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Judges are not happy with how loan modifications are not being handled

Many people are trying to get their mortgage loans modified. There seems to be a large number of cases where individuals are asked to refile the same information. The loan modification process can be very time consuming and often there is a noticeable lack of communication from the bank or mortgage company.

Consumers are not the only ones noticing this. Judges are hearing from a lot of frustrated home owners as they do what they can to stay out of foreclosure. A judge even went as far as to allow a home owner to question a bank representative in court as to why the loan modification process was taking so long and why the bank was so unresponsive to her communications.

http://www.nytimes.com/2009/09/04/business/economy/04wells.html?_r=2&ref=business

Charles G. Perkins, CPA

Servings Small Businesses in the Puget Sound Area

Cell: (206) 422-5504

Office: (206) 228-1988

email: charles@charlesperkinscpa.com

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Charles G. Perkins, CPA I look forward to meeting your business and tax needs. I also have many partners in business that can meet your other business needs. These include contractors, insurance agents, investment advisers, financial planners, mortgage advisers, and many others.

Posted by Charles Perkins on 09/08/2009 01:33 AM

Comments (56)

Loan Modification in the Mortgage / Finance Channel

loan, modifications, mortgage, judge, bankruptcy, foreclosure

Originally posted at: The Rainy Day CPA: Judges are not happy with how loan modifications are not being handled

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56 Comments on Judges are not happy with how loan modifications are not being handled

SEP

If we ought to believe the NAR and Mr. Yun that prices stabilized and started going up, bank have no interest in expediting the process. This is true especially when they are heavily subsidized with tax payer's money and artificially low deposit rates.

Some things are just plain obvious.

The home owner in this case has not, does not and will not qualify for loan modification to a degree that will help her keep her home.

1. They spent their equity by refinancing when the value was highest.

2. The bank is not responsible for their job loss.

3. The bank is not responsible for the divorce.

ALL OF THAT SAID, the bank could easily have communicated these facts to the home owner within a week or so of application.

The home owner will lose their home because she can no longer make the mortgage payments. She has lived in the house without making mortgage payments for months.

The bank acted with arrogance. They should establish procedures to expedite these cases. They could use some TARP money to develop new offices to handle modification applications in a personal and direct manner.

Fact is, the banks lie when they say that they are serious about mortgage modification. They are not. Why not just say so, enforce their liens and get the things over with.

Ditto Lenn.

The majority of people I've met who want to modify, no longer have the credit scores to do so !

There is no excuse for banks acting with such inefficiency and arrogance. Even owners who are unable to make their mortgage payments deserve some honesty and reasonable responses from their lenders.

I am not an advocate of more government regulation, but if banks continue to act in this way, they will not only end up with mandated foreclosure procedures, they will have damn well deserved them.

I totally agree with Lenn. The banks are already taking money out of the tax payer's pockets, and they are not above taking more.

When you read about banks losing money, they are probably cutting back employees too and some of the delays in restructure may be lack of manpower. I know I know it's easy to kick the banks, sometimes just because of the stuff they have locked in the vaults. It's like oil companies charging high prices..they pay high prices for the stuff too.

I read the article befire and I agree with Lenn. It is also curious to me that I have seen credit reports get a 50 point hit for applying for a loan mod. This makes no sense becasue it takes the credit score down possibly below qualification.

I know of one owner who who tried unsuccessfully to get a loan modification. We kept calling customer service until we found someone who was willing to put us in direct contact with the investor, Fannie Mae. The loan modification was finally approved.

As with short sale approval processing, there seems to be a lack of staff, training and motivation at the lender level. With some of the TARP money maybe staffing and training should be improved.

Lenn's right.

Homeowners used equity to pay for cars and who knows what else. Is this the homeowner's problem or the lender who gave the loan?

Linda Metallo, Re/max Impact, Lockport, Il.

Yeah, right. Just tell the truth. If you aren't going to do the loan modification, say so, so the homeowner can move on. The bank is not going to do the loan modification for her if she won't be able to make the payments in the near future. I hope the homeowner has been saving some of those mortgage payments she is not making - she is gonna need that money when she is forced to leave.

Recently, an attorney prepared a loan modification for a client of mine and sent it out to their bank. This attorney is a "crack" attorney who has filed over a thousand of these loan mods (with great success). After six weeks, the bank said they had never received the application and that the attorney needed to file it again. The attorney's office had verified that the document was received the first time, could prove it, but what good would it do? They filed the paperwork a second time. Now the homeowner must wait again.

So what happens in the future - you think the bank is going to try that tactic again? Probably not, but they have a lot of things up their sleeves to use when they don't want to do a loan mod.

The article about this woman is sad to be honest, many homeowners tapped their equity when values were high and now they are getting burned. It pays to think about the future and make prudent decisions with your money.

