Banks' Incompetence Hurts Homeowners

November 21, 2012

Banks' Incompetence Hurts Homeowners

In Indiana and the rest of the nation, foreclosures became almost an epidemic over the past few years. One strategy for homeowners desperate to keep their homes in spite of financial hardship is to ask their banks for a loan modification. Loan modifications would seem to be advantageous all the way around: A modification helps the homeowner by reducing the monthly loan payment to an affordable level, and it helps the lender by keeping mortgage payments coming. However, loan modification is not being used as much as anticipated to help people keep their homes.

Mortgage Modification

Mortgage modifications may be in lenders' best interests because, when mortgages are foreclosed, the banks typically end up selling the properties for less than mortgage note is worth. Despite the apparent benefit to the banks, though, regulators struggle to prevent banks from foreclosing while a homeowner's loan modification application is pending.

The federal government stepped up in 2009 to help homeowners seek loan modification through its Home Affordable Modification Program (HAMP), designed to prevent foreclosures by making it easier to work with banks to obtain loan modification. Now, a recent multi-organization study indicates that as many as 800,000 homeowners may have lost their chance to save their homes anyway, because of the banks' disorganization.

Avoiding Foreclosures

The study's authors, including representatives of the Federal Reserve Bank of Chicago, the national Office of the Comptroller of Currency and other institutions, analyzed data concerning banks and mortgage foreclosures. Some banks, they found, performed much better than others in helping homeowners avoid foreclosures. The better-performing banks had more staff and their employees had better training, reported ProPublica.

According to the study, two million homeowners should have been able to use HAMP to obtain the loan modifications they needed to ward off foreclosure, but only 1.2 million homeowners were able to complete the process. Banks that failed to help them were likely a few of the largest banks, which succeeded in processing HAMP applications at only half the rate of other banks.

These big lenders did a poor job of modifying mortgage loans before HAMP went into effect, and did not significantly improve after HAMP, even though HAMP included subsidy payments to motivate banks to process the modifications. The poorly performing banks had trouble with even simple procedures involved in documenting their loans and the modification applications.

Debt Relief Options

For people who are facing foreclosure, debt relief may be available. One option may be to file for bankruptcy. When a bankruptcy petition is filed, an automatic stay is placed that stops all collection actions, including foreclosure proceedings. Through bankruptcy homeowners may be able to gain the time and money they need to keep their home and obtain a fresh financial start.

If you are overwhelmed with debt or facing the possibility of foreclosure, contact an experienced bankruptcy attorney to discuss your legal options.

Article provided by William H. O'Toole & Associates
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