California Bankruptcy Attorney Blog

As Rancho Cucamonga loan modification attorneys, we routinely work with homeowners who are forced by financial circumstances to consider loan workouts, short sales, deeds in lieu of foreclosure and other last-ditch financial moves. So we were interested to see an article on CNN.com Feb. 3 that explains one of the lesser-known repercussions of a foreclosure. As the article explains, a foreclosure or a short sale doesn't always end the homeowner's financial obligations. In many cases, lenders may still pursue the homeowners for the difference between what they owe on their loans and the sales price of the property. This is called a deficiency judgment, and it's achieved by suing the borrower in state court for the difference.

One woman in the article thought she was free of the debt after she was forced to short-sell her house. But about a year and a half after the sale, she received a notice saying the lender was holding her responsible for the $65,000 difference between the sale price and her loan. She couldn't pay, so she had to declare personal bankruptcy. This is not uncommon, the article said, thanks to falling home prices that make it next to impossible to sell homes for what they were worth a few years ago. In fact, lenders in many states can pursue people who let the home go into foreclosure, even if the lender knows the homeowner can't pay. In fact, state laws allow lenders to wait a few years to sue, until borrowers have gotten back on their feet financially. Whether a lender will pursue a deficiency judgment depends on the lender's own policies, the state the home is in and the types of loans involved.

As the article notes, California is a non-recourse state, which means lenders can't go after foreclosed borrowers under certain circumstances. Unfortunately, they're free to pursue deficiency judgments against foreclosed borrowers with refinanced loans and second mortgages, and those who made a short sale or deed in lieu of foreclosure. They're also free to sell those debts to debt collectors who will then go after the borrower. For our Anaheim loan modification lawyers, this means we must carefully analyze the possibility of a deficiency judgment in every case involving loan forgiveness. When necessary, we will aggressively negotiate for a legal document releasing clients from any further financial obligation after the transaction. In some cases, we can also defend clients in court against lawsuits trying to get money the borrower doesn't have and never did have through a deficiency judgment.

Continue reading "Some Mortgage Lenders Pursue Foreclosed Homeowners for Loan Difference" »

Our San Bernardino County loan modification attorneys have long believed that lenders' policies are primarily responsible for their success or failure in the federal loan-modification program. A Feb. 2 post on AOL's DailyFinance blog adds evidence to that belief by profiling practices at Ocwen Financial. Ocwen has attracted media attention because unlike the larger lenders, it's got a strong record in the Home Affordable Modification Program. Where Bank of America had converted fewer than 2% of its trial modifications to permanent and Chase had converted 4% as of mid-December, Ocwen had converted 40%. Its redefault rate is also about half of those at the larger banks. The DailyFinance blog concluded that policies in place at Ocwen made the difference.

According to the blog, Ocwen got its start by buying distressed loans, working with homeowners to sort them out and selling them once they increased in value. It has since shifted to loan servicing, but a company spokesman attributed its success to that background. Where larger lenders had to scramble to handle surging delinquencies, Ocwen already had resources allocated. Borrowers work with a single consultant, not whoever happens to answer the phone, and that consultant is chosen for specific personality traits. Ocwen also uses behavioral-science tricks to remind homeowners of their documentation responsibilities. For example, consultants are trained to remind borrowers that the federal government will accept only signed tax return documents as income verification. And perhaps most importantly, Ocwen is willing to modify principal in cases where it believes that's necessary -- about 15%.

As Fullerton loan modification lawyers, we suspect all of these are radically different from the way larger banks handle HAMP. While not every lender has the background and experience Ocwen has in loan workouts, it's not hard for any company to follow the policies and hiring practices outlined in the post. In particular, the policy of reminding borrowers what documentation they must submit seems very basic and sensible. Perhaps more difficult for the larger banks would be imitating Ocwen's willingness to cram down mortgage principal. Financial institutions are notoriously reluctant to do this, despite the multiple studies suggesting it's the best way to keep underwater borrowers from defaulting or walking away. Major banks may believe they cannot afford to do this, but Ocwen, a much smaller company than Bank of America or Chase, appears to be surviving it.

