I am sooooooo glad that the government is finally shutting these scam operaors down. There are still a lot more loan modification firms to shut down here is Souhern California.

I am representing a distressed buyer in a pre foreclosure action. He has a $330K mortgage on a property probably worth $210K maximum.

When the loan was made, the buyers income was misrepresented, and to my mind a bogus appraisal was thrown into the mix as well.

In negotiating with the bank, I've argued that the buyer is a gainfully employed, tenured, public school teacher with an income of $60K, and so rather than foreclose on him, better to modify the loan amount. (The Buyer also has no other significant debts.)

For whatever reason, the bank has categorically refused to do it. Why? I don't know, but a loan modification here would be prudent loss mitigation -- saving the bank the time and money spent on foreclosure and then reselling the home for a figure -- in all probability -- of less than $200K.

The bank doesn't seem to realize its own mistake of making a bad loan, unsupported by either the buyers income or the market value of his home. (Even at the height of the market, the value of his home never would approach $330K.)

This story is really not on point with the thread, but I think it would be interesting if the SUN did a little research and surveying on why banks refuse to modify bad loans, a practice which arguably cuts the distressed homeowners out of the federal bailout equation.

Note: I've undertaken this act as a part of my pro bono legal practice.

Thanks for the suggestion, smithbaltimore. I get the sense that there's still not a lot (relatively speaking) of loan modification going on -- at least not of the sort that permanently decreases borrowers' monthly payments.

Anyone with personal experiences out there?

I probably need to be more clear. The bank first modified the loan from an 8% loan to a 5% loan. Now its offered to lower his interest rate to 2.5% for one year.

Neither offer addressed the core need for a principal reduction. The bank here either needs to foreclose or it needs to write down the principal. The homeowner with a $330K loan is both underwater as a matter of income and as a matter of real estate.

If we don't get a principal write down at some point, the owner will have no choice but to walk away -- a move that will contribute to a downward trend in real estate prices and to a larger loss for the bank as it must foreclose on the home.

This owner, BTW, did get calls from hucksters saying they could save his home for a fee, and citing laws that did not validate their claims.

Thanks for the additional information. Looking back at your original comment, I do see now that you were talking about a principal reduction as opposed to, say, an interest-rate cut.

Bank statements and prior years taxes is a requirement to obtain any loan. Over inflating income by three times is an impossibility unless the homeowner also lied to the IRS and paid more in prior years taxes. So that's a far fetch idea to pay more in taxes to buy an over qualified home. Principal reductions wont ever happen. Keep in mind the lender has a default insurance policy against the home which you pay for.

Loan modifications, if your lucky to get approved, to me only releave them from the crime of fraud by resigning the terms.
Stated and no doc. loans doesn't cut it for an excuse. Again they had the bank statements and taxes to work with. Lying about debt is one thing but inflating income is another. No one put a gun to thier heads forcing the loans to go through.

I think the reason that more modifications are not going thru is that the lenders are selling their loan portfolios to vulture funds buying them on the cheap.

It's just a guess, but I imagine it is easier to market these loan portfolios without having any loan in the package in a flux state of modification.

Just my opinion based on an article I read http://nationalmortgagenews.com/columns/hearing/?id=800

I'm trying to connect the dots because it really doesn't make financial sense.

I can not think of any other good reason to not modify if the lender is going to lose money other than it getting in the way of a bigger deal.

Anyone else want to make any assumption or opinions as to why?

This is just my opinion, I'd sure like to hear a better more researhed answer to SmithBaltimores question.

I for one would like to get to the bottom of it. There is more here than meets the eye, I can tell you that. Follow the money.

I applied for loan mod. in April from WAMU/Chase. Now it's July, no word. I call them weekly. They say my case has not gone in front of the modification assessor, or whomever...is it the loan mod. god? I ask when? They say they don't know and to be patient. Right. K.M.A. I paid $350 to my accountant to do a P&L statement because they needed one for past 6 months and 2 years of Tax Returns and 2 mos of bank statements AND their forms filled out. OK they got them in April. The whole thing is a sham.
I AM NOT LATE ON MORTGAGE PAYMENTS but when this started the rates were at 4% so I went for it. I am the person this program was supposed to benefit first. NOT those in pre-foreclosure. I am the perfect poster child for the proposed loan modification. Self employed,I am in a service business.I am a small woman owned, FED business and registered State of Maryland business AND a HUB zone. Does that matter? NO.
No delinquencies on bills at all. According to the statement as to who qualified for loan mod, in March when they first came out, I was qualified, no questions. NOW The trickle down of the recession has me scraping to pay my bills. I am renting out 3 bedrooms and sleeping on the couch. Fortunately, I can do that. I know how to live light. How to pay my car note and BOA bill ( they will not even discuss lowering my payments for 6 months until things improve...I asked them this week. evidently they do not believe I am renting out my rooms and selling my personal valuables to survive right now....) They want a year's average on monthly gross income to assess whether or not I can pay them. What does history have to do with the future? Nothing. Especially gross income. You'd think if I am paying bill now I could pay less next month and be appreciative. MOnday I see a lawyer. No money to pay him. Credit rating of 700 could go in the crapper if he suggests I go into chapter 13. This for someone who is not late pay on anything but it is just a matter of a couple of weeks. The payment people from car finance company calling me daily. First late pay is now...16 days behind on payment. Car is a piece of Korean crap anyhow. The programs supposed to be here to help are NOT here. It is a crock. I need a Pro Bono atty to give me the right advice and to help me. NOT a credit counselor. This week I fill the Korean vehicle with my possessions and hit the road to sell them to antiques dealers. What a life.

