The Great Paradox
Even as Fannie Mae and Freddie Mac trot out new guidelines and regulations to make it easier for struggling homeowners to modify their mortgages, the news comes in today on HousingWire.com that:
Loan mod, foreclosure complaints dominate CFPB consumer reports
Loan modifications, foreclosures and other servicing issues dominate the Consumer Financial Protection Bureau’s list of complaints from U.S. mortgage holders, according to a database launched by the consumer bureau Thursday.
The majority of our short sale clients in Virginia have attempted a modification before attrition sets in and they surrender their homes in short sale or worse (foreclosure). Common complaints: constant turnover in workout staff; eternal hold times and no way to communicate with lenders except by phone; impossible parameters for debt to income ratios or loan to value ratios; repeatedly lost documentation; failure of lenders to give status reports or update information on modifications in progress; and the list goes on. For some of those aspiring loan modification applicants who have actual day jobs and cannot spend working hours on eternal hold with the bank they may hire an advocate to help achieve modifications. Modification advocates often evoke outright hostile responses from the bank and may actually prejudice the bank’s workout employees against the homeowner! In Virginia, there are documented incidents of certain lenders refusing to conduct communications with modification or short sale advocates by e-mail but only for those homeowners who level the playing field by hiring such advocates do these lenders limit communications to “snail mail”! Check out the CFPB’s database (click on “according to a database” above) and see if your complaints in this regard, e.g., against VHDA, are not shared by other similarly unfortunate borrowers.
We can only hope that these in-state servicers of federal guidelines from FHA, VA, FNMA and FDMC will eventually start to abide by the guidelines of those federal loan partners. The LA Times this week reported that FNMA and FDMC have a new streamlined modification program for homeowners who have already fallen behind by 90 days. Among other changed requirements, there is no “hardship requirement”.
The strategy of the lending industry not to dump all of its REO and distressed inventory on the market at once when the housing crisis began over four years ago has proven effective to buoy home prices. It only makes sense for banks to work with homeowners to avoid inheriting maintenance expenses, sole liability for real estate tax payments and association dues, and other carrying costs for repossessed inventory. But in Virginia, with one of the most lenient foreclosure procedures in the country, lenders are still tempted to accomplish cost reduction through quick foreclosure and REO listing rather than modification.
If you are working to have your mortgage modified in Virginia, be determined! But be aware of these factors. Peruse the CFPB’s database for your lender and their alleged modification abuses. Be ready to preserve your credit and your cash reserves accordingly with a “Plan B”. For most of our clients in Virginia, Plan B has been short selling their home.