Continue reading "A Look at Why One Lender Has Succeeded in HAMP While Others Have Failed" »

As Fontana loan modification attorneys, we were interested in a recent announcement that the federal government is changing important rules for its foreclosure prevention program. According to a Jan. 28 article in MarketWatch, participants in the Home Affordable Modification Program will have to provide income-verification documents at the start of the process, beginning in June. In return, lenders will be required to acknowledge receipt of the documents within 10 days and make a yes or no decision within 30 days. The goal is to speed up the process of converting trial modifications into permanent ones.

HAMP has been under fire recently because of repeated reports that most loan modifications have not been made permanent. As the Chicago Tribune reported Jan. 28, the Treasury Department reports that only about 7.3% of HAMP loan modifications have been made permanent. Federal officials say the new rules will hasten the process by eliminating confusion and delay about income documentation. Previously, borrowers were required to provide the documentation during their three-month trial periods. Some had income changes that slowed the process or didn't submit the right documents, while others reported that lenders gave them contradictory requirements or lost their documentation. The up-front documentation rule mimics rules at two of the lenders with the highest conversion rates, GMAC Mortgage and Ocwen Financial Corp.

Our San Juan Capistrano loan modification lawyers wish the new program well, but we're afraid it won't increase conversion rates significantly. A large part of the problem with loan modification conversion lies with the lenders' inability or unwillingness to process applications quickly and explain requirements clearly. We believe lenders behave in these uncharacteristically incompetent ways because they don't truly want to offer loan modifications. The new rules try to stop bureaucratic delays by setting deadlines for responses, but these are easy to get around or ignore, if that suits the lender's needs. To get real action, banks need a clear showing that modifying loans is in their self-interest, through either market forces or government intervention.

Continue reading "Treasury Department Announces Tighter Deadlines and Documentation Rules for HAMP" »

Our Rancho Cucamonga loan modification attorneys have read scores of articles in the past year about the ineffectiveness of most anti-foreclosure efforts, public and private. A new study by state banking regulators and attorneys general confirmed that problem yet again, according to a Jan. 20 article from Dow Jones Newswires. The State Foreclosure Prevention Working Group reported that despite efforts from homeowners themselves, loan servicers and government agencies, foreclosures are likely to actually increase in 2010. The recommendations from the group, whose members include California Attorney General Jerry Brown, included a call for principal write-downs (or cramdowns) to decrease the chances of another default.

The report (PDF) is based on two years of data from 13 mortgage servicing firms. Most disturbingly, it found that only four in 10, or two-fifths, of borrowers in default were even involved in a "loss mitigation effort." As of the end of October 2009, there were 1.7 million borrowers who were at least two months behind in their payments. Meanwhile, in the year between October 2008 and October 2009, the number of loans in foreclosures jumped by 52%. The study also found that the proportion of prime loans in default increased 21% between 2007 and 2009. And more than 70% of loan modifications that are granted actually increase the principal owed, the report said, while only 9% of loans got a principal reduction reducing the balance by more than 10%.

As Fountain Valley loan modification lawyers, we're disappointed to hear that principal is actually added in so many loan workouts. Several studies, as well as common sense, show that negative equity increases the chances that the loan will go into default. It's quite clear by now that banks do not like principal reductions; lobbyists for the financial services industry fought tooth and nail against a proposal to allow mortgage cramdowns during bankruptcies. However, lenders may actually lose more than 10% in a foreclosure or bankruptcy -- and current policies seem designed to force one of those choices. If lenders and servicers are serious about keeping borrowers in their homes, it's clear that they should seriously reconsider principal cramdowns.

Continue reading "State Group's Report Says More Aggressive Effort Needed Against Foreclosures" »

Our Ontario loan modification attorneys are not alone in believing that loan modification programs have not helped most homeowners avoid foreclosure. But we were interested to see a Jan. 19 article in the Wall Street Journal reporting that at least some analysts think it's helped stabilize the housing market anyway. The report from Barclays Capital says the federal Home Affordable Modification Program has helped reduce the number of foreclosed homes offered for sale, which has helped stop housing prices from sinking. This helped home prices bounce back a little in the past year, which has helped increase stability in the market, experts say.

