The History of Mortgage Modifications

Congressional and other studies show in 2010 4% of homeowners were served with foreclosure. 250,000 foreclosures were started each month in 2010.  Only 100,000 homes sold.  Servicers allowed the other 150,000 to slip further into default.  Delaying foreclosures increased the late charges, collection and attorney fees they collected. Mortgage companies and insurance guarantee the fees charges by servicers.  Charging late fees is how servicers make money from defaulted mortgages. Homeowners and taxpayers ultimately pay the costs.

Reasons for Mortgage Modification Failure

Mortgage modifications under HAMP stopped less than 10% of the foreclosures in 2010.  Over the years it has not improved. Banks and servicers don’t make deals which lose money.  By lowering the interest rate, they have to make up profits by taking away the equity you have.  The congressional studies show:

  1. Servicers can make more money from collection and foreclosure than modification. But they make the most money from both;
  2. Mortgage companies and the government may pay servicers for modification processing.  Servicers are not held accountable when modification applications are lost, or reprocessed.  The servicers are simply paid twice when they lose your application.
  3. 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.  The number of modifications 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. Defaulted modifications grew to 40% in five years (2015).   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%.  These modifications extended the length of mortgages 57% of the time. 30% of the time they deferred principal to balloon payments, only 3% reduced principal. 95% of the permanently modified mortgages had less equity than before modification.  Most of the modifications decreased 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 applications were probably lost because foreclosure is more profitable. And the actual figures may be worse. 21% of trial modifications went into default, 8% canceled with no reason given.

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 ModificationFDIC Foreclosure Modification program and 2010 HAMP guidelines. HAMP or HARP modifications can be processed during bankruptcy.  But homeowners in foreclosure should choose 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.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 keep a home and to own it the best answer seem to be catching up the mortgage in Chapter 13.
  • Mortgage modifications often fail after modification. Not filing a Chapter 13 early, increases the monthly payments in Chapter 13 sometimes making Chapter 13 unaffordable and ensuring home loss. Loan servicers (collectors) make fees from servicing (billing) mortgage company loans. It is not in the best interest of servicers for the homeowner to be current. The longer you are in default, the more fees mortgage servicers, and foreclosure attorneys charge.
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Nick C. Thompson

Nick used to work for the banks before he went to law school.He was married to the president of the Mortgage Bankers Association and worked in the state tax department as a prosecutor.He was also the assistant county attorney in Bullitt County.
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