Can the Loan Modification Program be Saved?
From Issue 740
By: By Alan S. Ells & Mike Shovan
26th January, 2012
Following the lead of several Bankruptcy Courts across the country, Local Chapter 13 Trustee Thomas W. McDonald Jr. has proposed a Mortgage Modification Mediation program that would function through a Chapter 13 proceeding. McDonald's proposal addresses several of the major complaints about the voluntary Making Home Affordable Program (HAMP). The Obama Administration designed HAMP to assist defaulting homeowners in avoiding foreclosure and keeping their homes.
The stories of frustrated homeowners who attempt to obtain loan modifications are retold every day. After faxing and re-faxing voluminous documentation supporting their loan modification, home owners are told that their documents cannot be found or are otherwise misplaced. Follow up calls to check on the status of a loan modification reveal that that homeowners file has been transferred to another agent. Then, the homeowner calls the other agent only to learn that the new agent can't find the documents. Consequently, the homeowner jumps through hoop after hoop after hoop and then finally gives up. They realize that just walking away from the house may be the best way to handle the situation. In more heart wrenching situations, homeowners who think that there loan modification application is being processed learn that the lender foreclosed on their house and all of their time and effort has been wasted.
McDonald's proposal provides a solution to eliminate the endless submission of documents, as well as the barrage of conflicting notices from loan servicers. At a “town hall” meeting conducted in Judge Opperman's court room last week, McDonald explained to local bankruptcy practitioners how other jurisdictions have adopted similar local procedures to promote and improve the number of permanent loan modifications through HAMP.
McDonald's proposal is a sensible attempt to promote the timely and efficient modification of a mortgage loan. McDonald's program would allow a neutral mediator to facilitate the negotiation of a modification with the homeowner and the lender or servicer. All relevant documents and other information would be uploaded to one central “web portal” which would make them instantly available to both parties and the mediator.The servicer would be required to designate a specific person with authority to modify the loan who would participate in the entire modification process. The process would be governed by the HAMP rules and regulations with the expectation that the entire process would be completed within 90 days. Non-participation or failed attendance by the lender or servicer designee could result in Court ordered sanctions including the entry of a modification order substantially compliant with the HAMP guidelines.
Discussions continue among the US Bankruptcy Judges and the other Chapter 13 Trustees in the Eastern District of Michigan. Those of us engaged in the practice of consumer bankruptcy law are hopeful that some type of a program can be implemented so that homeowners can avoid the unpleasant frustration of trying to work with servicers who refuse to cooperate in the voluntary HAMP process.
By establishing some structure and order to the process, homeowners would be able to submit their documents one time and meet with someone who had the authority to approve or disapprove the modification. Even a denied homeowner would still benefit from at least knowing where they stand so that they could make necessary plans for the relocation and continued stability of their families. More importantly, unwitting homeowners would no longer be the target of unscrupulous “loan modification companies.”
The real solution to the ongoing “foreclosure crisis” lies with our Congress. Congress could easily adopt legislation to force the compliance of servicers with the HAMP program and provide homeowners with a workable solution to a problem that is destroying our communities.
If Congress does their job, the US Bankruptcy Court can continue to function as the effective and ultimate arbiter of all matters relating to debt resolution.