TSoCali, that's interesting -- thanks for the link.

WhatModification, I'm sorry to hear about your troubles. Have you contacted Civil Justice in Baltimore (www.civiljusticenetwork.org) to see if someone there can help or point you toward an attorney who can?

No Problem Jamie Smith Hopkins, I am glad to contribute.

I think that I am going to spin up a website with a forum and invite all of the HUD approved non profits and Loan Modification attorneys from each state to answer questions on the forum for people in need.

Hopefully, if it catches on, some answers will start to show themselves. Maybe time itself will allow this appeal by Middle Class American's for help to gain traction.

The only thing that makes me feel bad is in the meantime it seems people are getting foreclosed on at an alarming rate and no-one seems to be able to do anything about it.

I'm not in the camp that believes that everyone who signed up for a loan to buy in an inflated market is getting what they deserve.

To the contrary, I believe they were suckered in by hucksters trying to make commissions on mortgages, that the companies could package and sell off to the public investors on wall street.

How can something that sophisticated be the fault of the average Joe Home-Owner?

I am not buying into that argument and I am going to be an advocate for the people in need. I just hope that this scheme doesn't run so deep that I get into trouble tying to help. However, it is a cause worth fighting for. Thus, I'll get involved!

Fortunately, I can still pay my mortgage, but I too overpaid for my home and I feel I was tricked into it. I had no idea that wall street was creating a bubble the likes of which wasn't seen before in real estate in this country.

I used to read about home prices in other countries and I thought, (That is where I went wrong, thinking), that the US real estate market was just going into parity with the real estate markets in other developed countries.

How could I have known that this false bubble was being orchestrated on a global basis? It is not like I have the research staff of Golden Slacks aka (Goldman Sachs).

Anyway, If I get the site going, I hope that you will link to it.

Thanks again and good article.

Thanks, Jami. I will call them. WAMU/Chase should be sued, class action, for false advertising ( loan modification criteria) when they have not bothered to fulfill their end of the deal-NOT EVEN COMMUNICATED WITH ME AS TO MY STATUS. I WANT THEIR HEADS.

Time to send the loan modification vultures to jail. There is a related post at http://iamsoannoyed.com/?page_id=588

I'm so glad to see that something is being done to stop the companies scamming so many. This business happened to me, I didn't mean to be in it, but because of noone willing to help me without thousands of dollars up front I became very good at this business. Why, because of loan mod companies who wouldn't help me! I get calls everyday from people referred to me after being scammed by other companies, or not being given the kind of service they expected. It is about time that this industry is given a once over. There are good people out there like us, willing to help and ready to offer a shoulder. Now, what about cracking down on the lenders who aren't helping their borrowers? What about cracking down on the lenders who will sell a loan off to an investor for pennies on the dollar instead of giving principal reduction to the owner?? THAT is just as bad as the johnny come lately, previous secondary lenders of the past who now run modification businesses. We were not in the industry before, but boy the experience gave us an education not meant for the faint of heart. http://keeptheroof.com

Have you suggested a principal forbearence? Most companies will not write down the principal balance but will forbear a large amount to reduce the monthly payment. If your having trouble with your clients modification please email me at pronga@goodgrievance.com

It was about time that the government and the FTC issue a statement AND action like this. There are so many black sheep out there.

Please be aware and study the pdf file with the companies listed before you get too involved. Thank you from http://www.loan-modification-tips.com

Moe, I do not think you are qualified to take on business and if you knew about loan modification assistance you would have spoken with the negotiator that denied the file and got the reason for denial. Please stick to what you know and stop trying to help if you do not know what you are doing.

Federal regulation on loan modifications, although this process has just started, should have been done years age. The banks, underwriters and mortgage brokers help create the foreclosure crisis with their creative financing programs and lack of full disclosure to the consumers signing their lives away.

I think it's a fine time to start trying to fix the problem now when it could have avoided by bankers and underwriters following the loan guidelines that were in place to protect the consumers in the first place.

It was all about greed.

Every bank has a different approach to loan modifications and every bank's representative who will get on the phone and look at the screen in front of him or her will have a different approach to see your account and tell you what's going on with it as well. In most cases these reps who look at your files do not care if you were a straight A student all your life and all your other bills have been paid on time since you learned to write checks, all they want is to get your file out of their way. Think about it......Who are these so called loss mitigation specialists??? What kind of training do they have??? Not for nothing but the general public should be aware of who is looking at their particular cases, when they call to get an update or see if their loan modification package is missing any paperwork. I will say that from my experience most of these reps are not prepared to deal with these types of files and cases at all. Just the other day a good friend of mine called the bank to ask for status on a modification that has been on a trial period for about 4 months now after about 40 late payments and one rep told him that his file had been denied because the late payments exceeding over $100k, the rep was acting up like if my friend owed him the $100k.....My friend just hung up the phone and called again and got this other rep that really looked into the account and found out that there was a doc missing but the loan modification was never denied, he then called a few more times to double check and make sure that the second information was correct and it was...... Don't give up without a fight, do what it takes to keep your home....and if you can't at least keep it for as long as you legally can which in our NY, NJ area I have seen up to 6 years in some cases....