Loan Modifications – I Wouldn’t Do It
As a result of loan modifications, there are a number of federal lawsuits filed in Boston accusing major lenders of breach of contract under the government’s Home Affordable Modification Program, where these banks agreed to participate as part of the bank bailout.
The lawsuits state the banks agreed under HAMP to give permanent mortgage loan modifications to borrowers that make all payments during the trial loan modifications process.
Shennan Alexandra Kavanagh, an attorney, stated that several of the plaintiffs have lost homes after their loan modifications payment went back to their original amount that they were unable to pay in the first place. She said she believes that tons of borrowers in Massachusetts alone could be covered by the suits if they are given class-action status.
Kavanagh said a lawsuit was consolidated this month, against Bank of America Corp., that had similar complaints in five other states regarding the loan modifications process.
In an email, Shirley Norton a Bank of America spokeswoman, said that B of A will continue to aggressively defend itself against the cases.
Needless to say, additional lawsuits have been filed against other lenders elsewhere in the country that have offered loan modifications.
Are Loan Modifications – Big Business?
In San Francisco, the Housing and Economic Rights Advocates legal services group sued Chase. The orginization accused Chase of profiting from collecting payments during long trial loan modifications that wound up in foreclosure.
“They’re participating in the crisis they had helped to foment by refusing to honor loan modifications they had already agreed to,” said attorney James C. Sturdevant.
A professor at Louisiana State University’s school of business, Joseph R. Mason, which has extensively written on the subprime lending fiasco, said he thinks the problems from loan modifications are a legacy of the federal government’s rush to stop the flow of foreclosures prior to having proper plans in place.
“These policymakers said, just go out and do this.. let us worry about the details,” he said. “These details are now what are coming to the fore in these modification cases.”
Loan Modifications – Process Error?
Laurie Maggiano, policy director at the Treasury Department’s Homeownership Preservation Office, said the lending institutions were encouraged to offer trial loan modifications based on interviews with homeowners about their incomes and expenses while they went through the paperwork to qualify for permanently reduced mortgage payments.
Maggiano said that the banks were under no obligation to grant permanent loan modifications until this June, which is when new regulations stopped loan servicers from offering the trials based on stated income.
Now incomes and other details are being completely verified prior to the trial periods, and borrowers are preapproved for permanent loan modifications as long as they make three trial period payments, she said.
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Do They Really Help? Loan Modifications