When I tried to get my mortgage modified in order to lower my monthly payments, I was rejected and I remember at the time feeling pretty angry about it. But now, I feel kind of lucky my mortgage modification application didn't go through.
According to the Wall Street Journal, homeowners across the country are suing their lenders for not living up to their end of the deal when they agreed to trial mortgage modifications. The article highlights, as an example, southern California grocery store owners William and Esperanza Casco who bought their home 17 years ago with a mortgage.
The Cascos were actually making enough money to stay current on their mortgage, but then their bank, J.P. Morgan Chase & Co. offered to a trial modification plan to reduce their payments. They could certainly use the extra cash, so they signed up. They say they never missed a subsequent payment, so they were shocked when the bank decided the smaller payments weren't enough and foreclosed on their home.
Wait a second. Wasn't the government supposed make sure this didn't happen. As part of that $700 billion bail out, some of that money was designed to be used by the government's payment reduction program.
It turns out struggling homeowners didn't get as much help from the bailout as originally planned. In fact, according to the Journal, Treasury statistics show that only about one-third of the nearly 1.4 million homeowners who were accepted into the government's payment reduction program had their reductions made permanent.
As for the Cascos, a Chase spokesman Gary Kishner told the newspaper the bank "worked with the borrower to give him as many opportunities as possible to qualify for a permanent modification, they were not able to do so and therefore we were forced to foreclose on the property."
The Journal says several federal lawsuits filed in Boston accuse major lenders of breach of contract under the government's Home Affordable Modification Program which is what the banks agreed to participate in the bailout. The lawsuits say the banks agreed to grant permanent mortgage modifications to borrowers who make all payments during the trial modifications.
Attorney Shennan Alexandra Kavanagh told the Journal that several of the plaintiffs lost their homes after their payments reverted to their original sums that they were unable to pay. She said she believes tens of thousands of borrowers in Massachusetts alone could be covered by the suits if they get class-action status.
One of the lawsuits is against Bank of America, which was consolidated earlier this month with similar complaints in five other states. To be fair, a Bank of America spokeswoman Shirley Norton said in an e-mail that the lender will continue aggressively defending itself against the cases.
Meanwhile, the Journal reports that lawsuits have been piling up against other lenders elsewhere. In San Francisco, the Housing and Economic Rights Advocates legal services group sued Chase, accusing it of profiting from collecting payments during long trial modifications that ultimately end in foreclosure.
A lawyer involved in that lawsuit, James C. Sturdevant, says the banks are basically "participating in the crisis they had helped to foment by refusing to honor loan modifications they had already agreed to.
