Homeowners in DC, VA and MD seeking loan modifications to save the family home may see improvements in the currently messy process if a group of state attorney generals and federal officials are successful in on-going settlement talks with major US banks.
“What we’re really trying to do is change a dysfunctional system,” Iowa Attorney General Tom Miller, the point man for a 50-state effort, told the Washington Post in a March news article. “We really want to try and change all that.”
Homeowners who have asked mortgage lenders (or more specifically, the mortgage servicing department of banks who administer the loans on behalf of bond investors) know very well the many and outrageous modification abuses including:
- Losing homeowner’s modification applications and causing them to have to submit the documents numerous times, or giving up altogether.
- Leaving homeowners in the dark for months or years as to the status of the applications.
- “Dual tracking” homeowners so that while the modification is pending the loan is also put on track for a foreclosure catching the homeowner unaware as he or she is awaiting a decision.
- Rejections of the modification application without a statement of the reason(s).
- Fraudulent statements from mortgage servicers misstating the amount owed by employees who swear to, but have not actually checked, the lender’s records.
- Employees at the mortgage servicing departments telling homeowners to make a reduced payment pending the modification, then holding the homeowner in default for thousands of dollars later when the modification is denied. It’s either pay up all at once or go to foreclosure.
Many of the mortgage modification abuses have been written about in this blog based on the experiences of the clients of our bankruptcy law firm.
The government’s initial 27-page proposal provides for some important reforms:
- A time-line for decisions.
- Guidelines for determinations, and possibly mortgage principal reductions.
- A web-based portal for homeowners to track the application in real time.
- A ban on “dual tracking.”
Most importantly, the proposal provides for penalties for the mortgage servicers. For this writer, that would be the single most important reform. At present, lenders operate with impunity. There is no law that clearly holds mortgage servicers accountable. Penalties would put teeth into the reforms and, it’s hoped, put an end to the abuses.