On October 14th, 2008, the Troubled Asset Relief ProgramTARP, Federal Program was launched to purchase assets and equity from financial institutions to strengthen the US financial sector and address the subprime mortgage crisis. The first $350 billion was released that month and the second $350 billion was released in March of 2009.  

One key objective for TARP spending was the “Making Homes Affordable” plan, which was implemented on March 4, 2009, to mitigate the skyrocketing foreclosure rates. The “Hope for Homeowners” initiative followed shortly after. By fall of 2009, almost $75 billion in taxpayer money had been allocated for foreclosure relief for 3 to 4 million American homeowners in financial crisis. So where is all of this much publicized foreclosure relief?

I recently had a couple in my office that has been seeking for homeowner relief with no avail. Their request to refinance to a lower rate/ longer term was denied by their current financial institution even though their combined income had dropped over 60% and they were struggling to pay the monthly mortgage. They then went to another financial institution, thinking that since his bank did not receive TARP funds, that was the root of the problem. The second financial institution, which was a recipient of TARP funds, also denied their request. Ironically, 45 days after their initial request was denied, they received a letter saying their request was under review.     

According to recent releases, fewer than 12% of eligible loans are actually being re-modified. Why?  Many financial institutions were unprepared for the high volume response levels from homeowners in crisis; not only is there a shortage of properly trained employees to handle the loan modification requests, the volume of applications have created massive traffic jams in the processing and approval systems. Human error, system failure, paperwork backups all create many black holes for homeowners in financial hardship to get lost in.

 One individual I spoke with said his attempt to refinance was dragged out over 8 months, before ultimately being denied. In the interim, he emptied his savings trying to stay current on his monthly mortgage. Obtaining legal, debt counseling instead of listening to the “news” could have significantly changed his current situation. He would have been informed that as a self employed individual, he would have to provide 2 years of tax returns to prove sufficient income to qualify for the modified loan. His tax returns did not demonstrate the required level of income hence loan modification would not be a viable option to reduce his financial hardship.

Homeowners in financial crisis should not gamble that they will be lucky and the TARP fairy will bless their request for loan modification to be handled by a qualified counselor, sent to through the proper channels and submitted in a timely fashion. In addition to applying for loan modification, homeowners in financial crisis should seek out legal advice from a licensed debt counseling law firm or non-profit organization so they can be best informed about the options available to them.

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