Fox is guarding the foreclosure market

Edited by MICHAEL GRAY

As many as 13 million homes will be lost to foreclosure by 2012, but troubled borrowers seeking help from Uncle Sam are sent straight to the very same mortgage industry insiders who led the country into crisis.

It’s hard to believe Uncle Sam would choose him, but Bruce Paradis, chairman of the nonprofit Homeownership Preservation Foundation — whose hotline number is included in every denial notice sent to borrowers rejected from the federal Home Affordable Modification Program, or HAMP — knows all about troubled mortgages because his lending company originated nearly $70 billion in bad loans from 2004-2006 under his watch.

That’s right — the former CEO of notorious subprime lender GMAC’s Residential Capital arm is charged with leading a key component of the Treasury department’s response to the mortgage morass.

The rest of the board is packed with GMAC veterans and other financial industry insiders. More than $1 million in industry funds supports the $13 million Homeownership Preservation Foundation, which has a contract from the Treasury Department.

GMAC itself is no stranger to government dollars. It was bailed out by the Feds to the tune of $17.2 billion and has tried for a fresh start on the marketing front by changing its name to Ally Financial. Residential Capital is the nation’s No. 5 mortgage servicer, handling 2.6 million loans with a face value of $398 billion, according to National Mortgage News.

Paradis retired in 2007, but GMAC remains a major lender and servicer, the name for the middlemen lenders hired to collect payments and manage loans day-to-day.

It’s no secret servicers have a strong financial incentive to foreclose, and fast. They “can turn a substantial profit from foreclosure-related fees,” a troubling conflict of interest that the Congressional Oversight Panel, or COP, led by former Senator Ted Kaufman, pointed out in a scathing critique of the Treasury’s foreclosure-prevention programs earlier this month.

The Homeownership Preservation Foundation’s ties to the industry run deep. It started out as part of Residential Capital before switching to nonprofit status, and draws significant funding from major banks and servicers.

The group received $1 million from now-defunct subprime titan Countrywide Financial Corp., $250,000 from Bank of America, $73,961 from GMAC-RFC and $25,000 from Citigroup, according to the nonprofit’s 2008 tax return, the latest available. These numbers are substantial, considering HPF had total net assets of $13.2 million at the end of 2008.

HPF declined to make Paradis available for an interview with The Post, but he told American Banker, which first called attention to his role, that it’s tough for the nonprofit to maintain neutral ground.

Asked why Uncle Sam is lending clout and resources to a nonprofit clouded by conflict-of-interest questions, a Treasury spokeswoman boasted that 5,500 people every business day call HPF’s hotline. She also highlighted the millions of foreclosure prevention options HAMP offers and insisted the hotline is a trusted place to get free help.

While the 888-995-HOPE hotline has clearly been a marketing success, the spokeswoman had no data on how many homeowners have avoided foreclosure by speaking with an HPF counselor.

The HAMP numbers that are available from the COP paint a picture of failure so dismal that noted credit expert and Georgetown law professor Adam Levitin is calling for HAMP to be shut down. Begun in early 2009 with a goal of preventing 3 million to 4 million foreclosures, HAMP will prevent only 700,000 to 800,000 foreclosures, according to the latest COP estimates. That’s just 6 percent of the 12 million tidal wave. Even worse, re-default rates are high and rising.

One thing HPF’s national network of counselors does is put borrowers in touch with their servicer. Given servicers’ outrageously poor record of working successfully with homeowners — a widespread problem that is giving rise to growing calls for reform from COP and others — this hardly seems an avenue to successful foreclosure prevention.

“We need to be sure they are working with consumers and industry effectively,” said David Berenbaum, chief program officer at the National Community Reinvestment Coalition.

As the Treasury Department continues to steer consumers towards HPF with little to show for the effort, the urgent issue of writing down troubled mortgages to their real values so the market can recover remains unaddressed.

“The plight of distressed homeowners’ is subsidiary to protecting the banks from having to take serious writedowns,” Levitin wrote in a recent blog post.

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