The nonprofit Homeownership Preservation Foundation got its start as an in-house arm of the mortgage lender Residential Capital LLC, a unit of Ally Financial Inc., the former GMAC Inc. The foundation's board is dominated by GMAC and other finance officials; its chairman is the former CEO of GMAC's ResCap unit.
No one involved even bothers to dispute the conflict of interest, one of many that have plagued the Treasury Department's Home Affordable Modification Program, or Hamp.
"Because we're supported by the industry, are we really working for the homeowner?" asked Bruce Paradis, the foundation's chairman, who retired as CEO of ResCap in 2007. "Maintaining this neutral ground is hard to do, but we work very hard to keep our advice neutral."
Ask Treasury officials why they decided to send at-risk borrowers to a group created by a major servicer, and their explanation is more pragmatic. The foundation had already created the 888-995-HELP toll-free hotline, and the Treasury did not want to have to reinvent the wheel.
"We didn't want to confuse borrowers further," said Cindy Gertz, the director of operations in the Treasury's homeownership preservation office (it even cribbed from the foundation's name). "We were leveraging the infrastructure and brand that already existed."
The Treasury awarded a large contract to the foundation in 2007 to connect borrowers with neutral, third-party housing counselors. The group has trained 200 counselors specifically to deal with complaints from borrowers who have been denied modifications. The foundation's 888-number is now listed on every denial notice sent to borrowers turned down for Hamp.
So far, 150,000 borrowers, or nearly 10% of those who have contacted the hotline, have called with questions about denials, said Treasury spokeswoman Andrea Risotto. Of the 1.8 million callers in all, 170,000 have received free counseling, she said. The group does not track the outcome of its calls, so there is no way to know whether borrowers were inappropriately denied a modification or how many disputes with servicers were ultimately resolved in favor of the borrower.
Some industry experts said they had never heard of the foundation. They questioned how its success could be measured if there is no tracking mechanism for borrower outcomes.
"Even if 5% of borrowers denied mods are calling requesting an explanation, that's not a good success rate," said Greg Hebner, the president of MOS Group Inc., a mortgage-loss-mitigation company in Irvine, Calif. "If an automaker has 5% of its cars go bad, that would be a recall. It calls into question whether this group is meeting its objectives and what its success has been."
Hebner said the inherent complexities of the Hamp program make it hard to determine whether nonprofit housing counselors are helping or hurting borrowers. In some instances, borrowers are misinformed, which may lead to bad decisions, he said.
Some industry experts have questioned why a nonprofit affiliated with servicers is receiving government funding to resolve disputes between borrowers and the same servicers who are denying modifications. Several distressed homeowners who contacted American Banker said servicers refuse to give explanations for denied mods. Many were put into trial mods at a reduced payment but were later denied and are now in worse shape because servicers demand that any arrearages be paid in full for the loan to become current.
