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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Saturday, January 23, 2010

We Listened To A Lender Go From Making Homes Affordable To Making Modifications Impossible

Strategic Default
I would not have believed this if I did not hear it for myself. I listened while a banks’ “home retention” representative refused to let a homeowner pre-qualify for the federal government program, Making Homes Affordable aka Home Affordable Modification Plan aka HAMP. THE LENDER’S REASON for the refusal: The home owner was “contesting” the foreclosure action started by the same lender. They would not accept his HAMP pre-qualification app over the phone. Mind you, the HAMP program let’s homeowners enter into a temporary 3 month lower payment trial period. During the trial period the homeowner sends the lender the required financial documentation in order to get a permanent modification. The application and approval for the 3 month lower payment trial period usually happens over the phone. The approval is given within minutes after a homeowner provides the lender with his or her income and expense info over the phone. Basically the lender’s “home retention” rep enters the income and expense info into a computer program…then POOF!!!...the home owner can be approved on the spot. However, in this case, the lender refused to let a homeowner apply over the phone because the homeowner hired a lawyer to defend the lender’s foreclosure case.

At times, people will ask me to conference in during phone calls with their lenders. In this case, Paul (name changed for privacy) asked me to assist him with a loan modification, so we called the lender together. It was America's Servicing Company, a division of Wells Fargo Home Mortgage. The “home retention" rep went through the standard verification procedures: name, social security, property address, & phone no#. Paul explained to the rep that he was in foreclosure. Paul told the rep that he was advised by his lawyer to call the lender for a loan modification. Paul then asked the rep about the HAMP program. The lender’s rep said “Yes, we provide modifications under HAMP, however you cannot apply over the phone because we were advised that you are contesting the foreclosure action.” Paul and I were totally stunned. I then asked “are you telling Paul that he can’t apply for the HAMP program and get an immediate 3 month pre-trial modification JUST BECAUSE he is defending himself in court” Initially, the rep said the software program would not allow Paul to apply. Then the rep got hung up on the word “contesting”. The rep tried to raise a distinction between “contesting” a foreclosure and “defending” a foreclosure. The rep implied that Paul was trying to claim he “should not be in foreclosure” that’s why Paul is “contesting” the foreclosure. The rep kept asking “Are you trying to say ‘you should not be in foreclosure’”...

Now let’s cut to the chase. It is clear that the lender’s “home retention” rep didn’t truly understand what was going on. Why would the lender deny Paul this option for a loan modification? Why would the lender’s be advised about defending a foreclosure case? What does it mean to “contest” a foreclosure and why does it affect Paul’s ability to apply for HAMP over the phone?

These are my thoughts: The lender wanted to discourage Paul from aggressively defending the foreclosure. It always benefits a homeowner to defend a foreclosure case, even though they owe the lender money. When a homeowner defends a foreclosure case, they invariably gain some leverage and extra time. There are more courts requiring mandatory settlement conferences between homeowners and lenders thus this creates pressures for settlement. It becomes a time consuming, costly affair for the lender. It comes to mind that phone conversations are recorded, so perhaps these recordings can be admissible in foreclosure cases? What if Paul said to the rep “I am not contesting the foreclosure” or “Yes, I should be in foreclosure, I owe you the money”.

If Paul were approved over the phone for the 3 month pre-trial modification, then the foreclosure action would be stalled. Most important, Paul could tell the judge he received a 3 month pre-approval and he expects to receive a permanent modification. This flies in the face of the abysmal record regarding lenders and HAMP. Beginning March 2009 up to including December 2009, there were 787,231 homeowners in a pre-trial period and only 66,465 homeowners with a completed permanent modification. Hmmm let’s see, what if the lenders collect monthly payments during the trial period and the homeowners ends up not receiving a permanent modification. What’s 787,231 homeowners times $1400 per month mortgage payment? That’s about $1.1 billion a month. Now let's multiply that by 10 months. You do the math and read between the lines.

I wonder how lenders treat homeowners who DON'T defend themselves in foreclosure. Are lender's denying the 3 month pre-trial mods to these homeowners? Hmmm.

I want to add that the “home retention” rep was respectful to Paul. In fact, I believe that this rep believed that his employers’ policy was wrong. He was sympathetic and supportive, however he had to do what he is ordered to do…he had to do his job.

At the end, Paul was unable to get the 3 month pre-approval, so Paul will bring it to the judge.

Now you know so take control.

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