New Loan Modification Proposal Would Help Distressed Homeowners

April 21, 2011

While the foreclosure crisis has had a devastating effect on the real estate market, loan modifications have been equally as troubling for struggling homeowners. The Home Affordable Modification Program (HAMP) was supposed to help millions of Americans struggling to pay their mortgages by modifying home loans to reflect the current value of their properties.

Unfortunately, HAMP has not been as effective as first contemplated. As of March 2011, less than 500,000 mortgages have been modified through this program, when it was estimated that 3-4 million mortgages would be modified by the end of 2012. Even worse, scores of homeowners have lost their homes through foreclosure, even after going through the painstaking process of petitioning for a loan modification. Essentially, banks would invite mortgagees to participate in a trial modification period (which called for lower payments) only to determine later that they were not eligible for a permanent modification. When the homeowner could not meet the original payment, the bank would foreclose on the property.

Proposed Changes to the Mortgage Modification Process

With the problems plaguing HAMP, along with the rampant robo-signing issues, state attorney generals have requested that banks adopt several changes to the modification process to protect homeowners and solidify the integrity of the modification process.

First, banks would be barred from initiating foreclosure proceedings while a modification is being processed. Many homeowners complained that they would receive such notices even though they were seeking a modification. They reported that banks would lose modification documents and take longer than promised to process their applications. This change would protect homeowners who choose to participate in a trial modification, and promote specific guidelines for processing such applications.

Second, any homeowner who made three trial payments would be granted a permanent modification. Another common complaint was that homeowners would make continuous trial payments, in some cases for nearly a year, only to be denied a permanent modification. This change would bring a uniform standard to the modification process and reward homeowners who adhere to such agreements. Also, the proposal calls for denied modifications to be reviewed by an independent panel to determine whether any errors led to the denial.

The proposal would also expand the powers of the newly created Consumer Financial Protection Bureau, which would take an active role in approving training programs for banks and more enforcement to discourage violations. In addition to the attorneys general, the plan is supported by a number of federal agencies involved in the housing crisis, including the Department of Justice, the Department of Housing and Urban Development (HUD), the Treasury Department and the Federal Trade Commission.

While there is no established timetable for these changes, distressed homeowners have many options to keep their homes, even if they are facing foreclosure. An experienced consumer rights attorney can help you explore options to keep your home.

Article provided by Debt Advisors, S.C.
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