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Loan servicers just looking for an excuse to deny permanent loan modifications

Loan servicers are just looking for an excuse to deny permanent loan modifications while dragging out trial periods for months

Nathan Reynolds, a mortgage broker who’s worked in the Chicago area since 1998, he’s seen both his business and his home’s value plummet in the past few years.

After receiving his own trial loan modification from JPMorgan Chase, he’s helped others apply for modifications through the program on his own time.

After 7 months in a trial modification borrower was denied a permanent modification

But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income. // Article continued after video //


Has your loan modification request been in limbo, denied or cancelled? Watch this video

Borrowers constantly ask loan modification expert, Mike Rockwood, and author of the loan modification kit I recommend, for help on how to talk to all these people over the phone to get them to move the review process along to approve their loan modification application sooner rather than later and what to do when they get rejected.

In this Q&A coaching segment Mike, along with his son and business partner, gives many excellent strategies on fighting for your loan modification including:

  • 9 tips on effective negotiating
  • Why 50% of applications get rejected
  • Why rejection is a “good thing” (yes, really)
  • What to do next when you are rejected to fight for your approval

I recommend you take out a piece of paper and a pencil to take good notes.

Click here for more Q&A Video Coaching segments that will answer your urgent questions and give you proven strategies to fight for your loan modification.

FYI: As a last resort and for added protection if the clock is ticking against you towards a foreclosure sale date, learn how to stop foreclosure in a day to buy more time to work out a solution.


That’s not a legitimate reason for a loan servicer to deny someone’s loan modification, according to the Treasury Department’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.

Housing advocates say they frequently see homeowners rejected or kept in a trial loan modification for questionable reasons. “There’s a real resistance on the servicers’ part to making permanent modifications,” said Diane Thompson of the National Consumer Law Center.

Servicers representing 85 percent of the housing market have signed up to participate. Applicants must first go through a trial period before their mortgage payments can be permanently reduced. But servicers have been slow to convert hundreds of thousands of trials into permanent modifications — as of November, only about 31,000 had been made permanent.

When homeowners do get an answer, the reasons don’t always jive with how the program is supposed to work. Housing advocates say this is a direct result of a lack of effective oversight of servicers in the program.

‘An Excuse to Deny Someone’

Reynolds was a prime candidate for a loan adjustment and was among the earliest homeowners to receive a trial modification.

His mortgage brokerage business had followed the market downward, and as a result, he’d fallen three months behind on his interest-only mortgage. Area real estate cratered. His own home, bought in 2001 for just over $400,000, had rocketed up to about $1.2 million in value in 2006, and then down again to about $350,000. With a refinancing in 2005 and a home equity line of credit with Countrywide, his mortgage debt exceeded his home’s value by more than 70 percent.

Soon after the loan program was announced last February, Reynolds applied. He received an application in late April and was accepted, making his first payment of about $2,400 (down from $3,300) in May. He made six more payments. Like many borrowers in the program, he says he was asked over and over to send the same documents and later, updated versions of those documents.

Finally, in late November, he received an answer: He was denied a permanent loan modification.

The reason?

A Chase employee explained to Reynolds that they’d determined his financial difficulties weren’t permanent. In his application, he’d written that he believed that the government’s rescue efforts would “save the U.S. housing market” and that his business “will once again be profitable.” The Chase employee told him that statement indicated his hardship was only temporary.

“That’s just nonsense,” said Thompson of the consumer center. “To me, that sounds like an excuse to deny someone.”

Chase spokeswoman Christine Holevas said that Reynolds had been denied “because the skill and ability is still there to earn the income.” Since he’d “stated in his letter that business would be picking up,” it was “not considered a permanent hardship,” Holevas said and added that Chase’s review of financial information showed his income had not decreased.

Such a determination contradicts Treasury’s guidance to servicers for the program. An FAQ issued to servicers says the program does not “distinguish between short-term and long-term hardships for eligibility purposes.”

Reynolds, who has a wife and two small children, says no Chase employee had made such a claim to him and that the documents he provided show that his mortgage business dropped more than 50 percent in 2009. He submitted a new hardship statement in December, in which he tried to make clear that his troubles are real and lasting. Holevas said those documents would be reviewed.

Now, Reynolds says his finances are at the breaking point and bankruptcy appears unavoidable if Chase denies him again. “I did everything that was asked of me, but Chase has me backed into a corner that I cannot get out of.”

The Nine-Month Trial

Six months into a trial modification, Gary Fitz of California still doesn’t know whether or when his mortgage will be permanently modified, and he’s been told he’ll have to wait for a few more months.

Under the program’s design, the trial period was supposed to last three months, giving time for the servicers to collect and evaluate the homeowner’s financial information. At the end of the trial, if the homeowner fit the program’s criteria and had made all three modified payments, the servicer was supposed to promptly make the modification permanent.

Instead, trial modifications routinely last more than six months, homeowners and housing advocates say.

There are a number of adverse consequences of a trial period’s dragging on, said the consumer law center’s Thompson

Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop.

And most important, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. “Keeping someone in a trial modification really does not do them a favor,” she said.

Fitz’s case shows why some homeowners have remained in limbo so long

He sought a loan modification in the spring of 2009 because his wife’s salary had been cut. Like millions of others, he applied soon after the administration announced the program last February. He was accepted for a trial modification and made his first payment in July.

