The Loan Mod Blame Game: It’s Borrowers vs. Servicers

by Nancy Osborne, COO of ERATE®

(Oct. 22, 2009) The Treasury Department’s Office of Homeownership Preservation will be reporting the results of the Making Home Affordable program’s trial loan modification efforts sometime in November or December. If the success rate of the program falls below expectations, look for some serious repercussions to follow. The loan servicers are very concerned about their performance level under the program and worry about the potential backlash if they do not meet expectations. Last spring the banking industry successfully fought off an attempt to give bankruptcy judges the authority to modify a homeowner’s mortgage terms, in what is frequently referred to as a “cram-down provision”, however if modification targets are not met, it is likely that this discussion could be revived.

The servicers claim that borrowers are the ones to blame in slowing down the process because they lack initiative and fail to follow through in their attempt to modify their mortgage. Borrowers who have initiated a loan modification do not provide all the paperwork necessary to complete the process and allow their trial modification to become a permanent one. Borrower motivation is frequently sited by the servicers as a key problem in getting them to follow through in returning calls and providing requested information in a timely manner. However borrowers frequently site their frustration with the servicers in getting them to respond and complaints run rampant that simply getting someone in servicing on the phone to help them is next to impossible. Lenders and servicers alike appear to be understaffed and the current staff is improperly and poorly trained to get the job done. Simple clerical errors, overlooked and lost documentation are all at the bottom of a number of rejected modification applications. The servicers had requested a more streamlined modification process and the government responded by reducing the number of documents which require signatures to just two. The majority of loan modification packages which are sent back to the servicers for deficiencies are typically for one of two reasons, either omitted documentation or clerical errors. The GSEs, Fannie Mae and Freddie Mac, have responded by accommodating delinquent borrowers with a two month extension to provide required documentation to complete their loan modification.

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.

"I am addicted to Bloomberg TV" says Nancy.

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