In Feb 2010, I authored an article for ML-Implode titled “HAMP=Foreclosure” that was well received. The article dealt with the effectiveness of HAMP, and revealed issues with HAMP that would affect the results of the program. Three critical issues were revealed:

• There was no mandatory requirement for a modification, only that a homeowner be considered for modification. (Attorneys argued against this, but later court decisions proved me correct.)
• Any modification consideration must consider the likelihood that a homeowner would re-default on the loan.
• With the Jan, 2010 HAMP results, the mean Back End Debt Ratio of 62.3% meant that eventually 50-75% of the modifications would re-default. (Re-defaults are running at over 60% at this time.)

Subsequent evaluations of the effectiveness of HAMP have now proven the article to be correct.

We at LFI Analytics continued to monitor HAMP and other modification efforts over the last 18 months. Further analysis was undertaken to determine why modifications failed and how to improve the process. In doing so, we discovered numerous fundamental flaws in the modification process. Some are:

• Modifications with lenders is about “selling the lender” on the benefits of the modification. Attorneys and mod companies were failing in this simple application.The attorney or mod company would gather the paperwork, organize it and then send to the lender for evaluation. Seldom were terms desired mentioned or provided for review. This allowed the lender to control the “sale”.
• Circumstances for the need for a modification were not provided, except through a “hardship letter”. No true analysis for the default was done, dating back to loan origination.
• The focus was on obtaining the loan modification first. Other issues might be worked on later. However, just obtaining a loan modification did little to lessen overall default risk, as evidenced by HAMP’s current 64.5% Back End Debt Ratio. Such ratios indicate high default risk. Therefore, such would likely result in denial of the modification.
• There was no accurate method for determination of the default risk of any loan, either at loan origination, or current status, or based upon new modification terms.
• Working with our strategic partner, Credit Masters Corp, efforts were undertaken to resolve these issues. As a result of our efforts, LFI Analytics and Credit Masters Corp now offer the

“Comprehensive Homeowner Financial Recovery Program” (CHFRP)

The purpose of CHFRP is to return a homeowner to complete financial stability in as short of time as possible.

• First, the homeowner’s complete financial situation will be examined. Default Risk will be evaluated at time of loan origination. A comprehensive “write-up” of findings will be presented showing why the default occurred.
• Second, a complete assessment of the current financial situation will be accomplished. Current Default Risk assessment will be done.
• Third, all mortgages will be reviewed to determine suitability for modification and what terms are allowable when Trusts are involved.
• Fourth, revolving debt and other issues will be reviewed to determine effective means of resolution.
• Fifth, a Trial Plan will be finalized with expected outcomes of negotiations so that the first mortgage lender can review and approve. Default Risk assessment is again done to ensure that the Default Risk has been reduced to an acceptable level. The Trial Plan is submitted to the first mortgage lender for approval. The Trial Plan will be submitted by the Homeowner’s legal counsel who will conduct first mortgage negotiations.
• Upon acceptance of the Trial Plan, negotiations on second mortgages and revolving debt occur and the final results are scored for Default Risk and presented to the first mortgage for conversion of the trial plan to permanent status.

The key element for default risk determination is the “LDR Score,” (the “Loan Default Risk Score”), to determine default risk of individual loans. A proprietary risk model developed by LFI Analytics, it identifies certain critical loan default factors that were found to contribute greatly to default risk and that were present when loans were originated. (These factors were never considered in underwriting decision.) The factors are then scored to provide a quantitative analysis of loan default risk. (The LDR Score is patent pending and trademark pending.)

The key to the CHFRP is being able to provide all parties with a win/win scenario whereby losses are minimized for each party, and default risk is greatly reduced to within acceptable parameters. The LDR Score is utilized at each step of the process to show the lessening of default risk, and to support the providing of loan modifications.

Credit Masters Corp is the only firm authorized to use the LDR Score in conjunction with the CHFRP process.

(For more information please call the following: Patrick Pulatie is the CEO of LFI Analytics. He can be reached at 925-522-0371, or 925-238-1221 for further information. www.LFI-Analytics.com, patrick@lfi-analytics.com.

David Mostny is the CEO of Credit Masters Corp. He can be reached at 650-364-3000 for further information. www.creditmasters123.com dmostny@creditmasters123.com. Credit Masters Corp will administer the program. )

(Neither Patrick nor David are attorneys and do not provide legal advice. All work is performed in conjunction with homeowner’s legal representation and authorization. Modification companies and other homeowner agents may work with Credit Masters, provided that certain criteria are met. This program is not for use by homeowners without legal representation.)