This is an article I found this morning.
Seven months after the Obama administration instituted its mortgage modification program for troubled homeowners, many qualified applicants are being rejected due to bank errors and have no legal recourse to dispute the decisions, according to the Associated Press.
The problem is likely to worsen, too, as unemployment continues to rise, defaults increase and servicers add more distressed borrowers to their work volumes.
As DS News reported Thursday, the data provider RealtyTrac reported a record pace of foreclosures in the third quarter, leaving the U.S. on pace to see 3.5 million foreclosures this year.
“If the servicer messes up, even by accident, there is no meaningful way to complain, no real appeals process, no viable ombudsman to consider,” Kevin Stein of the San Francisco-based California Reinvestment Coalition otld the AP. “Most importantly, there are no consequences to the banks for failure to do what they have promised to do.”
The AP cited the case of Towana Gooch, a single mother in suburban Maryland, whose lender took her house and listed it as a foreclosure sale after a 7-cent error invalidated her application for a loan workout under the federal government’s Home Affordable Modification Program.
Only after an inquiry by the AP did Gooch’s bank, America’s Servicing Company – a division of mega bank Wells Fargo & Co. – apologize for the misstep and put a hold on the foreclosure sale.
Gooch was initially told by the bank that she qualified for a loan modification when she lost her job as a recruiter earlier this year. Under the plan offered to her, Gooch’s monthly mortgage payment was to be cut by half to $938.
“I was so confident in this that I didn’t make a plan B or C,” she told the AP.
But the bank abruptly canceled the agreement after the first payment. She had authorized an electronic debit payment of $938. The problem: Her monthly payment was supposed to be $938.07.
Her failure to pay the full monthly balance on time disqualified her from the modification program, the servicer said.
It’s unclear just how many borrowers might find themselves in the same bureaucratic purgatory as Gooch, chiefly because the government hasn’t been keeping track of rejections caused by typographical errors, lost mailings and faxes, or surly or untrained customer service workers.
But given the sheer volume of applicants, the Treasury Department told the AP, far too many borrowers are being disqualified from HAMP for the wrong reasons. The department recently instructed government-sponsored mortgage giant Freddie Mac to institute a “second look” auditing process for banks and lenders under its lending purview.
That effort has led to a review of roughly 1,000 case files every week, said Meg Reilly, a spokeswoman for the Treasury.
“In every reported case of eligible borrowers being denied modifications, we worked with the servicer to correct the problem,” Reilly said.
Yet Freddie’s guaranteed loans represent only a portion of those in the modification pipeline, and it’s an open question how many rejected borrowers will report their experience to anyone besides the servicer who rejected them. The Treasury has a special hotline for urgent appeals, the AP reported. But that number is known only to a handful of government-approved housing counselors.
Now, the administration is taking a tough stance, requiring lenders to set up their own appeals processes and be able to explain why a given borrower was deemed ineligible for assistance. Those who fail to do so could face financial penalties.
For their part, lenders and servicers say the workload is just too massive to preclude honest mistakes. Wells Fargo, the parent of Gooch’s loan servicer, said it had hired nearly 6,000 new personnel as applications reviewers this year alone, and it had instituted a new appeals process.
That process was the one that kicked in for Gooch after the AP called on her behalf. America’s Servicing Company froze the sale of her home and returned a monthly payment to her pending review of her case file. She says the company told her they’d likely reinstate her modification at the review’s end.
Not that it comforted her much.
“I still want to see something in writing,” she said.
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