Home Loan Modifications
In a recent article in Businessweek, Kathleen M. Howley, Dakin Campbell and Danielle Kucera explain the recent problems facing the mortgage industry caused by loan modifications.
All over the country, homes that are eligible for and actually receiving modifications are being foreclosed on, forcing the former residents into even greater financial distress.
In an attempt to stop the increasing number of foreclosures, the government has set up programs, such as the Home Affordable Modification Program (HAMP), for home owners that are struggling with their mortgages. There are currently as many as 7 million homes in the United States that have been foreclosed on or are facing foreclosure, Under HAMP, home owners’ payments are reduced to 31 percent of their monthly gross income. However, the major flaw in the program is that the modification process can result in the borrower owing more money than they did before the modification. There can be unexpected balloon payments that are due when the house is sold or the loan is paid off that the home owner was unaware of. Extra fees are also added on to the mortgage balance through accrued interest and other charges, which eventually leads to foreclosures, the one thing the program was meant to prevent.
As of late, programs such as HAMP have come under great scrutiny because of the increasing number of problems that are actually being caused by the program. There are many cases where a bank will approve the buyers, but rescind the approval a short time later, due to inaccurate documentation or loss of documents, through no fault of the debtor. “It’s more common to hear that banks have lost paperwork than to hear that they received it and properly handled it.” Says Joseph Ridout, a spokesman for Consumer Action. Another issue that has arisen because of the HAMP program is when banks offer clients a ‘trial modification.’ During these trial modifications, late fees and debt can accumulate quickly, many times unbeknownst to the debtor, which results in payments that the debtor had not anticipated on and cannot afford. Julia Gordon, the senior policy counsel at the Center for Responsible Lending is quoted saying “Many homeowners end up facing foreclosure solely on the basis of the arrears accumulated during a trial modification. One incomplete payment or one accounting mistake can land you on an apparently unstoppable conveyor belt to eviction.”
Some of the programs put in place by the government and leading lending giants such as JP Morgan Chase and Bank of America offer changes in mortgage terms such as cutting interest rates for an extended period of time and extending repayment terms to 40 years. However these temporary programs and trial modifications are not always given a chance to work. Approximately half of the 1.4 million temporary modifications granted since 2009 have already been cancelled according to the Treasury Department.
Be sure to talk to the experienced attorneys at Mayer and Newton before you pursue a loan modification after you declare bankruptcy. Our experienced staff can advise you on whether or not the modification is in your best interest and also discuss all of your options with you.