Stabilizing housing prices and encouraging new buyers is not an official goal of HAMP, the article said. The official goal is to help borrowers in trouble keep their homes by reducing their monthly payments. The program is not considered a success, although the Treasury Department announced a small amount of progress Jan. 15. But Barclays Capital's analysis said HAMP has been successful at preventing an even steeper fall in housing prices by "buying time" for the housing market. The report said the market was flooded with foreclosed homes in 2008, which pushed prices down. But thanks to HAMP, foreclosure moratoria (like the one here in California) and other programs, the foreclosure process slowed and nearly 210,000 fewer foreclosed homes hit the market in November 2009, compared to a year earlier. Barclays Capital expects the number of foreclosures to peak again in spring or summer of 2010.

As Cerritos loan modification lawyers, we're glad that HAMP has helped slow down and possibly even reverse the fall of housing prices, which was particularly sharp here in Southern California. This should help keep some people out of foreclosure simply by leaving them equity in their homes, and hopefully start restoring more equity as prices normalize. But as this article notes, that's not the goal of HAMP, and progress toward its actual goal of preventing foreclosures has not been strong. Financial institutions have blamed government rules and borrowers themselves for this lack of progress, but media reports show that lenders and loan servicers behave like they don't really want to make loan modifications. But instead of saying so, they continue to take applications and ignore them, repeatedly lose them or deny them for spurious reasons.

Continue reading "Analysis Says Federal Mortgage Program Has Helped Prop Up Housing Prices" »

As Chino bankruptcy attorneys, we already knew that foreclosure and bankruptcy tend to go together -- one tends to cause the other. The Wall Street Journal illustrated that correlation neatly in a Jan. 7 article juxtaposing personal bankruptcies in the "sun belt" with high foreclosures in those states. The national average increase in bankruptcies last year was 32%, the article said -- but above 50% in the Western states of Arizona, Nevada, California. Not surprisingly, these were also the states with some of the highest rates of foreclosure. Consumer bankruptcy lawyers told the newspaper that mortgage debt helped push some people into bankruptcy by cutting off home equity loans as a source of credit.

The highest bankruptcy rates don't correlate exactly with the highest foreclosure rates. For example, two of the most bankrupt states identified by the Journal were Utah (57% growth in individual bankruptcies) and Wyoming (58.3% growth), neither of which is consistently in the list of most-foreclosed states. And Florida, a heavily foreclosed state, saw its bankruptcies grow by 44.8%, compared to 79.6% in the national record-holder, Arizona. But in the West, states with the most personal bankruptcies tended to be the states that saw housing prices rise and fall to the greatest extremes -- Arizona, Nevada and California. One consumer bankruptcy attorney told the newspaper that his clients were almost always renters a few years ago. But now that prices and equity are falling, he said, more homeowners are forced to consider bankruptcy.

We're sorry to say that our Redlands bankruptcy lawyers see this trend ourselves. As the article notes, the housing crisis can cause bankruptcies by taking away financial tools like refinancing, selling the home or a home equity line of credit. Some homeowners may also file for bankruptcy as a last-ditch attempt to keep their homes out of foreclosure, after exhausting all of their other financial resources. But the reverse is also true: Financial problems that lead to bankruptcy can cause foreclosure even if those problems have nothing to do with the mortgage loan. This might be the case for homeowners who lose a job and can't find another quickly, or those who rack up high medical bills and exhaust their financial resources to pay them.

Continue reading "Western States With Highest Foreclosure Rates Also Had High Bankruptcy Rates" »

Our Riverside County loan modification attorneys keep an eye on the health of the housing market, in California and across the U.S. So we were interested in a somewhat grim set of predictions for housing in 2010 published Jan. 4 by BusinessWeek. The article consults industry experts including economists and a professor for the Mortgage Bankers Association for predictions on foreclosures, recovery signs, federal action and more. While the experts seemed hopeful about signs of recovery, both current and future, they didn't mince words about the problems they anticipate. First and foremost, they said foreclosures would increase in 2010, particularly among prime borrowers.

When the housing crisis began, the bulk of foreclosures were among borrowers who took out costly subprime loans. Now, the article said, the problem has shifted mainly to prime borrowers, who qualified for lower interest rates. Experts said the problem is driven by unemployment, which affects people of all economic classes. Despite a small fall-off, unemployment is still at record highs, at 10% nationally and 12.3% in California. Without income, homeowners may simply not be able to pay what they owe, even if the loan terms were reasonable and appropriate. This will slow the housing recovery that began in September, one expert said -- but it won't stop recovery entirely. Sales have risen in the past three months, and new-home inventories are low.

