Loan Modification, Fact or Fantasy

A recent article, Mortgage Modifications not Happening, published in a blog sponsored by Public Citizen, a nonprofit consumer advocacy organization, points out just what the title implies. Lenders are making promises that they will modify loans to prevent foreclosure but they are only making promises, not loan modifications. Based on analysis of a Countrywide Home Loans pool, the author shows a loan modification rate of less than 0.1%. There were four loan modifications in 4,123 mortgage and nearly a thousand delinquencies.

Some other lenders are doing better than Countrywide in terms of percentages but the numbers of loan modifications are still too low to constitute a trend. Foreclosure seems to be the remedy of choice for most loan servicers despite the fact the foreclosure alternative increases losses for the investors as well as the borrowers on many of the loans.

I am currently trying to work with Countrywide Home Loans to resolve a default situation for a client who is in Chapter 13 Bankruptcy and who can not afford a substantial increase required by the loan documentation. When I first called the “hotline” telephone number published by Countrywide for loan modification, it turned out to be nothing more than their regular customer service staff and I was told they will do nothing with a loan when a bankruptcy is involved. The lawyer I am now working with has told me that he is trying to develop a procedure with Countrywide for cases like mine.

It may be that Select Portfolio Servicing, the subject of a successful consumer class action in 2003 when it was called Fairbanks Capital Holding Corp. is miles ahead of mega lender Countrywide Home Loans. I called them last week to discuss a loan presently in foreclosure. Within minutes, I was connected with a man whose job it is to solve problems for loans involving borrowers in bankruptcy. My client had not yet filed a bankruptcy and may not have to file a bankruptcy to resolve his problem. I was promised a loan rehabilitation package within a few days and it remains to be seen what sort of proposal we can fashion. However, I was told that an 8% fixed rate on a loan with a current adjusted interest rate of 11.3% and a lifetime maximum interest rate of 17.5% was possible.

At this point neither Countrywide nor Select Portfolio Servicing has solved one of my client’s problem loans. It will be interesting to see if it is the former “bad boy” lender that has a “happening” loan modification program and not the former leader in loan innovation, the now paralyzed Countrywide.