Interesting post, and I agree with Lenn. I know some people who took out all their equity when the market was at it's highest, and then they can't afford to pay it back.

I agree with Lenn. It's almost egregious to give these homeowner's false hope that their loans will be modified. If not, just say so and get it overwith. Stop trying to milk these homeowner's out of every last cent they have and then say no.

Charles - My sense is that we will see a lot more of this. The banks simply do not have enough people, processes and/or an infrastructure to handle the volume. They are doing a better job than before the government intervention … and unquestionably have a long way to go. Wells/Wachovia has a highly effective program in place today … others will follow … they have too!

Moshe

I agree that part of the problem is that banks don't have an interest in helping consumers. I am sure that some of the reasons are even valid.

Lenn

I don't doubt there are very good reasons in many cases not to do the loan modification. I can think of any good reasons not to communicate and let your clients know what is or isn't happening.

The problem is that most banks don't hold the notes to the homes that are in foreclosure or to the homes where the consumer wants to modify their mortgage. The notes are most likely held by investors who don't want to have the loans modified and want the foreclosure process to continue.

That being said, the banks need and must communicate upfront to the consumers whether or not they will even qualify for a loan modification. Too often we hear of stories of how consumers are repeatedly asked to resubmit paperwork they've already submitted 5 or 6 times - only to find out that a certain document that was never requested in the first place is missing.

If a consumer doesn't qualify for a loan modification, tell them upfront. There's no need to drag it out for months and months on end when they know upfront there's no hope. And if they do qualify, don't keep asking for documents over and over again. That's nothing more than a stall tactic in hopes the home will go into foreclosure instead.

All I can say is the banking industry will be facing even more regulations from a clueless Congress - but they deserve it for their arrogance and lack of attentiveness to their customers - just the same as the airline industry will now face for their continued arrogance and practice of leaving passengers stranded and buttoned down in an airplace that is parked on the tarmac for hours on end - despite promises to "clean up their act."

In many cases, businesses and industries get the burderning regulations they get because they deserve them.

Michael

Unfortunately I am sure that this is part of the problem. Many circumstances can create lower credit scores. The current economic situation has placed strains on businesses and families. The worst part is many families were not really living within there means, so when their incomes were significantly reduced problems were guaranteed.

Brian & Andrew

The bottom line is communication. None of likes bad news, but no news compounded with financial hardship is many times worse. Mortgage servicers need to do something to communicate better.

Sybil & Joe

Unfortunately, this may be the motivation. Reducing someones credit score simply for applying for a loan mod seems very wrong and again seems to go toward motivation.

Banks are understaffed and people are over leveraged. That being said, it makes sense to modify a loan, rather than have a house go into foreclosure. Abandoned houses start to deteriorate quickly. A few short years ago, people were being encouraged to borrow to the hilt, because it made financial sense to use other people's money. We now see (as our parents generation always did) that this thinking was short sighted and naive. We need a good computer programmer to develop a system to speed up the banking process. And we need an overhaul to the credit system that jeopardizes a person's credit score just for inquiring into a loan. The gap between the haves and have-nots continues to widen, which is not good for our society.

This lady's problem with not being to pay her mortgage is because she does not have a job. Without employment, it does not matter if she owes $50,000 or $250,000. She is a victim of the economy. I don't think she was asking for a modification before she lost her job. It sounds like she has been asking for assistance since she lost her job. It sounds like she got behind because of the loss of income. I don't think she is asking for a reduction in the principal - she just wants some help in keeping her home until she is able to do better. Regardless of what happened in the past or whether or not she should have made some better financial decisions, she cannot afford her present payment because she does not have a job.

Charles - not only takes this process a long time, large banks deny loan mods and suggest a short sale instead. Does it make sense? Is there really a solution for homeowners wanting to stay in their homes?

The general public is under the assumption the banks WANT to help them stay in their houses. We are the bad guys when we explain how the process works, give them a lower-than-they-think price their house would sell for, and tell them we must try to sell it before the bank takes further action.

Usually, I do not agree with all of Lenn's candor. But, while I may not have stated things as she did here, I would have to agree with her in her comments on your post.

Lenn hit it... although, there is a LOT of truth to the fact that the banks aren't being efficient, and don't care to be efficient.

It sounds like many of you agree that mortgage servicers could do a better job of communicating.

Home owners probably a largely to blame for some of the problem, the economic situation may be a large part of it as well. The bottom line is that regardless of how and why homeowners are finding themselves in a situation of modifying the loans or loosing their homes. Banks have received the mortgage industry and banks have received a lot of money in there time of need. Homeowners could use some help as well. A loan modification seems like a win-win. If the homeowners loose the home I doubt, that the mortgage servicers will make out better than if they modified the loan. Maybe I am missing something here.

I am not happy about it either. While we are asking the bank officials questions, let's ask why it is taking over 90 days to approve the simplest short sale.

