Monday, November 1, 2010

Loan Modifications Are A Joke

Recently, it has come to my attention that loan modifications are a joke.  While government-sponsored loan mod programs like HAMP occasionally work for some borrowers with smaller loans held by Fannie and Freddie, most borrowers continue to get the shaft from the banks.

A recent predatory practice is emerging whereby banks will put a borrower on a trial plan to do a loan mod, then collect 3-4 monthly payments in the course of the trial period, and then, 4-6 moths later, will DENY the loan modification.

There are many reasons for this, the most prominent being that it is often more advantageous for a bank to foreclose than to modify. How can that be?  Well, most loans originated and crammed down the consumer’s throat during 2001-2008 were actually designed to fail.  They were sold my middlemen originators who tricked the homeowner into the biggest (and riskiest!) loan possible while tricking investors into the buying the riskiest financial paper backed by such maxed-out-income loans. Of course, they did not forget to include mortgage insurance, paid either by the lender or the borrower, or both. So now, the middlemen originators and servicers collect on the insurance when you default, then take your property by foreclosure.  Isn’t that the greatest scam the eyes have seen?

Anyway, not all is lost for consumers. Since the same infamous 2001-2008 loans were almost impossible to concoct and implement without violating at least some laws (state and federal), there is hope for the tricked homeowners.  It’s called a “forced loan modification.”  Such a forced loan modification is done by going to the bank’s legal department instead of their useless "loss mitigation" department.

You go to the legal department and put them on notice that your loan was issued with x, y, z violations of state and federal law entitling you to xxx thousands of dollars in damages and possibly the right to rescind (cancel) your loan.  Then, you either sue the bank and get your damages or you just settle with them by obtaining a forced loan mod on YOUR terms.

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