Mortgage Modification Success Ratios
A congressional and other studies show that in 2010 4% of homeowners were served with foreclosure. 250,000 foreclosures were started each month in 2010. Only 100,000 went to sale. Servicers allows the other 150,000 to slip further into default, increasing mortgage arrearages, collection and attorney fees charged. Fees are guaranteed by mortgage companies or insurance and it is the way business is done by servicers to make money from default.
Reasons for Foreclosure
Mortgage modifications under HAMP stopped less than 10% of the foreclosures. Banks and servicers generally don’t make deals that won’t increase profits. The facts from congress show:
- Servicers, can make more money from collection and foreclosure than modification;
- Mortgage companies and government pay servicers for modification processing but servicers are not held accountable when modification applications are lost, or reprocessed (and application processing fees are paid again).
- Servicers can go through the mortgage modification process and be paid multiple times and then still be paid from the foreclosure.
Mortgage Modification Results
A third of trial modifications became permanent. This peaked in October 2009 at 160,000 and dipped to 23,000 in December 2010. The first year after modification 21% of permanently modified mortgages defaulted. Defaults were predicted to grow to 40% in five years (2015) years, in part due to interest rates increases. This insured later defaults and allowed servicers to bill twice. Successful modifications reduced the interest rates from a median 6.63% to 2.0%. These modifications extended the length of mortgages 57% of the time, 30% deferred principal to balloon payments, only 3% reduced principal. 95% of permanently modified mortgages have less equity than before modification and most decrease the rate equity increases in property.
Success ratios are Wachovia’s 89%, HomeEq 95%, Bank of America (which took over Countrywide) 30%. The more predatory loan programs were, the worse performance is. 30% of trial modifications were canceled due to incomplete documents. Many were probably lost intentionally because foreclosure is more profitable and actual figures may be worse than what is reported. 21% of trial modifications went into default, 8% are canceled with no reason.
HARP replaced HAMP in 2013. Hamp ended 12-30-2012. Here are the Hamp Mortgage Modification, FDIC Foreclosure Modification program and 2010 HAMP guidelines. HAMP or HARP modifications can be done during bankruptcy but homeowners in foreclosure need to make a choice to either:
- 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.
HAMP mortgage modifications normally fail after modification. Not filing a Chapter 13 early, increases monthly payments in Chapter 13 sometimes making Chapter 13 unaffordable and insuring home loss. Loan servicers (collectors) make fees from servicing (billing) mortgage company loans. 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 charge.
The method to combat the problem seems to be filing CFPB complaints and documenting your application process so when you file an answer and discovery in a foreclosure you can bring defenses to show the servicer negligently handled your application.