Mortgage Modification Mixups

My law partner, Rick Mitchell, and I are disgusted by the false promises and abysmal performance of the nation’s mortgage lenders who claim to be participating in the “Making Homes Affordable” program.  Homeowners were lured into this program with the expectation that they would get an answer within the “modification period” (usually 3-6 months) and that their credit would not be impacted by participating in the program.

With a nod to the NYT for the graphic above, the Obama administration’s $75 billion program to protect homeowners from foreclosure has done little more than prolong the pain for homeowners and forestall the reckoning for lenders.

As for credit scores, we had a client come in this month with a notice from their homeowner’s insurance company that, after 22 years of being insured with the same company, it was placing them in a high risk pool of insureds. Their new annual premium will be 18% higher than  last year’s. The client has been making “partial mortgage payments” as conditioned by the mortgage company  for the past six months and this hurt their credit score, which is a leading variable in how insurance companies price coverage. This client also reported that, despite making the agreed partial payments on time in full and sending all requested documentation to the lender, the mortgage company has lost that documentation twice and begun threatening foreclosure. What a mess.

The real scoop

We see clients in our offices weekly who were given false hope that the mortgage company would move quickly to modify their mortgages only to find their credit ruined and their homes foreclosed upon.

A fair majority of these homeowners would have been better served to stop paying their unaffordable mortgage and lived in their homes until they were foreclosed upon. Rather than remitting substantial monthly payments to their lender over a period of months (sometimes in excess of a year) in order to explore the possibility of modifying the mortgage(s) on a home that they ultimately cannot afford, these clients now tell us that they wish they’d never started down the modification road — and had instead used those monthly payments to save for a security deposit on a rental, pay for medical bills, etc.

A consultation with a good bankruptcy attorney may give you the context you need to decide whether mortgage modification is a viable option.

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