Once we again we caught Country Bank (CB) with its fingers in the cookie jar, this time a few days ago. By that what we mean is CB’s habit of illegally denying a homeowner a mortgage modification required under the federal law known as HAMP. This most recent transgression by CB which we unearthed involves Libby. However, before we get into Libby’s story, an understanding of why banks are financially incentivized not to work with homeowners in helping them succeed in paying on their mortgages is necessary.
The reason this is so is found in the way the bank is compensated by the loan’s owner for collecting the monthly payments, otherwise known as “servicing” the loan. The bank’s fees are not based upon the amount collected in monthly payments on the loan, but rather on the unpaid balance of the loan. In other words, late fees and other charges added to the loan increases the balance owed, which in turn increases the bank’s fees. This results in a monetary incentive for the bank to drag its feet in offering, or simply deny altogether, a mortgage modification, even if federal law requires it.
BC has been caught in this sort of illegal conduct many times in foreclosure cases across the country. The facts of Libby’s story present a slight variation on the theme. Even before she was sued for foreclosure, Libby reached out to BC for mortgage help, only to be turned away. After the foreclosure was filed in October 2012, the bank, for the first time, finally offered her a HAMP modification reducing her $1,600 monthly payment of principal, interest, taxes and insurance, to $1,300 in June of this year. The problem was that offer did not comport with HAMP requirements. With a gross monthly income of $3,100, Libby clearly qualifies for a payment of no more than $1,000 a month, $300 less than that offered.
The spotlight was turned on the Bank’s misdeed with respect to Libby at a recent mediation in her foreclosure case. With all the relevant documents in on the table in front of us, the bank’s representative could not answer the mediator’s direct question as to why Libby’s monthly payment wasn’t reduced to $1,000. Put in a corner with no way to save face, the only way out of the dilemma for BC was to ask the mediator for additional time to “reconsider” the proposal. Without question, when it does, Libby’s payment will be reduced to the $1,000 required under federal law. All told, that will reduce her payment almost 40%, allowing her to stay safely in her home. And once again, the Bank got caught with its fingers in the cookie jar. Has your bank done the same to you?
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Kate Eyster and Lauren McGookey contributed to this article.
Copyright 2013 Daniel L. McGookey