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New York State Loan Modification Program Called Ineffective Because It's Voluntary

February 19, 2010

A year after President Obama announced his Making Home Affordable plan to slow foreclosures, the plan has been heavily criticized. From the left, and from Ontario loan modification attorneys like us, the criticism has focused on the plan's lack of teeth -- nothing compels lenders to participate, or complete their side of the deal in a timely manner. A Feb. 14 article in the New York Post makes the same criticism, but of a similar program in New York state. The Bankruptcy Loss Mitigation Program, a project of bankruptcy judges in the Southern District of New York, has produced fewer than 10 permanent loan modifications out of 808 applicants, the newspaper said. And according to many personal bankruptcy attorneys, the problem, as with HAMP, is that the plan doesn't motivate lenders to actually complete the deals.

Under the Bankruptcy Loss Mitigation Program, lenders and borrowers are supposed to meet face to face to negotiate a loan workout whenever the circumstances make one possible. That part of the program is working, says Judge Cecelia G. Morris of Poughkeepsie bankruptcy court. But consumer bankruptcy attorneys say the rate of loans actually modified is miserable. One attorney said he hasn't had a single case in which the lender got the paperwork right the first time. This is also a common complaint from borrowers and attorneys trying to participate in HAMP, who say they've been strung along for months by lenders who repeatedly lose paperwork, ignore it for months or give contradictory instructions. Another attorney suggested that banks would have a stronger incentive to finish loan modifications if bankruptcy judges were allowed to reduce principal on primary homes, as they are currently allowed to do with second homes and vehicles.

That attorney was referring to "cramdowns," a proposal that unfortunately died in Congress last year due to strong lobbying from the financial industry. Our Chino loan modification attorneys agree that cramdowns would incentivize lenders to get the deal done. If lenders know they may lose money by forcing a borrower into bankruptcy, they are much more likely to complete a loan modification deal in which they lose far less money and can better control the terms. As things stand, lenders lose nothing if they force borrowers into bankruptcy by refusing to make a good-faith effort to modify loans. This is the real problem behind the "failure" of HAMP, and we do not believe it will be fixed unless authorities find some way to show lenders that making the modifications is in their best interests.

Howard Law PC represents California homeowners who were caught in foot-dragging nightmares of their own when they applied for loan modifications, on their own or through HAMP. Lenders' delaying tactics have measurable negative effects on borrowers. While they wait, argue with customer service people and resubmit their paperwork, borrowers continue to struggle to pay high mortgage payments or suffer serious credit damage. In extreme cases, large lenders with poor internal communications have started foreclosure proceedings while telling borrowers a loan workout is pending. Our Lawndale loan modification lawyers can cut through this red tape and help borrowers get answers, through litigation or aggressive negotiations.

If you've gotten the runaround one too many times from your lender, you should call Howard Law to learn more about how we can help. For a free, confidential consultation, call us toll-free at 1-800-872-5925 or contact us through our Web site today.