The Smooth Loan Process #2010-19

Loan Modifications Are A Disaster

We want to hear about your successful and not-so successful loan modifications. Let us know what's happened to you so we can spread the word. This is one of the not-so successful stories.

I have a friend named John who purchased his home in February of 2008. Just like the rest of us, he has seen the value of his home decrease since he purchased it. He is an a fixed rate loan and is able to afford the payments. In March of 2009, John contacted his loan servicer to inquire about a modification. He had heard that the HAMP program had been instituted and he wanted to see if he would qualify for it.

As it should have happened, John's mortgage servicer put him on the trial payments for three months while they processed his application. To his credit, John knew there would be the possibility that the modification would not be approved so he saved the money that would have gone to the regular payment while he was making the reduced trial period payment.

Here's where things go awry. The trial period is supposed to be three months. John's trial period ended up extending to December. Nine months total. His mortgage company stated that the back log of files prevented them from processing things faster. No problem, that makes sense. John still continued to bank the money that would have gone to the regular payment.

Then John called to check the status in January as he had done every week for the past nine months, by the way. That is when he was informed that the modification had been declined. He never received a letter or any correspondence from the servicer. He asked them what he should do and was told to continue making the reduced payment for February. He was told that even though he was declined for the HAMP program, the servicer would still try to get him approved on their own "in-house" modification.

Two weeks later, he called to check status again. This time he was told that he was also declined for the in-house modification but they were working on other options. John was done with it. He asked that his application be withdrawn and asked for the amount of money he would need to send to bring the loan current according to the original terms. Remember, he saved the money just in case this happened. The response to his question was shocking. The servicer told him that they could not tell him how much money he owed because they have started foreclosure proceedings! He would have to talk to the attorneys that are handling the foreclosure.

In a nutshell, John applied for the program and supplied every thing that was requested from him and made the payments he was instructed to make. In the end, he did not get his modification but he does have ruined credit (see episode #2010-9 for more on that http://bit.ly/2010-9), a foreclosure notice on his house and thousands of dollars in attorney and late fees.

Now, I'm no fancy big city modification negotiator, but it seems to me that the servicer should have sent a letter that said something to the effect of "Sorry your application was declined. Please send us the money you owe. We'll give you a few days to send it."

If they had done that, this episode would have been about the new Good Faith Estimate. Now you have to wait until tomorrow for that.

Let me know how your modification is going.

The Smooth Loan Process lesson for today: HAMP is only 7% successful. Know what you're getting before you apply.

Harold Perkins
The Mortgage Advantage
480-831-1588
Harold@HaroldPerkins.com