Fitz was prepared for an uphill struggle. A Wells Fargo customer service representative told him early in the application process that he should make seven copies of his financial information — because Wells Fargo would likely lose it more than once. He says he’s sent the same paperwork in five times.

When the trial stage lasts so long, servicers commonly ask homeowners for updated financial information months into the trial period. Fitz, for example, submitted his paperwork for the first time last spring. But when Wells Fargo requested an updated package in December, it showed that he’d received a pay raise last June of about $80 per month.

Borrower changes can trigger a NEW trial period be started

Because of that, Wells Fargo started him over on a new trial period – even though his trial payments climbed just $27, from $1,733 to $1,760. His first payment on the new trial period is due Feb. 1, meaning that by the time he completes it, he will have been making trial payments for nine months.

Wells Fargo spokesman Kevin Waetke said the company does not comment on individual borrower’s cases. He did say, however, that “the federal guidelines require a final review of updated financial documents before moving any Home Affordable Modification from trial status to complete.”

Wells Fargo do-over trial period contrary to Treasury Dept guidelines

That’s not true. A Treasury guidance to servicers issued in October, meant to streamline the review process, says there is “no requirement” to “refresh” the homeowner’s documentation as long as it was up-to-date when it was originally received.

Wells Fargo also appears to have begun Fitz’s second trial period contrary to Treasury guidelines. A Treasury guidance last April said that a servicer should not begin a new trial period if a homeowner has only a minor income change (defined as exceeding the “initial income information by 25 percent or less”).

Guidelines issued later are even more restrictive about starting a new trial period.

The reason is clear: The purpose of the trial period for the homeowner is to demonstrate the ability to pay, and such a small change in income is unlikely to affect that.

Asked to respond, Waetke said that “given the complexity of the program, the volume of calls we receive and the number of modifications currently in process, there is the potential for a mistake to be made.” He added that Wells Fargo would continue to review the case.

Servicers stalling for time

Sometimes there seems to be no reason at all for a trial period to drag on.

Cynthia Mason of Texas, another homeowner with a Wells Fargo mortgage, also recently restarted her trial period after several months.

Last spring, she sought a loan modification because medical and other expenses had made it impossible for her to afford her mortgage payment on a fixed alimony income. She’d planned to supplement that income with a job, but has been unable to find anything. Like Fitz, she began the program in July.

In October, good news came with a phone call: She’d been accepted for a permanent modification. She waited for the final paperwork to arrive, but it never did.

Instead, while speaking to a Wells Fargo employee about an unrelated issue six weeks later, she found out that she’d in fact been denied.

When Mason inquired why, she says she was told some documentation was missing, but the employee could not tell her what it was. She also learned she owed late fees because she’d paid the modified payment, not the original, full payment, in November and December.

When she complained about the late fees (which were eventually canceled), she was passed to a different employee, who told her she was being put back into a trial period. She didn’t understand why. Another representative finally told her that she’d been denied because of a negative “Net Present Value” test.

“Net Present Value” test at the center of the Treasury Department’s program

The NPV test is the calculation at the center of the Treasury Department’s program: It determines whether the loan’s owner (sometimes the lender, sometimes a mortgage-backed security’s investors) is likely to make more money modifying the loan or not. A negative result means the servicer has no obligation under the program to modify the loan and is a common reason for denial.

But in Mason’s case, a Wells Fargo employee told her she’d nevertheless been put back into the trial period in order to “buy time.”

Wells Fargo spokesman Waetke declined to speak about Mason’s case but did say that the bank sometimes extends the trial period “to allow customers time to get the documents so we can complete the review.” Mason says she doesn’t know of any documents that might be missing, and she’s not optimistic about receiving a permanent modification. By extending the trial, Mason told ProPublica, Wells Fargo is “just prolonging the inevitable” – denial.
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Source: http://www.consumeraffairs.com/news04/2010/01/az_loanmods.html

Before completing and sending in a loan modification package, you may want to obtain some coaching to combat the stall tactics banks/servicers are using to cut to the front of the line of other applications and get approved faster

Click here to get proven help with your home loan modification

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Read more: http://www.consumeraffairs.com/news04/2010/01/az_loanmods.html#ixzz0gyqRtJH7

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2 Responses to Loan servicers just looking for an excuse to deny permanent loan modifications

  1. JOSE V. on 01/08/2010 at 18:22

    Been working with Wells Fargo for a loan modification for about 2 years been put on
    trial periods before the trial periods are just about to end , Wells Fargo always denied
    my request everytime they give me a different excuse. What is their problem I said to my self ( WHAT IS THEIR PROBLEM ) I do want to keep my house a short sale is the worst .Why dont they just give the present homeowner and chance to stay in the house ,They prefer to give it/sell it to someone else for half the price I’m not a math profesor , but isn’t that just plain
    stupip….

  2. Gail Simmons on 11/08/2010 at 12:11

    Jose, It is such a frustrating process when dealing with heartless lenders.

    I would recommend taking a look in the tools section here: /tools/ and considering Mike’s loan modification workbook. There is likely a strategy on overcoming the denials and stall tactics to get approved.

    While you are negotiating on the loan mod, it may also be a good idea to keep the lender from “accidentally on-purpose” selling your home out from under you using a little known government program. Read my article on this strategy here: http://preventingforeclosure.loanmodificationhomeownerresources.org/

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