Mortgage Modifications
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New Appeals Process for Loan Modification Applicants

(Oct. 22, 2009) Last month the government announced enrollment of approximately 500,000 prospective borrowers in its trial modification plan under the Making Home Affordable Program which applies to loans falling under the Fannie Mae or Freddie Mac umbrella. Through the program, the loan servicer is paid a small subsidy or fee to complete the loan modification paperwork for the borrower and works with the mortgage investors. Though the reported federal subsidies are in place to promote loan modifications rather than proceeding with foreclosure, months after implementing the program it appears that many potential borrower's who should have qualified under the program, are being wrongly denied modifications of their loan. Frustrated, after months of waiting and jumping through hoops during the modification process, many borrowers are often denied without any explanation and without a means thereafter to reverse the lender's decision. This unsatisfactory outcome is about to change as the government has now recognized the problem and has begun requiring that lenders justify in some cases why they are unable to comply with the program's guidelines in approving a borrower's modification request. Because no one has been tracking the number of denials or requiring an explanation behind unfavorable decisions, it is difficult to determine how many potential modifications have been unjustly denied. However the Treasury Department firmly believes that far too many potential loan modification applicants have been wrongly denied when many in fact have qualified under the program guidelines.

To combat the problem the government has now requested that lenders establish an appeals process for loan modification applicants who have been denied. The GSEs have also been enlisted to help by setting up a system to audit denied modifications through a second look program. Furthermore, in an effort to enhance program metrics, the government is asking lenders who participate in the Making Home Affordable program to report why seemingly eligible borrowers have not been permitted to participate in the program and why they have not been offered a modification of their mortgage. Treasury has also taken the added step of setting up a hotline for government approved housing counselors to use in an effort to facilitate the process in the most pressing modification cases. The government is hoping to further incentivise lenders in their modification efforts by implementing harsh penalties upon lenders who deny modifications for applicants who should have otherwise been approved under the program's guidelines.

Nancy Osborne, ERATE.com Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.