No one can truly predict the future, but these predictions absolutely fit with our experience as Anaheim loan modification lawyers. More and more, our clients are people who are facing foreclosure because of unemployment, not because they were sold bad loans. People subprime loans and victims of predatory lending are absolutely still out there, but most who were facing foreclosure have already resolved their problems. As some in the federal government are now acknowledging, the problem is that people without an income don't have the money to make their mortgage payments, especially if they bought their homes at the height of the market. Because many are also "underwater," owing more than the home is worth, some feel like the best solution is simply to walk away.

Continue reading "Experts Predict More Foreclosures and Trouble for Prime Borrowers in 2010" »

As Rancho Cucamonga loan modification lawyers, we have long supported laws that would allow bankruptcy judges to "cram down," or lower, principal owed on a primary home during a bankruptcy. In a Jan. 5 editorial, the New York Times reiterated its agreement. The editorial said the housing market may be weakening again, after some signs of recovery. It also repeated predictions from many housing experts who see the market worsening or staying flat thanks to predicted interest rate increases, high unemployment and the end of the homebuyer tax credit. Under these circumstances, the editorial said the Obama administration should put new emphasis on mortgage cramdowns, which it said was the best way to modify an underwater loan.

In a cramdown, the principal owed on the loan is simply reduced. This means an immediate loss for the lender, but it also reduces defaults and foreclosures by restoring equity and lowering mortgage payments. Last year, Congress considered allowing bankruptcy judges to cram down principal on a primary home loan as part of a Chapter 13 bankruptcy. Despite the fact that judges may already cram down principal on any other loan, the measure died because of fierce opposition from the financial industry. The Times did not call for more efforts to pass this bill, but suggested that the White House could simply change its policies to encourage voluntary cramdowns through the Home Affordable Modification Program.

Our Whittier loan modification attorneys don't believe this would be enough to make a difference on its own. As the article itself notes, HAMP has been largely unsuccessful, with borrowers complaining about bureaucratic delays, seeming incompetence from lenders and mistake that threaten their homes. We believe this is partly because the program is entirely voluntary, with public shaming the only tool available for the Treasury Department to compel compliance. Lenders who believe they will make more money by foreclosing have no real incentive to grant loan modifications, although they do have an incentive to look like they will. More toothless policies from the federal government, however well-intentioned, are unlikely to change the behavior of lenders who fought hard against bankruptcy cramdown legislation.

Continue reading "New York Times Again Calls for Mortgage Cramdowns in Consumer Bankruptcies" »

As Riverside County loan modification attorneys, we've spent most of 2009 watching, and being disappointed by, the progress of federal foreclosure prevention efforts. A Dec. 31 article in the Modesto Bee sums up the state of those efforts under the Home Affordable Modification Program, or HAMP. The Obama Administration launched the program at the beginning of the year, hoping to reverse the damage to the U.S. real estate market caused by a flood of foreclosures. But 2009 is ending without much real progress, the article said, with borrowers repeating many of the same complaints about lenders' behavior that they had in March and July.

The situation has changed in some ways, the article said. The focus on foreclosures caused by subprime or predatory loans has shifted to a focus on foreclosures on prime borrowers crippled by job losses. And HAMP has created a lot of trial modification. However, the article said, only 4.3% of those trial modifications had been made permanent as of November. Many of the homeowners who once complained that lenders weren't responding to requests for a loan workout are now complaining that lenders aren't responding to requests to make the trial modification permanent. One borrower told the newspaper that she received foreclosure auction notices for her home twice, even though she's part of a trial modification that's supposed to suspend foreclosure. Another complained that she received a permanent modification offer that raised her mortgage payment well above the 31% limit set by HAMP.

Our Cerritos loan modification attorneys have watched this situation throughout 2009. Thanks to numerous media reports with stories like these, as well as several studies of the economics confronting lenders and loan servicers, we have concluded that they do not really want to make loan modifications at all. If it is more profitable to foreclose, at least in the short run, lenders will most likely choose that option. As a housing counselor in the article says, some borrowers simply walk away after months or a year of consistent seeming incompetence from lenders. However, it's also clear that lenders want to seem as if they are willing to make modifications, which may explain why so many have joined the voluntary HAMP program in the first place.

