Home Loan Modifications – Aid or Scam?
- by Vince Meehan Editor, Mission Valley News(Mission Valley News, San Diego, CA) – Southern California has been hit hard by the housing crisis and many San Diegans are in danger of losing their homes to foreclosure if that hasn’t happened already. Many homeowners have enrolled in loan modification programs offered by their banks in hopes of reducing their monthly mortgage payments to an affordable amount. These programs were enacted at the request of the government as compensation to the American public who’s taxpayer money was used to bail out these large banks in 2008 as a result of the Emergency Economic Stabilization Act. But people in the programs have had no success in lowering their payments, and feel as if the banks never had any intention of modifying loan payments from the beginning.Echoing that sentiment is attorney Jason L. Jones of Avatar Legal, P.C., who sees a lot of the misery endured by homeowners as a bankruptcy specialist. Jones contends that the banks have no incentive to modify loans, so they don’t. Since the mortgages are bought and assigned to a trust outside of the banks, they do not suffer if a foreclosure happens. Indeed, it is more profitable for the banks to foreclose on property because of the fees and surcharges involved, typically around $30,000 per foreclosure. Anytime property changes hands, fees are paid to all sorts of companies such as appraisal, title, and escrow. And many times, these companies are actually owned by the banks, so everybody makes out. It creates a situation where the banks actually try to force foreclosure instead of modify the loan. So the homeowner loses as well as investors of the trust which often includes groups like public servant unions and teachers unions who invested into the trusts as a part of their pension programs.What bothers Mr. Jones is that if you do apply for a loan modification, the banks will start the foreclosure process at the same time. Jones says that these two processes occur “parallel” to each other, happening at the same time. And the homeowner is not aware that the foreclosure process has begun. He says many people hold off on paying their mortgage during this process, and the banks start piling up late fees that return to haunt the homeowner.In 2009, the government created the Making Homes Affordable program which was supposed to create relief for homeowners in danger of losing their homes. Underneath this umbrella is the Home Affordable Modification Program known as HAMP in which banks were supposed to streamline the modification process. But participation in Making Homes Affordable is strictly voluntary for the banks and there is no penalty for refusing to participate. That aside, homeowners are reporting that even the banks who claim to be participating in the program are not serious and play games instead.In the loan modification process, the banks create a win less scenario where countless forms are filled out, receipts mailed in, and then promptly lost by the banks. The process is drawn out over time and the foreclosure clock is ticking the entire time. The sentiment is echoed by countless homeowners who have applied for loan modifications to no avail. Indeed, finding a homeowner who has actually succeeded in a loan modification is impossible. Stated one homeowner, “Whether they are calling it HOME, HOPE, or HAMP, the loan modification program is a complete joke and a lie to the American people.” As the National Taxpayer Union puts it, “HAMP has proven to be a colossal failure that has done more to harm than help debt-laden homeowners.”This frustration has led to public anger that has manifested itself in public demonstrations such as Occupy Wall Street and Occupy San Diego. Lorena Gonzalez, Treasurer-Secretary/CEO for the San Diego and Imperial Counties Labor Council recently organized a rally downtown for “Withdrawal Wednesday” where citizens were encouraged to withdraw their savings from large national banks as a protest. She says that after the bailouts, banks hoarded the money and did not use it to help ease the mortgage crisis as promised. So she and others across the county asked people to withdraw money from large national banks and deposit it in local credit unions. Said Gonzales, “After the bailout, the banks continued to foreclose on homes and CEOs got huge bonuses. This fueled the anger that resulted in “Occupy Wall Street and Occupy San Diego.” She added that these foreclosed homes also began to create blight in neighborhoods, so this even effected homeowners not involved in foreclosure.Gonzales is currently trying to pursue legislation that would fine the banks of foreclosed homes for any code violations, but that it is currently stalled in committee. Gonzales said that the banks don’t like the legislation, and the banking lobby is is even more powerful than the union lobby in Sacramento. Mission Valley News asked Gonzales if she was aware of any of her constituents who achieved a loan modification, and she said she could not think of any who were successful. Mission Valley News could not find one example of a successful loan modification.But even if you do qualify for a loan reduction (which is a feat in itself) and jump through the hoops laid out by the banks, you run a good chance of having your payment actually increase as a result. In many cases, one of the terms of beginning a loan modification is to pay into an “escrow fund” where the banks pay off your home owners insurance and property taxes in advance. This actually makes your payment far more expensive at a time which couldn’t be worse. Failure to pay this escrow will result in late fees and default.Jason Jones says “Right now, the loan modification process goes hand in hand with the foreclosure process because most banks will not consider a loan modification unless the borrower is in default. The homeowner has to stop paying on the mortgage before the bank will talk to him. Only then is he allowed into the modification process. Meanwhile, the bank begins increasing the amount owed by the homeowner by tacking on late fees and penalties, will start making collection calls, and will decrease the homeowner’s credit score. The bank will also file a notice of default, which is the first step in the foreclosure process.”Jones adds “Being in the loan modification process prevents the individual homeowner from facing the actual underlying problem which is the need to move to more affordable housing. As a result, the affected homeowner makes poor decisions and their emotional and physical health can suffer as a result of the false hope offered by a bank’s home loan modification program.” The message he wants to get out is the futility of loan modifications and the reality of foreclosure which is inevitable. Jones says that as a bankruptcy lawyer, his issue with the loan modification programs is the false hope that they create. He said it would create better financial health as well as mental health if the homeowners knew the truth about losing their homes.