The Modification Movement

Mortgage News

Mortgage Daily Staff

                                                 May 6, 2009

U.S. lawmakers have been busy hearing testimony on loan modifications, killing a cramdown amendment and passing legislation that would protect servicers that modify loans. Meanwhile, servicers and service providers are positioning themselves to capitalize on the federal modification plan.

HOPE NOW reported last week that 134,000 modifications were completed on U.S. loans during March, unchanged from the prior month. But volume soared from March 2008, when 59,000 loan modifications were completed.

March activity included 90,000 subprime modifications, easing from the prior month’s 91,000. Prime modifications rose to 44,000 from February’s 43,000.

A report from Lender Processing Service indicated that loans where only the term and the rate was modified have a default rate near 70 percent after nine months. But the re-default rate was less than 50 percent on loans where the rate, term and unpaid principal balance was modified. LPS noted that principal forgiveness is occurring in a rising number of cases.

By a vote of 91 to five, the U.S. Senate Wednesday passed S. 896, Helping Families Save Their Homes Act of 2009, a Senate statement said. The bill shields mortgage servicers from liability for completing loan modifications or executing loss mitigation plans if they are in compliance with the fiduciary duties required by the Truth in Lending Act.

But the American Bankers Association praised the Senate’s defeat of a cramdown amendment to the Helping Families Save Their Homes Act. The bill would have given bankruptcy judges broad authority to modify mortgages.

“We have consistently maintained that allowing bankruptcy judges to arbitrarily rewrite the terms of a mortgage contract — including allowing them to reduce the amount owed on a mortgage, change interest rates or stretch out the terms of the loan — would bring additional risk and uncertainty to an already volatile mortgage market and would make home loans more expensive and less available for consumers,” an ABA statement last week said.

However, the American Association of Retired Persons wasn’t so happy about the outcome.

“There is no adequate argument to deny bankruptcy judges the flexibility to reduce primary mortgage loans for homeowners on the brink of disaster in the middle of this recession,” AARP said in an April 30 statement. “As continuing job losses and ever higher medical costs force more people into bankruptcy, simple common sense demands improvement in the bankruptcy process to help them remain in their homes.”

In written testimony yesterday for the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services, Federal Trade Commission Associate Director Peggy Twohig touted many of the same actions against loan modification firms that the agency has previously announced.

Also testifying at the Legislative Solutions for Preventing Loan Modification and Foreclosure Rescue Fraud hearing was Mortgage Bankers Association Chairman Robert E. Story Jr.

“Their scams start with a phone call, a mailing or an advertisement promising help,” Story said. “These scammers are difficult to distinguish from organizations offering real help. They even use similar names. They are all designed to achieve one thing and one thing only: to lure a person who is desperate for help.”

Anna Santos plead guilty to collecting around $300,000 from 100 delinquent borrowers for loan modification services that she never provided, California Attorney General Edmund G. Brown Jr. announced Friday. She allegedly obtained a fictitious business permit for “Payment Processing Department” then opened several bank accounts and two post office boxes under the same name. She mailed flyers in envelopes entitled “final notice” that appeared to be from the lender or a government agency.

But Santos then sent borrowers bogus documents that suggested the lenders had been notified. Borrowers were informed that they had been placed in a “probationary” program and told to send their payments to the fictitious business.

GMAC Financial Services said in its first-quarter earnings report that it formalized its participation in the Home Affordable Modification Program. So far, GMAC has distributed around 100,000 financial packages to borrowers who are potentially eligible for modifications under the program.

In PHH Corp.’s first-quarter earnings report, the company said it would also participate in the federal modification program. Its current pipeline of agency loan modifications is around 7,000, and it expects to complete its first modification this month.

ServiceLink said Monday that it is providing loan modification services for servicers utilizing the Homeowner Affordability and Stability Plan. Servicers can obtain immediate title decisions at significantly reduced costs.

In a statement Tuesday, Federal Loan Modification Law Center said modifications are becoming a standardized commodity that banks are beginning to treat as a commercial component of their businesses. Negative equity is being addressed, and borrower spending habits are being analyzed. But third-party rights are becoming increasingly problematic for the modification movement.

A May 4 press release from Homeowner Stability Loan Modifications claims the company deals directly with servicers’ legal departments and helps protect the legal rights of borrowers.

United Law Group said in an announcement Tuesday that it successfully negotiated a lower interest rate for a seriously delinquent New York couple.

Specialized Financial Solutions LLC issued a press release Wednesday explaining the Obama administration’s modification program and criticizing the plan for not forcing lenders to forgive loan principal.

Questions about the business practices of Green Credit Solutions prompted MFI-Mod Squad LLC to investigate the California loan modification firm. But after satisfactory findings, MFI said it gave Green Credit its “seal of approval.”

Mortgage Daily Staff

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