Continue reading "HAMP Gets a D Grade After 2009 Sees Low Permanent Modification Rates" »

As Chino loan modification lawyers, we have long been cynical about the behavior of mortgage lenders when their financial interests oppose the common good. So we were not surprised by a Dec. 30 article on BNET about a new study of New York State's relatively recent foreclosure settlement law. Effective in September of 2008 and intended to prevent avoidable foreclosures, the Foreclosure Prevention and Responsible Lending Act of 2008 requires mandatory settlement conferences between lenders and subprime borrowers before a foreclosure lawsuit can proceed. But a study by the Center for New York Neighborhoods (PDF), a network of nonprofits focused on housing issues, found that lenders come to these conferences with inadequate preparation, documentation or authority, making real negotiations impossible and undermining the law's intent.

Under the New York law, lenders and borrowers meet for a settlement conference supervised by a court employee. The law specifies the topics they must discuss, including each party's obligations under the loan documents and negotiations for a "mutually agreeable resolution." However, the CNCYN report found that lenders' attorneys knew the status of the loan just 6% of the time; had a copy of the homeowner's officer just 3% of the time; and had the phone number of someone with settlement authority just 13% of the time. Even worse, the report said, courts rarely take steps to penalize this lack of preparation. Due to inadequate training, little guidance and high caseloads, courts determined how far apart offers were just 5% of the time and asked lenders for a payment history just 8% of the time. To make matters worse, fees for the lender's attorney are charged to the homeowner regardless of preparation.

As the BNET article points out, these are the results in a state with a consumer rights law on the books to deal with foreclosures. Under those circumstances, our Yorba Linda loan modification attorneys aren't surprised that the situation is even worse in states without such a law. Like the New York State law, the federal HAMP program provides virtually no accountability to lenders who fail to make a reasonable effort to modify loans. Both programs also lack well-trained mediators and mandatory pre-negotiation counseling, features of the apparently more successful foreclosure mediation programs. Without accountability and consumer education, these laws are virtually toothless. In fact, since New York's law allows lenders to bill borrowers for the time of unprepared attorneys, it may even do more harm than good.

Continue reading "Study Finds Lenders Routinely Ignore New York State Foreclosure Settlement Law " »

Our Moreno Valley loan modification attorneys wrote last month about foreclosure mediation efforts in Philadelphia and Nevada. These programs, in effect in about 14 states, have shown early promise at helping prevent foreclosures that could be avoided by taking a close look at the homeowner's finances. The state of Florida has been testing the foreclosure mediation process in two of its 20 judicial circuits, and on Monday, the Florida Supreme Court announced plans to make it universal. Citing a glut of foreclosures clogging the courts, Florida Chief Justice Peggy Quince ordered all state courts to shift foreclosure cases into mandatory mediation. In doing so, Quince followed a recommendation made in August by a state task force asked to study the problem, the Miami Herald reported Dec. 28.

Another Dec. 28 report, by the St. Petersburg Times, detailed how Florida's mediation program is expected to work. Mediators are trained third parties from nonprofit organizations, who help the lender and borrower try to reach an agreement. Only borrowers with homesteaded properties are eligible. The mediations will be conducted in single sessions of about three hours and cost $750. Lenders will pay the fee, but can claim it back if the mediation fails and the home goes into foreclosure. Happily, however, preliminary results show that mediation is successful more often than not, with 65% of participating borrowers ending up with a loan modification. Homeowners start the process by attending a mandatory counseling session that explains the process. A mediation session is then scheduled for 60 to 120 days after a foreclosure case is filed.

As San Bernardino loan modification lawyers, we will be very interested to see how this program works out. Florida resembles California in several ways, not least because both are hard-hit by the real estate downturn and facing a high rate of foreclosures. If this program helps stop foreclosures in Florida, it may be useful in our state as well. It is clear from lenders' actions in the past year or two that voluntary loan modification programs are not enough to stop foreclosures. Lenders say they're willing to make loan modifications, but continually lose paperwork, ignore phone calls and letters and otherwise delay real action. Making it mandatory to try to strike a deal can at least require lenders to show up for negotiations. And if the 65% figure is an indication, just showing up substantially improves results for borrowers who might otherwise lose their homes.

