Mortgage Modifications Slow Even More

With banks under increased scrutiny for their foreclosure process, one would think a mortgage modification would be an increasingly attractive option. But in September, at least, they were harder to come by.

According to figures supplied by the U.S. Treasury Department, as part of its "Housing Scorecard," only 28,000 homeowners in default were able to secure a permanent loan modification. That's the fewest for any month since the program began in 2009. The government, however, sees the glass as half-full.

"Over the last 21 months, the Obama Administration's swift action in the housing market has kept millions of families in their homes and provided responsible borrowers with incentives to refinance or to become a homeowner," said HUD Assistant Secretary Raphael Bostic.

"But, with many unavoidable foreclosures still in the pipeline, it's clear that we have a hard road ahead. That's why we're focused on successfully implementing the programs we've put in place - such as additional assistance on refinancing and helping unemployed homeowners stay in their homes - and ensuring that help is available to homeowners as soon as possible."

Trial modifications fall through

Administration officials say that, since April of 2009, record low interest rates have helped more than 7.1 million homeowners to refinance, resulting in more stable home prices and $12.7 billion in total borrower savings. But while the government points to the 3.52 million modification arrangements started between April 2009 and August 2010, nearly half were "trial" modifications, many of which were later rejected.

 What happens when a trial modification fails to become a permanent modification? Often the homeowner is left is worse condition. In a trial modification, the homeowner makes lower monthly payments for a number of months. If the modification is later denied, they not only owe the difference between their modified payment and their full mortgage payment, but late fees as well. Often, it damages their credit rating.

 Many consumers have complained of a perceived "stonewalling" on the part of the loan servicer when they attempted to secure a modification.

 "They took 18 months of 'back and forth' on my HAMP application and never wound up submitting it," Joan, of South Hamilton, Mass., complained to ConsumerAffairs.com, about her dealings with HSBC. "Now they want to seize my property in a sheriff's auction in 6 days. On the modification application, they kept coming back with one additional document they needed from me, usually an obscure document from two years ago. On several occasions they verbally acknowledged that my application was complete and that I should check back with them in a week. When I did so, they came back with: 'Oh the application expired. You'll have to submit a new application'".

Incentive to foreclose?

Despite strong encouragement from the government to modify troubled mortgages, it is easy to conclude that servicers are not exactly enthusiastic about them. The National Consumer Law Center conducted a study showing loan servicers lose money on modifications, but actually make money on foreclosures.

Industry analysts say more than four million households are in a severe state of default, but that many of them have yet to pop up on the radar screen, because formal foreclosure proceedings have not begun.