Built to fail loan modifications
Jul 3, 2014
In the past six years, I have seen many clients coming in the door with serious mortgage issues after they had thought, albeit maybe very briefly, that their problems were behind them because they signed a loan modification agreement. In each such occasion, it was quickly apparent that the modification was in fact bogus; mere trickery on the part of the loan servicer not meant to provide meaningful mortgage relief to the homeowner, but rather to bleed every nickel out of him or her before taking the home away by way of foreclosure.
Gary’s case is the latest example of this phenomenon we’ve seen. He was recently sued for foreclosure for the second time. His mortgage problems began in 2006 when he was seriously injured in a car accident. That resulted in him being permanent disabled. Eventually, he and his family started receiving Social Security disability payments; however, that source of income came nowhere close to making up for the loss of employment income Gary and his family suffered. Almost immediately, he began missing his mortgage payments. His loan servicer seemingly came to his aid by granting him a loan modification that same year. The problem was that the modification did not offer Gary and his family any real relief.
Instead of lowing Gary’s monthly mortgage payment, the loan modification actually increased his payment slightly, along with loan balance. The reason a loan servicer is generally more than happy to give a loan mod which heaps on tons of penalties and interest onto the loan balance is that they are paid a percentage of the loan balance. In other words, the higher the loan balance, the more the servicer makes. Without a reduction in his payment, Gary literally had no chance of making the first loan modification work. Thus, he quickly started missing payments under it, leading to a second bogus loan mod in 2008. This modification added $7300 onto the loan balance, without decreasing the interest rate. As a result of this mod, Gary actually owed $10,000 more than he borrowed five years earlier; his loan balance being increased from the $136,000 he borrowed to $146,000. His payments remained the same only because the servicer added five years onto the term of the loan.
Since Gary was on a fixed income, not getting a reduction in his monthly mortgage payment was the death knell for the second modification the moment he signed it. This fact in turn led to Gary’s third loan mod in 2010. This one was the worst yet, as it actually increased his payment, increased his loan balance another $7,000, and extended the maturity date of the loan two years. In other words, the loan servicer was putting Gary into an ever deeper hole, knowing that he would have no way out. Predictably, the fraudulent third mod segwayed into more mortgage problems and a fourth modification, entered into in 2013. This was the worst one of all. It followed a foreclosure complaint which acted as the hammer over Gary’s head, should he have any reluctance to sign it. This mod increased his loan balance $21,000, (from $146,000 to $167,000), leading to yet another monthly payment increase.
It is extremely important to note that, at least going back four years to the 2010 loan mod, Gary actually qualified for HAMP mortgage relief, relief which would have lowered his monthly payments considerably, and allowed him to easily afford his home. However, as so oftentimes happens, Gary’s loan servicer falsely denied him that relief, opting instead to keep him on the ropes by giving him crappy, built to fail (BTF) modification. If you are a homeowner struggling for mortgage relief, don’t be fooled into entering into a BTF loan modification. Make sure that it will work for you; otherwise, like Gary, you will be just putting off the day of mortgage reckoning.
Note from the author: If you have questions or comments- regarding this or any Foreclosure Story article or should you like to have a “free mortgage analysis”, please visit www.mcgookeylaw.com, visit us on Facebook or call us at 419-502-7223.
Kate Eyster contributed to this article.
Copyright 2014 Daniel L. McGookey