On the House: Be wary of mortgage modifications

Posted: August 10, 2014

A reader recently e-mailed me about a three-year snag in his efforts to obtain a mortgage modification from his lender.

He introduced his problem as if it were something I'd never heard of, and cited a CBS Evening News report in the event I did not know what he was talking about.

It caused me to dig into our electronic library to see how often my name and the term "mortgage modification" came up between 2007 and 2014.

The count: 318 times.

I thought lenders and mortgage servicers had finally gotten it right after several years of what Colmar bankruptcy lawyer William J. Schroeder Jr. described as "slowly digesting the bad food" produced by the collapse of the housing market in 2006-2007.

But, Schroeder said, "they are still botching it up," citing the case of one client who had been given a trial mortgage modification in February that dropped his percentage rate to 3.5 from 8.5.

"He finished the trial payment period, but the lender turned around and decided not to give him a permanent modification," said Schroeder.

No explanation was given, but the lawyer surmises that the value of the house in question has increased as the real estate market has been experiencing its fits-and-starts recovery over the last couple years.

His client's house was less "underwater" than it had been, meaning that it was closer to the value it was when purchased.

The reader who e-mailed me did so a few days before a jury in Yuba County, Calif., awarded $16.2 million in damages to a homeowner who contended that Mount Laurel-based mortgage servicer PHH had messed up his mortgage modification and nearly cost him his house.

PHH is, of course, appealing the jury award, but what homeowner Philip Linza had to say in an interview with a Roseville, Calif., TV station sounded familiar.

Linza's monthly payment was lowered from $2,100 to $1,530, he said in the interview. He received a letter from PHH saying that he should be paying $2,300, and followed up with another letter demanding $7,000.

Linza said he was never told why.

In saying that PHH would challenge the jury's unprecedented award - $15,000 to $100,000 is more common - spokesman Dico Akseraylian said, "We take our responsibilities to borrowers seriously and remain committed to meeting all of our obligations as a servicer."

Even after all these years, obtaining a mortgage modification remains complex and is probably something that most of us cannot do on our own.

"If you leave out a word or get a calculation wrong, they will make you start from the beginning with a new application," said Stephanie Butler, director of housing counseling at Mount Airy USA, the community-development corporation in Northwest Philadelphia.

Though lenders and servicers have made some aspects of the process easier, they have added new potholes. Some require, for example, that a certified public accountant sign off on tax returns from self-employed borrowers.

"No CPA would do that for a first-time client, and the charge is typically $500, which most of our homeowners cannot afford," Butler said.

Patricia Hasson, who heads the credit-counseling service Clarifi, said that a modification requires that "a lot of information be gathered," and that it might be wiser to seek a HUD-approved mortgage counselor for guidance.

"They can at least review the application to make sure it is complete," Hasson said.

"I wouldn't say it is a perfect process," she added, "but it has improved."




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