Continue reading "Florida Supreme Court Requires Mediation and Counseling for Residential Foreclosures" »

Our Rancho Cucamonga loan modification attorneys understand all too well the relationship between unemployment, financial insecurity and problems paying the mortgage. But a New York Times/CBS News poll released Dec. 14 made the connection explicit. According to a Dec. 15 article from United Press International, 13% of the unemployed respondents reported losing their homes because they could no longer make their mortgage or rent payments. Twice as many, 26%, said they had lived with the threat of eviction or foreclosure because of their financial problems. Extrapolating from the estimate that 15.4 million Americans are currently unemployed, the article said this would translate to 2 million nationwide losing their homes to unemployment.

The poll surveyed 708 unemployed adults from all parts of the United States, reached by land-line telephone between Dec. and Dec. 10. Not surprisingly, it found that the threat of losing a home was especially great for people who had been unemployed for six months or more. Of all respondents, 46% said unemployment had plunged them into a "major life crisis." For those who had passed the six-month mark, that number was 57%. Fewer than half said they believe jobs will come back to their communities once the recession ends. Slightly more than 40% of respondents said they had moved, or were considering moving, to someplace with more jobs available. Another 44% said they had tried job retraining or education, and more than two-thirds were considering a career change.

As Yorba Linda loan modification lawyers, we're not surprised to see this grim correlation. Many people consider unemployment one of the most reliable predictors of foreclosure. In fact, one of the major criticisms leveled against the federal Home Affordable Modification Program is its inability to help people with no income at all due to unemployment. Without a steady income, homeowners are forced to make hard choices, including choices between paying the mortgage and other major necessities like food and heating. This doesn't mean unemployed homeowners will inevitably lose their homes, but it does mean that they should act quickly to explore options for saving them. Those options include a temporary forbearance that stops their payments, as well as a short sale, refinance or other more radical moves.

Continue reading "Major Poll Finds 2 Million Americans Lost Homes Because of Unemployment" »

Our West Covina loan modification attorneys have long believed that the federal government's Home Affordable Modification Program needs radical changes to be effective. So we were pleased to see a Dec. 6 Fair Game column in the New York Times outlining specific changes that author Gretchen Morgenson recommends. Morgenson pointed out that even the Treasury Department, which administers HAMP, acknowledges that "banks are not doing a good enough job," and that foreclosures have not abated. To fix that, she argued, the government should address at least two major problems with the existing program, all of which were outlined in research by Laurie Goodman, head of mortgage strategy at Amherst Securities Group.

Goodman's research concluded that negative equity -- owing more on a mortgage than the home is worth -- is the driving force in mortgage defaults. This contradicts the conventional wisdom that unemployment is the most important factor. HAMP currently fails to take this into account. Another problem Goodman's research cited is the way HAMP calculates the payments that borrowers can afford, because it takes into account only payments, interest and taxes on the first mortgage. Other credit obligations, such as a car payment or credit card debt, don't count, which means the resulting payments may be too high or too low for the borrower's means.

Furthermore, holders of the first mortgages (the lenders, or in a securitized loan, the investors) may have their investments substantially reduced, while the values of second mortgages aren't touched. Because second liens tend to have higher interest rates, this means consumers with second liens aren't getting the help they need. Furthermore, the situation creates a conflict of interests for banks that hold the second liens but not the first, giving them an incentive to write down loans other people own. This is an especially serious problem because Goodman found that loan workouts with principal write-downs are far more likely to succeed than those that only adjust the interest. Her research also showed greater numbers of cramdowns when banks owned all the loans, suggesting that they do see the merit of cramdowns.

As Orange loan modification lawyers, we would be delighted to see Congress impose these rules. When we work with clients in financial distress, we always ask for the most complete financial picture possible, including all outstanding debt from any source. Omitting other debts makes no sense if the goal is to calculate what the borrower can afford. This may be even more true when dealing with second liens on the home, because second mortgages and home equity lines of credit directly affect the borrower's mortgage payments. Lenders with an interest in the second mortgage should not be in a position to make decisions that protect them from harm while hurting homeowners and investors. And if principal cramdowns offer the greatest chance of success -- as several studies have now shown -- perhaps the government should consider making them mandatory in cases that meet certain criteria -- or available during bankruptcy, as an incentive to consider them earlier.

