Let’s talk about foreclosure and mortgage modifications success ratios and how this might or might not be the best course of action. The truth is, mortgage modification success ratios are very low. To begin to explain this, we start with the Congressional studies from 2010 that show 4% of homeowners were served with foreclosure while approximately two hundred fifty-thousand foreclosures started every month in 2010. However, during any given month, only 100,000 homes were sold. The servicers then allowed the other 150,000 homes to slip further into default.
Foreclosure & Mortgage Modifications • Low Success Ratios
Servicers collect more by delaying foreclosures to increase the late charges, collection, and attorney fees. In fact, mortgage companies and insurance guarantee the fees charged by servicers. But, charging late fees is how servicers make money from mortgages in default. Of course, homeowners and taxpayers ultimately pay the costs. If you’re interested, the CFPB keeps records on servicer abuse in mortgage modifications.
Reasons for Mortgage Modification Failure
Foreclosures and mortgage modifications success ratios under HAMP show less than 10% of the mortgage modifications stopped foreclosures in 2010. Unfortunately, after years, there is still no improvement. Banks and servicers simply don’t make deals that lose money. So, by lowering the interest rate, they have to make up profits by taking away the equity you have.
The congressional studies show the following:
- Servicers can make more money from collection and foreclosure than modification. But they make the most money when they bill from both.
- Mortgage companies and the government may pay servicers for modification processing.
- Servicers are not held accountable when modification applications are lost or go through reprocessing.
- The servicers are paid twice when they lose your application.
- Servicers can go through the mortgage modification process and be paid multiple times.
- Servicers collect a second time from the foreclosure after the modification fails.
Mortgage Modification Results
Only about 33% of trial modifications become permanent. Interestingly, the number of modifications peaked in October 2009 at 160,000 and dipped to 23,000 in December 2010. Also, the first year after modification, 21% of permanently modified mortgages defaulted. Then, defaulted modifications grew to 40% in five years (2015). Of course, these multiple defaults allowed servicers to bill twice for two foreclosures.
Successful modifications reduced the interest rates from a median of 6.63% to about 2.0%. However, these modifications extended the length of mortgages 57% of the time. They also deferred principal to balloon payments 30% of the time, but only 3% reduced principal. Additionally, 95% of the permanently modified mortgages had less equity than before modification. Moreover, most of the modifications decreased the rate of equity increases in a property.
Success ratios are Wachovia’s 89%, HomeEq 95%, and Bank of America (which took over Countrywide) 30%. Of course, the more predatory loan programs get, the worse the performance is. In fact, approximately 30% of trial modifications received cancellations due to incomplete documents. Many applications are probably lost because foreclosure is more profitable. However, the actual figures may be worse. 21% of trial modifications went into default, while 8% canceled and gave no reason.
Making a Choice • Chapter 13 or Mortgage Modification
Historically HARP replaced HAMP in 2013. Hamp ended 12-30-2012.
Here are the old Hamp Mortgage Modification, FDIC Foreclosure Modification program, and 2010 HAMP guidelines.
It is possible to process HAMP or HARP modifications during bankruptcy. But, please note that homeowners in foreclosure should choose to take advantage of one of the two following options:
- Save the home by filing a Chapter 13 to catch up on the mortgage arrears or
- Defend foreclosures to have the time to find another home and explore other alternatives.
- One method to combat the problem seems to be filing CFPB complaints and documenting your application process.
- When you file an answer and discovery in foreclosure, you can bring defenses to show the servicer negligently handled your application.
- If a person wishes to continue to own their home, the best answer seems to be catching up with the mortgage in Chapter 13.
Again, mortgage modifications often fail after modification. In addition, not filing a Chapter 13 early increases the monthly payments in Chapter 13, sometimes making Chapter 13 unaffordable and ensuring home loss. Also, be aware that loan servicers (collectors) make fees from servicing (billing) mortgage company loans. Therefore, it is not in the best interest of servicers for the homeowner to be current. Moreover, the longer you are in default, the more fees mortgage servicers and foreclosure attorneys charge.
Resources for Foreclosures
Where to Report Foreclosure Scams
Federal Trade Commission (FTC) for foreclosure scams.
Trustee Regions and Offices for foreclosure scams that involve bankruptcy
Other Related Information
Mortgage Modification Checklist
How to Make Chapter 13 Plan Modifications
Problems with Loan Modification and Workout Agreements
If you are facing foreclosure, I am here to help you. Contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905