The Boston Globe reported last year that, according to National Consumer Law Center data, about half of all mortgage loan modifications failed prior to the creation of the Home Affordable Modification Program (HAMP) in 2009. Now, approximately 80 percent of the mortgage modifications negotiated through HAMP still stand after one year.
The problem? Mortgage servicers often don’t want to participate in such mortgage relief programs in the first place, and when they do, it’s a months-long process that leaves borrowers running in circles. Just ask the homeowners who told us their horror stories of mortgage loan modifications gone wrong.
Mortgage Modification Programs Fall Short
While the data appears promising on the surface, mortgage relief programs have fallen far short of projections for how many homeowners they could help.
President Obama projected that government-backed mortgage loan modification program HAMP would help approximately four million struggling borrowers keep their homes. However, The Huffington Post reported last September than not only has HAMP failed to help even close to this many people, over one million participants have been bounced from the program since 2009.
According to the Treasury Department, many of these failed modifications are the result of missing documentation, but The Huffington Post reported that they’ve received stories of banks losing homeowners’ documents in droves.
Unfortunately, after convincing borrowers to take on mortgage loans they couldn’t realistically afford, mortgage servicers are now forcing borrowers to jump through hoops in an attempt to modify these loans to affordable terms.
In many cases, these are responsible, well-educated people who unfortunately fell victim to the mortgage crisis, and now they’re left on their own to pick up the pieces or lose their homes to foreclosure.
Brenda C. is just one of the many victims of mortgage loan modifications gone wrong. After suffering job losses and an expensive medical emergency in the midst of a down economy, she and her husband filed for bankruptcy. They managed to hold onto their home, but needed a mortgage loan modification to keep it. Unfortunately, because their home had substantial equity, they couldn’t find a program that would accept them.
At the advice of her loan representative, Brenda stopped making mortgage payments in order to finally qualify for a modification program. However, after agreeing to a trial period of reduced payments, the lender stopped answering the phone.
“It just drug on for months and months past the three-month trial,” Brenda said. “I could not get anything in writing from the mortgage company, and our loan rep would not call us.”
Prior to withholding mortgage payments in order to qualify for a mortgage loan modification, Brenda and her husband were barely scraping by — but still current on their payments. They stopped buying new clothes, haircuts, even Christmas presents. “Our church even helped us,” Brenda said. That was in 2011.
Now, however, after two years and several attempts to have their modification officially instated, they are thousands of dollars behind on the loan and facing foreclosure.
Terri H. experienced a similar ordeal, when a series of unfortunate events led her income to fall and she needed a mortgage loan modification to keep current on her loan.
However, while attempting to have her mortgage modified, a single piece of documentation threw a wrench in the whole process.
“I knew I had sent it in, and when I called, my ‘customer service’ rep told me not to worry, everything was in and to ignore the notice I got,” Terri said. “Then I got a second notice saying I had 15 days. I called for several days, leaving messages on my rep’s voicemail, [calling] his supervisor and even his supervisor’s supervisor, and nobody called me back.”
Soon after, Terri received a notice that her modification had been denied due to the missing document and she could apply the following year.
She began the process all over again in January. “Every week it’s something different they need — stupid stuff like a date reformatted on a P&L statement. Crazy!”
Why Is Mortgage Loan Modification So Difficult?
You would think it’s financially advantageous for both borrowers and lenders to work out a modification deal, rather than lose thousands of dollars in foreclosure. However, according to Benjamin Yrungaray, an attorney with De Novo Law Firm who specializes in loan modifications, that’s not always the case.
“The bank rarely has a personal, financial stake in their loans and so it is not always in their best interest to avoid foreclosure,” Yrungaray said. When deciding whether to modify a loan or allow the borrower default, “the bank will likely perform a calculation to determine Net Present Value (NPV) of the loan versus foreclosure. If foreclosure generates more value, then the bank will likely go in that direction,” Yrungaray said.
In fact, Yrungaray said that lenders have been reluctant to help borrowers because they were not prepared for a market collapse, but now that they’re realizing home prices aren’t going to return to the highs we saw pre-crisis, they’ve begun handling the modification process better.
So what is a struggling homeowner to do? Yrungaray advised “To get results, it is important that you consistently follow up with your lender, work with your assigned representative and don’t be afraid to ask for their manager.” And in order to avoid a common mistake mortgage loan modification applicants often make: “Be honest with the bank,” which means ensure the documentation you provide (i.e. bank statements) matches up with your claims of hardship.
However, just because you follow the rules doesn’t mean your mortgage servicer will.
“I have bought and sold several homes,” Brenda said. “I have an MBA. We have owned an international business … I cannot imagine how people who don’t know how to navigate this are doing it. It is scary and overwhelming.”
Photo credit: Gonzo Carles