Personally, I think the answer is simple. It is in their best interest to bog down the system and create delays whenever possible.

Follow the money for the real answer.

I think lenders are just saying no to loan mod's and hoping that it will all just go away.

Very true, I am not so happy about the situation either. I agree with the previous poster they take forever to approve a short sale.

Hi Charles,

The only things we can do to influence the future outcome on this issue is to continue to advise our clients, customers, and friends who are going through these hassels is to document, document, document. Send all correspondance to the institutions by Certified Mail, Return Receipt Requested.

It would also help to write letters to your local and state politicians voicing your opinions. If we all did this, maybe together we can change the way things are currently being handled.

-Keith

Hi Charles -- What a sad story indeed, as if there aren't enough issues to deal with in life.

SEP

I think just streaminglining the process would go a long way towards easing everyone's frustrations. Even if the consumer doesn't get an answer they like, at least they'd have an answer.

I'm glad to see some frustration being vented in court. Some of these banks don't even recognize the tragedy that these people are going through. I'm with Lenn, they could have easily let the lady know she didn't qualify for a loan modificaton.

Carol, I have to agree. When judges start taking notice it must be getting bad. The worse part is the lack of communication as you said.

These banks are playing with people's futures and it may as well be like calling the local cable company about a fuzzy picture.

It is simply ridiculous that after so many months banks do not have a hold on this problem

What else is new...just another bandiad that doesn't stick...how can they allow someone to do a loan mod if its going to wreck their credit even more. Like the middle class wants to ruin their scores and be late and just because we don't have to be late...they wouldn't consider us unless we are....and the ones they are allowing....I'll bet most aren't keeping their homes anyway...just a way to reduce the debt but they end up in the same hole...maybe just a little more shallow.

Unfortunately, a very high percentage of the loans that have already been modified are back in default again. There is just no easy answer to this problem. The banks do not have enough well trained staff to handle all of this. The lack of experience and training is causing many of the employees to give bad information. Because they are drowning in paperwork and requests, the easiest way to handle it in many cases is to just say they never got the request to begin with.

I have a friend who works for Citi trying to help people with loan mods. She says it is a nightmare. The rules and procedures change daily. Every time a customer calls in they have to talk to a different person. A lot of people who can well afford their mortgages are calling in demanding to get a modification. Again, there is just no easy answer and the problem will most likely be with us for a very long time.

A loan modification is unfortunately not going to solve this woman's problem. She is going through a divorce and losing her husband's income and she is currently unemployed. Without a steady source of income, there is no loan modification program that is going to help her. The unwillingness of Wells Fargo to modify her loan is understandable, but they knew they weren't going to modify her loan and never told her so. The repeated requests for information and lack of communication by Wells Fargo is unexcusable and inhumane. The woman should have been told from the start that loan modification won't solve her problems. I think that is the reason the judge chose this particular case to get into the media spotlight. She had no business getting a loan modification, but Wells Fargo wasn't upfront with her about it.

If anyone has any advice on how to initiate a loan mod I'd love to hear it. My calls seem to fall on deaf ears.

these banks have gotten so damn arrogant they have been bailed out and the consumer left to hang. Right or wrong as to whether they should of gotten the loan the banks loaned them the money. But where is the help for the consumer. I am so tired of hearing the B.S. from the banks on the news doing everything they can.

As the Obama Administration is learning the hard way, banks have a very limited interest in helping defaulting borrowers with expensive modifications. Here's why.

1, Traditionally about 1/3 of defaulting homeowners manage to get back on track with their payments without the lendering have to spend a penny to help them. However, the economy is making it much harder on borrowers. Cure rates for prime loans have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. In addition, Alt-A cure rates have dropped to 4.3%, from an average of 30.2%, and subprime is down to 5.3% from an average of 19.4%.

2. At least a third or more of homeowners who get their loans modified are going to default again within 6 to 12 months and the bank will end up taking the hit anyway.

3. When home values drive homeowners underwater (i.e. 1/4 of America), they start to default at an increasing pace when the value of their homes falls 15 percent or more. In fact, 17 percent of all households would default even if they can afford to pay their mortgage when the equity shortfall reaches 50 percent of the original value of the house. The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent today.

Email me for more on these studies or check out Real Estate Economy Watch.

Good for the Judges. I was initially against allowing mortgages to be put into the bankruptcy. But maybe if the bank took TARP or other bailout funds we could make an exception.

As we all know, these bank employees usually get paid by the hour. Seems like that gives them more incentive to drag things out.. I have been in banks for the simplest thing, and it always takes a long time, because they seem to just go at a slower pace. Yes the loan mods, and short sales do take too long! People get very frustrated waiting on the outcome.

Steve - I'm sure that these are some of the reasons why banks would rather not grant loan modifications. They make poor reasons for not communicating with their customer base.

