The number of U.S. modifications fell in May as a federal modification program kicked in. Recent legal, regulatory and legislative actions by state and federal agencies focus on huge up-front modification fees.
Speaking before the Rainbow/PUSHÂ Coalition in Chicago last week, U.S. Department of Housing and Urban Development Secretary Shaun Donovan said that $75 billion has been committed to help 3 to 4 million borrowers modify their loans. More than 220,000 modification offers have been made to borrowers.
“Though the program was launched just over three months ago, we are starting to see some signs of progress — home prices are stabilizing, construction starts are up and tens of thousands of loan modifications are already underway,” a transcript of Donovan’s prepared speech said.
During May, U.S. servicers completed 101,000 loan modifications, HOPEÂ NOWÂ reported. Completed modifications dropped from 121,000 in April but were well above 70,000 in May 2008. Subprime modifications fell to 60,000 from 74,000 in April, while prime modifications declined to 41,000 from 47,000.
The decline from the previous month was attributed to implementation of the Obama administration’s Home Affordable Modification program, according to the report — which was based on data submitted by 27 of HOPEÂ NOW’s member servicers.
Despite that modifications have surged by nearly half over the past year, a report Monday from the Federal Reserve Bank of Boston indicated servicers have been reluctant to renegotiate mortgages. Only 3 percent of seriously delinquent loans have been modified since the beginning of the foreclosure crisis in 2007. The reluctance was equally present on both servicer-owned and third-party investor-owned loans.
“Lenders rarely renegotiate,” the report stated.
The fed said the complex web of securitization stakeholders prevents successful workouts.
“With the loan sliced and tranched into so many separate interests, the different claimants with their antagonistic rights may find it difficult to provide borrowers with the necessary loan modifications, whether they want to or not,” the authors wrote. “In the tranche warfare of securitization, unnecessary foreclosures are the collateral damage.”
Los Angeles-based First Federal Bank of California reported last week that it has modified more than 2,000 mortgages for nearly $1 billion, including 132 for $60 million in May, and plans to modify another $800 million during the next few months. In addition, just 30 percent of loans modified in the first-quarter 2008 have defaulted and become 30 days past due — much better than an industry-wide rate of 63 percent. The successful strategy was based on early, aggressive action.
In its 2008 Mortgage Fraud Report, the Federal Bureau of Investigation said loan modification schemes are emerging as recent vulnerabilities in the Emergency Economic Stabilization Act and the Housing and Economic Recovery Act are exposed. Advance-fee schemes involving between $1,500 and $5,000 in up-front payments offer promises of renegotiated loans. Borrowers often stop making payments at the direction of the modification firms — making their situation worse.
“When victims receive delinquency and foreclosure notices, the perpetrators convince them that the loan was renegotiated, but that the lender needs a good faith payment to secure the new account,” the FBIÂ report stated.
Federal bank and thrift regulatory agencies issued a June 26 statement inviting public comment on an interim final rule requiring loans modified under the Making Home Affordable Program to retain the risk weight applicable before modification. The interim final rule would provide a common interagency capital treatment for loans modified under the program.
An April 3 complaint filed by the Federal Trade Commission against Federal Loan Modification Law Center LLP and six related defendants was amended to add several new defendants. The original complaint alleged that the company portrayed itself as tied to the federal government and charged up-front fees for misrepresented services.
The new defendants are Venture Legal Support PLC, Federal Loan Modifications, SBSC Corp. and Steven Oscherowitz. MGO Capital and Legal Turn LLC were added in the amended complaint as relief defendants who are not accused of deceptive practices but financially benefited from the practices.
In Kansas, Attorney General Steve Six filed three lawsuits against Florida-based Kirkland Young, Georgia-based ABS Saveco and California-based Helping Hands Support Services for allegedly running loan modification scams, a news release Tuesday said. Many of the victims lost their homes and were financially much worse off by using the defendants.
“The companies offer to negotiate modifications to the homeowner’s mortgage for a sizable fee,” the state said. “However, the extent of the service that the company provides is to mail in documents on behalf of the consumer.”
More than 50 loan modification firms are under investigation by Arizona’s attorney general over borrower complaints, the Phoenix Business Journal reported. Many of the investigations reportedly center on huge up-front fees.
United Guaranty issued bulletin CA 2009-32 indicating that a new Certificate Change Endorsement with an effective date of “Pended Mod” will be subject to the receipt of the final closing date and applicable changes to the new loan terms from those originally reported. The mortgage insurer also said that the “Modification Effective Date/New loan Closing Date” will no longer need to be estimated when submitting an initial or revised modification request. A pending endorsement will be issued and subject to a final closing date.
Fiserv Inc. announced today that its loan servicing platform is compatible with new guidelines from the U.S. Treasury Department on loan modifications. The platform utilizes an integrated default management tools that enables tracking and analysis of modified loans.
Fiserv, based in Brookfield, Wis., claims its servicing system was the first to be fully capable of supporting the Home Affordable Modification Program. — which is effective from March 4 to Dec. 31, 2012, on mortgages originated on or before Jan. 1, 2009.
Loan modification document packages that are compliant with modifications under the Homeowner Affordability and Stability Plan are being offered by MRG Document Technologies, a news release today said. MRG said its staff of attorneys monitor regulator and investor Web sites for updates and determine the impact to the modification process from new regulations.
Loan modification consultants in Long Beach, Calif., whose firms are already regulated by the state’s Department of Real Estate, would face regulation by the city if a new ordinance is passed by the Long Beach City Council. The Long Beach Press Telegram reported Monday that the proposed ordinance would, among other things, make up-front fees illegal and require a written contract and seven-day rescission.
Halo Loan Modification Services LLC today reported a 50 percent surge in business during June. The South Texas company said demand increased as servicers were unable to manage increased volume that resulted from the Obama administration’s stimulus plan.
ModPilot Inc. announced today the launch of a do-it-yourself modification kit. The service, which starts at $495, was reportedly created by “a team of loan modification attorneys” and other loan modification experts.
Federal Trade Commission, Plaintiff, v. Federal Loan Modification Law Center, LLP, et al, Defendants.
Civil Action No. SACV09-401CJC (MLGx), FTC File No. 092 3070, April 3, 2009 (U.S. District Court for the Central District of California).
