Banks Undermine Borrower Loan Modification Efforts

February 02, 2013

Banks Undermine Borrower Loan Modification Efforts

Families facing home mortgage foreclosures in Texas and across the nation were given some hope by the implementation of a federal program, the Home Affordable Modification Program, announced in 2009. However, the government's efforts to help are being stymied by the apparent inability of some big banks to work with the program and handle their HAMP applications properly.

Trying to avoid mortgage foreclosures by modifying the terms of the mortgage is a sound, practical approach for both borrowers and lenders. Borrowers overwhelmed by debt and ongoing expenses benefit from a reduced monthly payment arranged through modification. Lenders are better off continuing to receive monthly payments, even reduced, than holding on to foreclosed property that produces no income at all for them, or selling the property at a loss.

HAMP Participation and Roadblocks

Borrowers are trying to take advantage of HAMP. About two million modifications should have been arranged by the end of this year, if banks had handled the HAMP applications appropriately. Because some of the biggest banks with large numbers of loans have done a poor job with those applications, only 1.2 million modifications have been completed. That means 800,000 homeowners needlessly lost their homes, according to the consumer advocacy website, ProPublica.

One type of problem the poorly-performing banks have created time after time is delaying modification applications and allowing foreclosure proceedings to go through while a homeowner's modification application is yet to be processed. One nonprofit coalition did a statewide survey of counselors who worked with borrowers to help them avoid foreclosure. Virtually all of the counselors reported that they had clients whose homes had been taken through foreclosure while the clients were still being reviewed for a mortgage loan modification. Half the counselors said this was a frequent occurrence for their clients.

The fault seems to lie with banks that do not provide enough staff to handle their mortgages and do not provide adequate training for staff processing loan modification applications. Even though HAMP paid subsidies to banks to encourage them to implement loan modifications, many banks did a poor job with modifying loans before HAMP began and continued to do a poor job after.

Federal banking regulators are aware of the problem but have as yet been unable to make much of a dent in it. In April regulators ordered 14 banks to make improvements in handling mortgages and foreclosures, including the requirement that banks cannot sell a house before a pending loan modification application has been completely processed. Banks are also supposed to halt foreclosure proceedings immediately when the borrower applies for modification.

Texas homeowners facing foreclosure can get help from an attorney, who can help make sure that banks are following the proper procedures. No one should lose a home when an alternative exists, and an attorney is a valuable ally when foreclosure is threatened.

Article provided by Mitchell & Malone
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