How Loan Mods Lead to Foreclosures
This story caught my attention because it demonstrates how twisted our system is. In a nutshell, homeowners are talked into doing loan mods by their own banks, given trial lower payments & after the trial the payments go back to the original amounts that the homeowners can’t afford, then the banks foreclose. Why? Banks collect government money for “doing a loan mod!”
Here’s another scenario: upside down homeowner who is current on payments, and has good credit, keeps being called by her bank to do a loan mod. She’s applied 3 times and is denied every time. Why do they keep calling her and wasting her time? They must get money for making those calls as well. What this homeowner needs to do is short-sell her house and get out from underneath a liability–a former asset that she owes double the value of. But the bank keeps baiting her and she doesn’t understand the game. She needs to cut her losses and begin again but can’t see the forest through the trees.
I will add here that principal reduction programs work in the same fashion–ie, they don’t work!
Please add your comments below and read the Yahoo article that inspired my rant….
LOS ANGELES – Grocery store owners William and Esperanza Casco were making enough money to stay current on their mortgage, but when JPMorgan Chase & Co. offered a plan that reduced their payments, they figured they could use the extra cash and signed up.
The Cascos say they never missed a subsequent payment, so they were horrified when the bank decided the smaller payments weren’t enough and foreclosed on their modest Long Beach home.
Their story is echoed across the country by people who claim — some in lawsuits — that banks didn’t live up to their end of the deal when they agreed to trial mortgage modifications.
The suits add to a feeling among many struggling homeowners that they’re getting little help from the part of the government’s $700 billion Wall Street rescue that aimed to help them directly.
Indeed, Treasury statistics show that only about one-third of the nearly 1.4 million homeowners accepted into the government’s payment reduction program over the past year have had their reductions made permanent.
“It is extremely unfair that someone like me and my wife who have owned our home for 17 years and never missed a payment could end up in foreclosure,” Casco, 47, said in Spanish through an interpreter.
Chase spokesman Gary Kishner was unable to comment on whether Cascos had been current on their payments but insisted the bank had treated the couple fairly.
“We worked with the borrower to give him as many opportunities as possible to qualify for a modification,” he said. “However, they were not able to do so and therefore we were forced to foreclose on the property.”
Several federal lawsuits filed in Boston accuse major lenders of breach of contract under the government’s Home Affordable Modification Program, in which banks agreed to participate as part of the bank bailout.
The lawsuits say the banks agreed under HAMP to grant permanent mortgage modifications to borrowers who make all payments during trial modifications.
Attorney Shennan Alexandra Kavanagh said several of the plaintiffs lost their homes after their payments reverted to their original sums that they were unable to pay. She said she believes tens of thousands of borrowers in Massachusetts alone could be covered by the suits if they get class-action status.
One of the lawsuits, against Bank of America Corp., was consolidated earlier this month with similar complaints in five other states, Kavanagh said.
Bank of America spokeswoman Shirley Norton said in an e-mail that the lender will continue aggressively defending itself against the cases.
More lawsuits have been filed against other lenders elsewhere.
In San Francisco, the Housing and Economic Rights Advocates legal services group sued Chase, accusing the New York bank of profiting from collecting payments during long trial modifications that ultimately end in foreclosure.
“They’re participating in the crisis they had helped to foment by refusing to honor loan modifications they had already agreed to,” said attorney James C. Sturdevant, whose firm is assisting in the lawsuit.
Chase’s Kishner said he could not comment on the pending litigation.
Joseph R. Mason, a professor at Louisiana State University’s business school who has written widely on the subprime lending debacle, said he suspects the loan modification disputes are a legacy of the federal government’s rush to stem the flow of foreclosures before it had adequate plans in place.
“These policymakers said, just go out and do this and don’t let us worry about the details,” he said. “These details are now what are coming to the fore in these modification cases.”
Laurie Maggiano, policy director at the Treasury Department’s Homeownership Preservation Office, said banks were encouraged to offer trial modifications based on interviews with borrowers about their incomes and expenses while they sorted out the paperwork to qualify for permanently reduced payments.
The banks were under no obligation to make trial modifications permanent until this June, when new regulations stopped loan servicers from offering the trials based on stated income, Maggiano said.
Now, incomes and other details are being fully vetted before trial periods, and borrowers are preapproved for a permanent modification as long as they make three trial period payments, she said.
She also said banks are only obliged to grant modifications if the investors who hold the mortgages also benefit from the modification, as mandated by the October 2008 legislation approving the bailout.
Those explanations provide little comfort to the Cascos.
“I think that banks are playing games with us,” William Casco said.
By JACOB ADELMAN, Associated Press Jacob Adelman, Associated Press – Sun Nov 7, 3:08 pm ET
- By The Numbers: A Revealing Look At The Mortgage Mod Meltdown (businessinsider.com)
- The foreclosure prevention program that works (marketwatch.com)
- House Votes To Terminate Obama Administration’s Anti-Foreclosure Program (huffingtonpost.com)