Homeowners frustrated with home loan modification process

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

In the past 9 months, I have met with at least two dozen Oregon homeowners who are very frustrated with the home loan modification process. There is a story I am hearing over and over again that goes something like this:

"I called my loan servicer and asked for a modification of my home loan. I was told I was not eligible for a modification because I was not behind on any payments. So naturally, I withheld my next payment and then called back to re-apply. I was told to submit a financial profile, paystubs, and an explanation of my hardship. I was told that a decision would take some time, so I waited and called in frequently, and was told a decision was pending. After several months, I received a notice of default and election to sell by mail from my loan servicer. The notice said my home would be sold at public auction if I did not cure the default on my loan! I called my loan servicer and asked why I was scheduled for foreclosure when I had applied for a loan modification. I was told this was part of the normal process, but didn't necessarily mean my home would be foreclosed if I was approved for a modification prior to the sale date. A month later, and only 3 weeks before the date set for the foreclosure sale, I got a letter from my lender saying that the owner of my mortgage was not going to grant any modifications. Now I'm 5 months behind on my payments, and unless I make all payments, plus $3,800 in late fees and legal fees and costs, I'm going to lose my home!! What should I do? I feel cheated and misled by my loan servicer! Is it legal for them to do this to me?"

Unfortunately, current law does not require a lender to modify anyone's loan (except for a few lenders who have entered into settlements with the attorney general in your state). The federal government--through HUD and the FDIC--are offering incentives and putting pressure on almost all the big lenders to participate in the Making Home Affordable Program (HAMP). According to HUD, participation in the HAMP program is mandatory for servicers of any loan backed or owned by Fannie Mae or Freddie Mac. This means almost all the major commercial lenders are going through the motions of participating in the program. As a result, a lot of lip service is being given by customer service representatives, who often are very helpful and willing to collect your application for the program.

The facts show, however, that at least in Oregon, there appears to be minimal real participation in HAMP so far. Consider these numbers, taken from the HUD report on the HAMP program (as of December 2009):
Active trial modifications in Oregon . . . 8,888
Permanent modifications in Oregon . . . 875.

You can read the full report at the HAMP website here.

Despite the incentives available to lenders, many are still choosing to foreclose on homes rather than modify loans--especially when a homeowner can't afford to make payments at current market rates due to job loss or reduced income. Until larger incentives are offered, or legislation requires lenders to modify loans, I expect to continue to see only minor modifications given.

If you think you should qualify for a loan modification but are not having success, contact me for a consultation by visiting my website. We may be able to motivate your lender to be more responsible if you meet their standards.