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Investigative Report on Loan Modifications Shows Reasons for HAMP Rejections

March 14, 2011

As Redlands loan modification lawyers, we've written a lot in this space about the reasons lenders give (or don't give) homeowners for denying loan modifications. So we were very interested to see a March 8 story from Pro Publica, a nonprofit investigative journalism organization, on a variety of data related to loan modifications and the Home Affordable Modification Program, the federal government's attempt to help. Using data from the Treasury Department, Freedom of Information Act requests and data from states and the mortgage industry, Pro Publica put together a series of charts and graphs explaining some of the basics of the loan modification crisis. Some of it reinforces the general belief that HAMP has failed, but other data sets show reasons why that might surprise casual observers.

Only a tiny fraction of homeowners in default are even being considered for loan workouts, the report said -- not a surprise to frequent observers. But interestingly, the data also show that lenders aren't even in contact with a majority of borrowers who are more than two months behind with payments. That's especially disturbing here in California, where a state law actually requires lenders to contact borrowers to discuss alternatives before foreclosing. Also very interesting were the data sets on reasons why borrowers aren't getting help. Most people are denied without even being given a trial, and only about one-fifth of those who apply end up in a permanent modification. Others have trial modifications canceled -- the majority for reasons other than missing payments -- or stretched far beyond the three-month period. Those numbers don't reflect the large number of people who say they applied and never heard back from their lenders.

In a quarter of rejections from a permanent or trial modification, lenders say documents were missing -- but as Pro Publica has noted, servicers' inability to keep track of documents is a primary complaint by homeowners. That includes at least 300 complaints that servicers rejected borrowers for failing to provide documents not requested. A combined 25 percent were rejected because the servicer didn't think the loan modification was necessary; 7 percent withdrew; and another 7 percent were rejected for a reason labeled "foreclosure better for investors."

Our Newport Beach foreclosure defense attorneys suspect that if servicers were honest, "foreclosure more profitable" would actually be the main reason for loan modification rejections. As we've written repeatedly in this space, loan servicers don't usually stand to lose money on a foreclosure, because they don't own the loans. However, they do stand to gain money by drawing out a foreclosure, because they can continue collecting payments, and sometimes late fees, for longer periods. When they do foreclose, they can also collect extra fees. We believe this is why loan servicers have made their modification procedures as unhelpful and bureaucratic as they can, repeatedly losing paperwork and behaving in a disorganized manner that frustrates some homeowners into giving up.

At Howard Law PC, we don't believe any borrower should give up on saving a home they believe they can still afford to pay for. Instead, we invite you to contact us for a free, confidential consultation on how you can enforce your legal rights. Our Torrance foreclosure defense lawyers often file predatory lending lawsuits against lenders that have wrongly denied a trial or permanent HAMP modification, violating borrowers' right to reasonable consideration of their applications. We also sue lenders that have failed in their legal duty to discuss alternatives before foreclosing. In either case, a lawsuit can even stop a foreclosure sale happening very soon, giving us time to consider the best legal strategy.

If your home is in default or foreclosure and you don't believe your loan servicer is giving you a fair shake, you should call Howard Law for help. To set up a free, confidential evaluation of your case, send us a message online or call toll-free at 1-800-872-5925.