Servicers make money from both mortgage modifications & foreclosures. Mortgage modifications can be a good or bad deal that lowers the interest rate of the mortgage. It is essential to understand that it is the servicers who process these applications. The servicer earns fees for every letter and phone call made in collections. If the application fails, the servicer is paid to process it a second time.
As a result, there is a lot of mishandling of applications. Sometimes, the foreclosure may be processed while the modification is being processed. This is called dual tracking. The figures on HAMP show less than 5% of homeowners who apply for a mortgage modification get one. These statistics are from the Congressional Oversight Panel report and websites which outline problems with mortgage modifications. Since 2015 many new regulations try to prevent this problem with lenders. Servicers promise help, but when the homeowner is turned down, he has delayed filing a Chapter 13 to cure a defaulted mortgage. The homeowner falls further behind and filing a Chapter 13 to catch it up becomes harder.
Foreclosure Failures in Louisville, KY
When a loan slips into default, it increases mortgage late fees and penalties. The servicers who are offering you a modification earn a portion of the late fees and penalties. Servicers make money from lenders and homeowners by offering mortgage modifications. Loan servicers (collectors) make fees from servicing mortgages. It is not in the best interest of servicers for mortgages to be current. The longer you are in default, the more fees mortgage servicers and foreclosure attorneys earn. If a modification can stop the foreclosure, delay the sale or cure the default, it is successful. But the majority of the time, modifications are a costly false hope.
Modifications stop less than 10% of foreclosures. Banks and servicers don’t make deals that won’t increase profits. If the interest rate or payment temporarily drops, it often costs your equity. The facts from a congressional study show:
- Servicers, make more money from collection and foreclosure than modification;
- Lenders and the government pay for modification processing. There is little or no accountability when servicers lose modification applications or reprocess applications. The application processing fees are paid again. Current CFPB regulations and rules allow you to file a complaint that may be helpful to prevent further negligent processing.
Mortgage Modification Foreclosures and Statistics
Only a third of the trial modifications became permanent. The highest recorded period peaked in October 2009 at 160,000 applications, and this had dipped to 23,000 in December 2010. The first year after modification, about 21% of permanently modified mortgages defaulted. Defaults from these modifications were predicted to grow to 40% in five years (2015). The interest rates usually increased after five years, insuring defaults later and allowing servicers to bill twice.
The more successful modifications reduce interest from an average of 6.63% to 2.0%. 57% of modifications only extend the length of mortgages. 30% defer principal to balloon payments, which guarantee foreclosure later. Only a 3% reduce principal. 95% of permanently modified mortgages have less equity than before modification, and most decrease the rate of equity increases in the property.
Mortgage Modification Foreclosures and the Worst Companies
Successful mortgage modification ratios are Wachovia’s 89%, HomeEq 95%, Bank of America (which took over Greentree and Countrywide) 30%. The more predatory loan programs are, the worse performance is. 30% of trial modifications canceled due to incomplete documents. Many applications were probably lost intentionally because foreclosure is more profitable, and actual figures may be worse than what is reported. 21% of trial modifications defaulted, 8% canceled with no reason.
Lenders now increasingly handle Mortgage modification applications. There are few or no more Federally operated modification programs. HARP has ended and was a program that replaces HAMP in 2013. Hamp ended 12-30-2012. Here are the old Hamp Mortgage Modification, FDIC Foreclosure Modification program, and 2010 HAMP guidelines. You will often find modifications taking place during bankruptcy. Homeowners, however, need to face the fact they need to do one of the following:
- Save the home by filing a Chapter 13 to catch up the mortgage arrears, or
- Defend foreclosures to have the time to find another home and explore alternatives.
Mortgage modifications often fail after modification. Not filing a Chapter 13 early, increases monthly payments in Chapter 13, sometimes making Chapter 13 unaffordable and insuring home loss.
Programs Other than Mortgage Modifications
Here is a brief explanation of the different types of mortgage modification, workouts, short sale, and foreclosure prevention programs. We suggest that you see an attorney to talk about the distinct advantages and problems with each plan. These programs may not delay the bank’s foreclosure attorney from selling your home. You must defend the foreclosure while negotiating with the lender.
Real Estate workouts are when you contact your lender and explain to them that you have simply suffered a temporary problem. You attempt to negotiate with them to allow you to pay the missed Real Estate payments at the end of your contract. Other solutions are possible, such as lowering interest rates for a short period, making partial payments, or catching up by making increased payments.
The collection department may not negotiate with you if they see they will collect all their funds from a sale. Only a court order, bankruptcy, or proper foreclosure defense will delay or stop the foreclosure process. It can be costly for a mortgage company to file a foreclosure in a Kentucky Court if you fight it. Workouts are a good option for both the mortgage company and the homeowner to avoid the costs of foreclosure. However, if a real estate workout is not possible, a Chapter 7 or 13 bankruptcy is an alternative to save the home.
Are you facing foreclosure? Contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905