Ginger - Hourly employees just do what they are paid to do. I am more concerned about management that doesn't seem to think it is important to do anything about it.

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A loan modification is when a lender or loan servicer modifies the terms of a loan which they currently collect payments on. The purpose of a modification is to create a payment that the homeowner can afford based on their current financial situation, and to re-establish a loan which will perform and give the holding lender an efficient return on their investment. Loan modifications are granted on an individual basis, targeting homeowners who for whatever reason are having problems making their current payments, and do not have an option to refinance their mortgage, sell the property, or improve their financial situation. Loan modifications stand apart from refinances with no transfer of property between lenders, no new liens recorded in public records, and no new accounts on credit.
Loan modifications are accomplished through a detailed negotiation process between the servicing lender and the requesting party. A successful modification will drastically reduce the homeowner's monthly mortgage payment(s) to a level which they can realistically handle, which means final results are determined by their true expenses and affordability. The method of obtaining the needed mortgage payment can be accomplished by one, or a combination, of the following; interest rate reduction, term extension, principal balance reduction, and/or converting payments from principal and interest to interest only. This renegotiation not only helps homeowners avoid future turmoil, it also helps save those who are currently delinquent, and in jeopardy of losing their home.

Call 1 877 214-7677

SEP

I don't blame them Charles. The Banks take their time. They should hire more help

Mark

I agree that they need more help. I don't blame employees, but management should make a concerted effort to communicate with their customers. If they want to say no, then say no.

This current situation with loan modifications is crazy. I have not yet met a successful loan modification story. I have heard 100's of ....I have been trying for 6 months stories. It is ashame.

The banks just don't have to comply and they won't. Alot of PR that says they will but the numbers will soon show otherwise. Strictly passive agressive behavior I think. Good post and article. Thanks for sharing.

Not to be sarcastic...but I think the bank will take their time so they can get more bail out money. As long as Mr. Obama will send them the money, they can do whatever they want, drag their time, etc...

Charita King

562-276-8681

SEP

Petra Norris said: "large banks deny loan mods and suggest a short sale instead. Does it make sense?"

Let's take that a step further. Even after the bank suggests the short sale, they then take so long in processing it (never mind that they already have all the same information they need from the loan modification aplliacation), that while the loss mit department is "working on it", the forelcosure department is busy setting up the auction date. One department doesn't seem to even know what the other is doing....all on the ssame account. It's such a mess.

I can't help thinking it's a deliberate strategy for increased profit for the lenders/noteholders and damn the economy and the communites blighted by foreclosures.

SEP

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Susan

http://pay-dayadvance.net

SEP

What about Condominium Associations who are also suffering because the homeowners who cannot afford to pay their mortgage are months behind on their assessments, and guess who is picking up the tab? People that cannot afford owning a home should go back to renting. The government never thought about the ripple effect.

SEP

The banks are as crooked as Madoff and Wallstreet. They want to foreclose so when they get several thousand homes they bundle them up for the investors to buy very cheap and hold on to them until property comes back up sell high., BANKS ARE NOT YOUR FRIENDS they are not to help you they are there to make MONEY!!!!!!That is why they are RICH. And we the struggling taxpaers are not. It is a game to them they are hoping you give up or in there eyes don't qualify. The govt has bailed them out and they are richer and powerful. The govt is in the banks back pocket.

Unfortunately, mortgage loan modifications may be the answer ...

http://jljconsultants.blogspot.com/

OCT

Lenn said it all. Our society has become cluttered with individuals who feel "entitled" to everything. When they can't have the biggest house with all the gadgets, they complain that their boss is too cheap to give them a raise. When they see their neighbor getting a cheaper rate for a loan, they complain "why can't I have that rate too?" When they are way in over their heads, they complain "how come no one wants to modify my loan?" All the time they are still going out to Morton's at least once a week for a $60 steak and $200 bottle of wine to keep up appearances.

OCT

This current situation with loan modifications is crazy. I have not yet met a successful loan modification story. I have heard 100's of ....I have been trying for 6-9 months stories. It is a shame. I think the bank will take their time so they can get more bail out money. As long as Mr. Obama will send them the money, they can do whatever they want. I personally think that Mr. Obama needs to create a special grant program, instead bailing the banks out he can bail out the home owners directly, with a grant that can only be applied directly to the mortgage and if your interest rate is more then 7% and you are eligible for the grant you automatically are eligible for a rate redaction of a 3% for the next five or ten years. This is something that needs to be done across the board with every bank no special treatment,we need to help the people to stay in the home and give them hope that with the new Obama administration,"YES WE CAN" is possible.

Maria Nardi Sr. Mortgage Consultant (P) 631-780-6760 X 5 (F) 631-980-5011 " Experience makes it happen"

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