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17

Oct 2010

Loan mod papers lost for the third time? Don't take it personally.

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As a Virginia bankruptcy lawyer, I’ve talked to three hundred people who’ve gotten loan modifications.    (Most before they filed bankruptcy, but more and more after.)

Only one of them had his loan mod approved the first time he sent it in.  I met that person yesterday!

Why?  There’s a clue in this article I saw in Wednesday’s New York Times.  It says the people in Chase loan servicing department are known by the rest of the bank as the “Burger King kids.”  The joke is that everybody doing loan mods now was working a year ago at Burger King.

So if it seems like the loan mod people don’t know what they are doing, you’ve got that right.

This is the fault of the banks, not the people.

The banks never expected to need to do this many mods.

Before about February 2008, the banks pretty much never modified mortgages at all.  Even when it would make sense for them, they didn’t.  They didn’t want anyone to to think they would ever modify a mortgage.  “Pay us what we want or we take your house.”  That was their rule.

It was February 2008 that I started to see smaller Virginia banks reaching out to people in bankruptcy, offering to work with them to keep their homes.

Newspapers had been reporting the foreclosure flood since the summer of 2007.  But took until mid 2008 for the light to dawn on the bigger banks.  They finally began to realize that they already had too many foreclosed houses and not enough people making payments.  Over the last two years, that problem has only gotten worse.

(Government sponsored programs like HAMP give incentives to banks to make loan mods.  But the real reason they do it is they’d rather reduce your payment a little than take over another house they can’t sell for half what you owe them.)

The banks hired people into loan modification too slowly to handle the flood.  Even when everyone else saw it coming, the banks didn’t.

The other problem is that loan servicing–working on existing loans and collecting payments–is not how banks made money.

The banks spent “billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide.”  They never gave much thought to how they were going to handle those loans, because they had already made their money.

It’s a lot more work to figure out how to handle a loan that’s gone bad, than it was to make the loan in the first place.  And there’s a lot less money to be made out of it.  So that’s not where the ambitious people in the bank have gone.

My bankruptcy clients report another problem when they try to get loan modifications.   They get conflicting stories from the loan mod and pre-foreclosure departments at the same bank.   The loan mod people say, be patient, we’ll get to you soon.  But the bank is also saying, your house is three weeks from foreclosure.

(There’s rampant confusion in the foreclosure department, too–staffed, according to today’s Washington Post, by “hair stylists, Wal-Mart clerks, assembly-line workers . . . without formal training.”)

So, if you are taking my advice–before or after bankruptcy–of trying to get a loan modification, expect delays, confusion, and lost paperwork.

All my bankruptcy clients tell the same story.  (Except for this one guy I talked to yesterday, who said for him it worked the first try.)

Don’t take it personally and–if you want to keep your house–don’t give up.

PS  That guy, the one who got a loan mod on the first try, is filing bankruptcy anyway.   The second mortgage wouldn’t work with him.  And the small business he started in 2006 is near collapse.    He decided to rent for a few years, and save money, while he builds up a new business.

PPS  In my first paragraph, I quoted the New York Times dumping on Chase.  I don’t think they are worse than other banks.  In fact, they may be better.  Chase has opened up Home Ownership Centers around the country to help people with the loan mod process.  They have two convenient to Northern Virginia.  One in Loudoun County Virginia and one in DC.   No other bank I know of has any.

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Robert Weed has helped twelve thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

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1 comment
  • Robert Weed

    Robert Weed

    November 27, 2010, pm30 12:00 PM
    01

    Saw a guy (potential bankruptcy client) last week who works for one of the big mortgage companies I talked about in this article. Because he works there, they gave him a real contact person to work with.

    Even with that, his first mod application got turned down because he “didn’t make enough money.” They thought he didn’t make enough money because they looked at the year to date on his paycheck–and ignored the fact that he only went to work for that bank in June.

    Even when he explained and they agreed they made a math error, he still had to start the application process all over again. That’s how it works. You just have to keep applying.

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