked Out Of HAMP For Early Payment Wins Reprieve

After losing one of her part-time jobs in the fall, Indiana law student Melissa Stuart applied for a mortgage modification in hopes of reducing her monthly payment. Her servicer, GMAC, deemed her eligible and put her in a trial modification under the Obama administration's Home Affordable Modification Program. She said her monthly payment shrank to $874 from $1,108 -- a huge relief.

"I would have had to live off my credit card," said Stuart, 28. "Two-hundred bucks doesn't sound like a lot but I had a premium increase on my health insurance... I went from $180 to $219."

To keep people in their homes, HAMP gives servicers cash incentives to modify mortgage terms. Borrowers who meet eligibility requirements are put in trial modifications that typically last three months (Stuart's was for four), and if they make their payments the modification is supposed to become permanent. But GMAC called Stuart with bad news in February.

"I assumed I would be getting a call or some kind of notice of my permanent modification -- but it was GMAC collections. 'You owe us $4,000. When can you pay?' I explained to them I was in the Making Home Affordable Program. They said, 'No, you were kicked out of that program in January.'"

A couple weeks later, Stuart received notice that if she didn't pay outstanding charges and fees within 30 days, the foreclosure process would begin.

"I had a panic attack for like 30 minutes," she said. "I pride myself on being really responsible... I was hyperventilating and just, 'Oh shit, what am I going to do? Now it's getting serious. This is beyond my control.'"

Servicers participating in HAMP are allowed to move forward with the foreclosure process (but not to foreclose) while a borrower is in a trial modification, a cause of much confusion to homeowners. Under HAMP, servicers generally report homeowners in trial mods as delinquent for credit-reporting purposes.

"There are confused borrowers all over the country," said Julia Gordon, senior policy counsel for the Center for Responsible Lending. "On the one hand they think they're in the middle of getting a HAMP mod, and then they get this notice... Basically you get these legalese things saying, 'We're setting up foreclosure.'"

"It really demonstrates that the servicing industry really needs serious regulation," said Gordon.

Stuart had extra cause for concern because she'd been told that she had been kicked out of HAMP. That seems to have happened because she set her automatic payments too early -- instead of on the first day of the month, Stuart set her bank account to make the payment automatically on the 25th of the previous month. She was concerned that GMAC wouldn't accept the money on Jan. 1, New Year's Day.

It was intuitive to Stuart, but GMAC, apparently, didn't appreciate the early payment. Stuart said that whenever she called GMAC for an explanation, she was told that payments had to be made on the first of the month, no sooner.

In addition to calling GMAC, Stuart said she reached out to one of her senators, to the special investigator for the TARP bailout program and to Fannie Mae. Everyone replied to say something along the lines of they were "looking into the matter."

Finally, on Wednesday, Stuart received word from GMAC that she would be given a permanent modification after all. Never mind about that foreclosure.

In a statement to HuffPost, GMAC said it has modified its servicing practices to avoid the type of problem that Stuart had: "GMAC updated the trial agreement to reflect that trial payments must be paid on the due date or within five days thereafter. This revised language is included in all trial agreements offered by GMAC as of December 16, 2009."

Also, GMAC said it has "implemented technology in January 2010 to identify HAMP-eligible accounts subject to these certain investor guidelines. The enhancements better ensure that any trial payment made early will not be applied before the specified due date."

"GMAC is committed to preserving homeownership wherever possible, and we believe that we have reached an agreeable solution for Ms. Stuart."

Stuart is glad GMAC said she could have a permanent modification, but she's waiting to see the paperwork. She heard about the decision in a voicemail from a GMAC executive, which she shared with HuffPost:

"I had gotten a request through our corporate communications office to take a look at your file," said the executive. "We have been able to get approval to go ahead and use the trial modification you have already completed as your evidence to commit to repayment of the mortgage. We are going to move this loan now into the permanent modification phase."

"I'm no different from one of a million different homeowners," said Stuart. "It's very frustrating when you have to go to these lengths just to get something resolved."

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