Can a Lender Be Forced to Modify a Mortgage?

4 home owners are suing Aurora Loan Services because they refused to participate in the government sponsored mortgage assistance program (HAMP).  The outcome of this lawsuit has far reaching implications.  If the plaintiffs are successful, the courts are saying that a party can be forced to alter the terms of a contract, in this case a mortgage.  If this should happen, banks will be extremely reluctant to lend money because at a nay time they could be forced to renegotiate the terms of the mortgage.  This will mean fewer loans and higher interest rates.

 

It is one thing for a lender to come to the conclusion that it is in their best interest to agree to a loan modification or a short sale. Even if it is obvious that a lender should agree to a loan modification or a short sale, it is wrong and short sighted to force them to do so.  In the end this kind of thinking will make matters worse, not better.  There are government programs that give lenders incentives to agree to a loan modification or a short sale.  However, in the end, it is still the lender’s decision.

 

 The only regulations I would put in place is that if the lender chooses to modify a loan or agree to a short sale, there should be time limits and standards in place.  It is wrong for a lender to string a borrower along.  The lender have the option to participate or not, but if the decision is made to modify or allow a short sale, get it done quickly or reject it quickly.   This lawsuit will take that decision away.  It would interfere with the sanctity of the contract.  I hope the plaintiffs are not successful.