Loan Modification Help Comes Too Slowly And With Problems

Q: I am a bankruptcy attorney. I have found quite a number of instances where a lender takes someone’s application for a loan modification and implies that they are reviewing the package of information for a modification.

Sometime later, often a year or more, the homeowner gets notice of a foreclosure hearing, but has not received any word from the lender even though he or she has called the lender a number of times.

Unfortunately, because the homeowner doesn’t know that there is something they can do to at least give themselves time with regard to the judicial hearing and resulting foreclosure, they do nothing. A foreclosure date is set – and they still have heard nothing from the lender about the modification. As a result, the house is sold out from under them while they have been relying on the modification process.

Back at the lender’s office, it turns out that the lender never actually did anything about the homeowner’s loan modification, except perhaps submitting several applications from this one individual to the federal government, which pays the lender $1,000 per application.

The lender receives $3,000 for each successful loan modification, but why modify if you can get $2,000 to $3,000 just by submitting applications?

I have been dealing with one large bank on several mortgages that are severely delinquent. I have had to get several continuances for homeowners who have not yet heard about their loan modification who have a hearing date scheduled. I am convinced they never will hear from their lender.

If the hearing has already occurred, homeowners can ask the court for an injunction to stop foreclosure proceedings. But no one knows about that!

I think homeowners who are losing their homes due to these delayed “alleged modifications” are being taken advantage of and the entire process itself, as many lenders are applying it, is fraud.

This is information that needs to go on the front page of every newspaper in the country! It should not be buried in the back with “real estate.”

Check out what I have told you. This is blatant fraud that is occurring every day. And if the politicians what to know where the TARP money is going, it is lining the pockets of the banks and other lenders. It is certainly not helping the individual – who has absolutely no chance in our system as it currently is set up.

A: Thank you for your letter (which I edited somewhat for clarity and length). There are a lot of really smart people who are trying to figure out why the loan modification process set up under the Home Affordable Modification Program (HAMP) isn’t working very well.

Some experts believe that because loan servicers (especially those who took TARP funds) were not required to participate, but were encouraged to join this voluntary program and were able to set their own standards and limits, there is a haphazard feeling to the program which is confusing to many.

The big box lenders, as I like to call them, point out that six months ago they didn’t have anyone modifying mortgages. There was no software. There were no agreements with investors that allowed servicers to modify the terms of mortgages that had been sold as securities.

Today, Wells Fargo, Bank of America and JP Morgan Chase have thousands of employees working on modifying mortgages. Unfortunately, the latest numbers indicate that there are millions of homeowners in trouble with their loans.

It is clear that the training of these customer service representatives is uneven, and some employees are better at customer service than others. My feeling is if you get someone who says he or she can’t help you or can’t explain why you do or don’t qualify for a loan modification, you should hang up and try your luck with someone else.

In a follow-up email, you said that you had seen documents that support your claim that lenders are paid $1,000 just for putting in loan modification applications under HAMP. I asked you to provide copies of the documents, but you weren’t able to locate them.

I turned to a source at the Treasury Department, who said that you are mistaken.

In an email, my source wrote, “No incentives are paid to servicers until….a permanent loan modification agreement is completed and the loan is modified on the servicer’s books. Then, the servicer is entitled to one up-front payment of $1,000 per loan ($1,500 if the loan was current at the time the borrower entered a trial) and may be eligible for pay for success payments annually if the borrower continues to make payments.”

Your comments about fraud are interesting. I think there are many homeowners who feel that the lender has taken advantage of them simply by not allowing them to enter into a trial modification.

I also think there are many homeowners who don’t understand why the trial loan modification is affordable, but the permanent modification will cost several hundred dollars more each month.

The way the loan modification program has been implemented is flawed. Just because the home owner thinks he or she qualifies for the loan modification program does not mean that the lender must agree to it. Lenders have their own formula to gauge whether the bank is better off giving the borrower the modification or moving forward with a foreclosure. None of this is particularly transparent to borrowers.

In addition, the loan modification program does not give lenders other incentives to grant other types of loan modifications to borrowers. Loan servicers act on behalf of the many investors they have for their mortgages. For the loan servicer to act, the loan servicer needs approvals from the investors that own the loans. The Obama loan modification plan gives services the ability to modify loans without having to obtain approvals from the lenders the service the loans for.

This process places restrictions on other types of loan modifications that could be available to borrowers. Loan servicers are willing to work with the Obama plan but seem unwilling to go outside of what the plan offers even if borrowers could benefit from other types of modifications.

Fraud is a loaded term. While some lenders may not provide top-notch customer service to every borrower, I wonder how many are truly guilty of fraud.

It is clear that the loan modification process is taking way too long and the process still isn’t streamlined enough to handle the millions of borrowers who are delinquent.

Some borrowers applying for loan modifications are penalized when they apply for a loan modification. The lender’s will tell them to make temporary payments under before obtaining a loan modifications and those borrowers then have their credit history hurt in the manner that lenders report these payments.

Borrowers’ credit scores decline and then borrowers hear that they don’t qualify in any event for a permanent loan modification.

What I am hearing from the executive suites of many big box lenders is that if you write to the CEO and let him know what’s happening with your loan modification in a clear and concise way, you might find you’ll get some extra help. (Go to https://www.thinkglink.com/article/2009/11/13/loan-modification-help-get-some-answers-from-the-bank-ceo for a form letter you can fill in and send to the CEO of your loan servicer.)