Bank skips out on loan modification plan

Sep 6, 2012


Larry and Sue Jefferson refinanced their $112,000 mortgage with Worthington Mutual Bank on June 8, 2004. With taxes and insurance, their monthly payment on the loan was approximately $1,200. After paying on the loan religiously for five years, the Jeffersons ran into problems in 2009 due to a loss of household income suffered as a result of health issues. Having heard of the availability of President Obama’s signature program to provide mortgage relief to struggling homeowners, the Home Affordable Modification Program (HAMP), the Jeffersons reached out to the bank that took over collecting payments on their loan when Worthington went out of business, Cheat Bank, asking to be considered for a loan modification under that program.

From my experience in dealing with hundreds of clients seeking mortgage relief, the final outcome of the Jefferson’s HAMP application process was not surprising – they received a foreclosure complaint rather than a loan modification. This was so even though the Jeffersons did in fact qualify for HAMP. The reason Cheat Bank chose to foreclose rather than follow the law and give the Jeffersons HAMP relief is obvious, and consistent with what I’ve said so often in the column: In the world of securitized lending, it is profitable for banks to foreclose. The paltry sum offered to banks as an incentive to qualify distressed homeowners for HAMP, in the range of several hundred dollars, pales in comparison to the thousands they stand to receive by putting homeowners into foreclosure. Under this scenario, the banks’ decision is easy. In their greed-driven environment, the cardinal and unshakable rule is to follow the money. This is a no-brainer decision even when doing so means violating federal law. How can this be? Indeed, this is an area similar to the wild, wild west, and there is no sheriff in town. That means the most powerful rule. In this case, that is the bank. 

This is not to say that HAMP cannot be used by the homeowner as an effective weapon in defending his or her home. It only means that you have to use it yourself, since those entrusted with the responsibility of enforcing the law have been run out of town by the banks. What makes the Jeffersons’ case particularly compelling is that they were actually told the truth in writing, that they did qualify for HAMP, before the bank foreclosed. 

We are definitely going to use that little slip-up to our advantage. Cheat was in the process of dismissing the foreclosure case when the Jeffersons first approached us, so now we are going to aggressively go after the Bank for its legal violations. In the end, we are extremely confident that Cheat will wish it had never messed with the Jeffersons, and treated them decently and fairly from the beginning.

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Next week: The story of Wilma, who faces foreclosure on her government-owned Freddie Mac loan, because her servicer refused to simply move the monthly payment due date to meet with her work pay schedule.


Copyright 2012 Daniel L. McGookey