Modification of Loans - 5 Pathways to Madness

Is the Home Loan Modification program working in America today?

Homeowners in trouble are having somewhat dismal results when it comes to processing their applications to prevent a possible home foreclosure. Our readers tell us their challenges and their specific hurdles in their attempts regarding modification of loans.

What are some of the pitfalls in the process?

1: The fax machine

Virtually all of the lenders participating in the administration's mortgage modification program require that homeowners fax in their applications and supporting documents. And if you have ever used a fax machine we all know how fun that can be. It reminds me of the movie Office Space when they took the office equipment out to the field and pummeled it with a bat. I know you want to do it too!

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More times than not your stuff is routed to what is known as the "black hole". That is where the institution files your stuff until you call again. If you are one of the fortunate ones that made it to the loss mitigation department, the next thing you will probably face is the bad news that the information is cut off at the top or bottom. Also, the loan mitigation staff frequently give people disconnected or incorrect numbers.

I always wondered why they are using such an antiquated means of transmitting a large amount of documentation. I think a stone and chisel would be more effective. Wait a minute... I think I am on to something here.

These loan workout institutions know there is a better way to develop a system. This new system would include an on-line portal that would create a leap forward in efficiencies for this industry. Mortgage modification departments state that since this program was setup up so quickly no one had time to tool up properly. If you believe that, I have some very nice swampland for sale.

The fax isn't the only source of pitfalls. Homeowners and housing counselors complain of endless waits on hold, lost paperwork, and incorrect information from customer service representatives.

Many of the pitfalls stem from how quickly the programs were set up, experts said. Mortgage modification departments often have 90 days to set up new programs. It is true they only had a short period of time to setup these programs. The counterargument is that enough time has passed to setup systems to process the modification of loan requests.

"The program has been done somewhat on the fly because it's a crisis situation," said Paul Leonard, vice president for government relations for the Housing Policy Council.

2: Confusing Forms

Institutions are required to provide different paperwork depending on whether the borrowers' loan is owned by Fannie Mae or Freddie Mac. On top of that, many institutions have also developed their own applications, forms, and processing requirements that are throwing a lot of wrenches in the gears.

It is rarely understood from any of these loan workout departments what they really need. They may tell you to give them a recent pay stub and then tell you they actually need two. The next company may tell a homeowner that to is insufficient. It all depends on which institution you are dealing with and what their documentation requirements are on any given day.

This confusion is leading an already stressed out borrower to the brink of giving up. Even legal professionals find this to be one of the greatest challenges in the process since there is no unity within this industry.

3: Unacceptable Documentation

Anyone who has been through this process or is currently in process knows that there is a high probability that you will have to resend documentation multiple times because of being told that the originals have "expired." The reason for this is due to the fact that it can take weeks

for workout departments to process applications and documentation can become outdated quickly. You were probably then told you need to send in current documents, often putting you to the back of the line.

4: No Training

Due to this large wave of applications for modifications of loans, loan modification staffs have been unable to adequately train their new staff and deal with the thousands of applications.

Our readers know that counselors and modification specialist are woefully ignorant of the program details and this just adds fuel to the fire in the relations between bank and homeowner. Our readers commonly tell me that every time they call in to find out what the lender is doing, they get different answers every time. One constant in the chaotic process of modification of loans is that everyone I now of is being told that they won't do anything if they are not at least a couple of months behind in payments. I find that ludicrous at best.

5: Deceptive Offers

A lot of applicants for the programs are receiving trial modification offers without ever sending in an application. This is because lenders are selecting certain specific loans in their portfolios and extending offers to those who meet their criteria.

Are they really?

Those who receive these offers may not fully understand the terms and conditions they have been presented with by their lenders. Many homeowners don't know what to make of the offer and simply file it in the trashcan. Hey... At least we are starting to make some good decisions.

Most of these offers are not an actual modification of loan terms that will result in a reduced interest rate and possibly loan principal reductions, but merely a repayment plan. That is not a good deal. It has been demonstrated through various studies that the re-default rates are too high under these conditions. Let us look at this logically now. If you can't afford the payment today how are you going to make the same or higher payments in the future?

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