Continue reading "Columnist Calls for Government to Radically Change Foreclosure Prevention Program" »

As Garden Grove loan modification attorneys, we already knew that the federal mortgage aid program continues to fall short despite repeated government tweaks and stern lectures to lenders. That's why we were pleased to see an article in the Washington Post Dec. 9 reporting that many Congresspeople also seem frustrated by the program's failures. The House Financial Services Committee heard testimony Dec. 8 from officials at the Treasury Department, which manages the Home Affordable Modification Program, as well as from the mortgage industry. That testimony confirmed the poor record that HAMP has had throughout its seven months, with just 680,000 borrowers out of an eligible four million participating.

The testimony focused on converting trial loan modifications to permanent ones -- a growing issue in recent months. Banks told Congress that conversions are slow because about 70% of borrowers have failed to provide paperwork necessary for the conversion; have provided contradictory information; or haven't made their payments. However, consumers and their advocates said banks continue to lose paperwork and give them a runaround, shifting them from one representative to another throughout the process. Banks themselves acknowledged that "ineffective communications with customers [and] shortcomings in document maintenance" were contributing to the problem, along with customer confusion and in some cases, financial stress. Committee member Rep. Al Green, D-Texas, threatened "drastic action" if banks don't do more to stop the continuing foreclosure crisis.

As Chino loan modification lawyers, we have substantial experience with the obstacles homeowners face when they try to get loan modifications, or make those modifications permanent. In both cases, we have heard similar stories from homeowners about repeatedly lost paperwork, contradictory instructions and poor communications between branches of the same lender. We don't doubt that some borrowers have genuinely failed to follow instructions -- but we suspect that in many other cases, lenders are finding ways to delay or derail the process because foreclosing is more profitable. Media reports are not clear on what action the representatives are threatening to take, and what standards lenders must meet to avoid it, but we hope they pass legislation with penalties for lenders that are clearly not trying. It has become clear that carrots are not working with lenders; Congress should consider a few sticks.

Continue reading "Congress Critical of HAMP During Testimony By Treasury and Mortgage Lenders" »

As Placentia loan modification attorneys, we were disappointed but not surprised to see that problems with loan modifications don't end after customers manage to get one. The New York Times reported Nov. 29 that the Obama administration's Home Affordable Modification Program, which seeks to improve the housing market by stopping preventable foreclosures, is seeing problems when borrowers try to finalize their temporary modifications into permanent ones. The article focused on Queens homeowner Yolanda Thomas, 35, who won a temporary modification after she was laid off an forced to take a lower-paying job. But due to another job change and a series of conflicting communications from her lender, Thomas is now being asked to start another trial modification.

Thomas originally had a forbearance arrangement with Chase, which bought her mortgage holder, Washington Mutual. After she found a job at roughly half of her previous pay, she also won a trial modification that cut her mortgage payments by more than half. That deal, struck in June, was supposed to become permanent if she made all her payments on time and submitted the right paperwork. The trouble started in July, when Thomas began receiving threatening phone calls from Chase collection agents, who said she was still on the hook for the original, higher mortgage payment. Despite the loan modification, Chase reported her to credit agencies as delinquent. One letter she received from the bank apologized for the mistake, but a spokesman for the bank said that letter was itself a mistake -- that Chase does consider her delinquent.

When the trial modification ended in October, Thomas hadn't heard from Chase, so she sent in a fourth payment at the same rate. Later that month, the bank told her that she had been denied a permanent modification based on her income -- from the same job that formed the basis of the trial modification. Two days later, she received a letter saying she was still being considered, but needed to submit a tax document. A phone call following that said she needed to start over entirely by applying for a new trial modification. In the meantime, Thomas has managed to get a higher-paying job -- but she is no longer sure that this will help her hold on to her home. The Chase spokesman told the Times that Thomas is a loan modification success story because she's better off than she would otherwise have been.

Our Diamond Bar loan modification lawyers agree that Thomas is probably better off because of her participation in the trial modification program. However, we strongly disagree that the lesser of two evils rates as a success story. If the facts reported here are true, Chase has, at the least, a failure to communicate between its own branches, as well as with this customer. Given what we have written here about the financial incentives for banks to make loan modifications, this behavior could also be intended to delay a loan modification as long as possible, to drive Thomas into a more-profitable foreclosure. This is a senseless policy when faced with a client like Thomas, who is willing and able to pay her mortgage. At least part of these actions -- the false report to credit agencies about delinquent mortgage payments -- is also illegal.

Continue reading "Borrowers Find Obstacles to Converting Trial Loan Modifications to Permanent " »