Mortgage modification complicated by scofflaw lenders


Mortgage modification is key to the federal government's recovery plan - but deceptive lenders might undermine that effort. Image from Bohman on Flickr.

The Making Home Affordable Modification Program is a federal government program started in early 2009 as a response to the foreclosure crisis. It is intended to support mortgage modification, mortgage refinancing and other affordable home options for homeowners stuck in mortgages they cannot pay. This program, however, has been running into consistent problems with lenders. Bank of America’s recent settlement of a Countrywide lawsuit highlights mortgage industry practices that could be undermining economic recovery from the beginning.

Bank of America settles federal charges against Countrywide

The Federal Trade Commission has been investigating alleged deceptive mortgage practices at Countrywide for almost a year. In June of 2008, Bank of America purchased Countrywide in a $4 billion stock deal. Bank of America and the FTC have reached a $108 million agreement where BoA will pay restitution without admitting any wrongdoing on the part of Countrywide. This $108 million will be split between the approximately 200,000 Countrywide mortgage holders that the FTC has found were overcharged.

Complaints to the Making Home Affordable mortgage modification program

The Making Home Affordable federal mortgage program is administered through private lenders. The government provides support and guarantees, while private lenders are required to comply with federal guidelines and qualifications for mortgage loan modification. According to the most recent report from the Making Home Affordable Call Center, more than 31,000 callers in February of 2010 alleged that lenders were not complying with Making Home Affordable guidelines. 103,762 homes defaulting on their loans in just April, this means approximately 38 percent of borrowers seeking mortgage modification are finding lenders they believe aren’t complying with federal guidelines.

Alleged deceptive mortgage lending practices

The investigation into Countrywide’s alleged deceptive lending practices does not end with that lender. Some industry watchers allege that predatory lending practices permeate the entire mortgage lending industry. The four most common allegations from borrowers and the FTC include:

  • Charging fees and fines that are not actually due
  • Overstating the balance on a home loan, therefore extending payments
  • Intentionally incorrect fees and charges
  • Not complying with basic industry regulations, such as providing documented proof that the lender holds the mortgage

The end result of mortgage modification problems

It seems the the efforts of the federal government to rein in mortgage lending practices are coming in a day late and dollar short. The Justice Department has created a new unit to promote fair lending while aims to crowd-source uncovering predatory lending practices. For the Making Home Affordable program to work, however, the federal government is going to have to work hard to root out and stop the deceptive lending practices that nearly every large mortgage lender has been accused of.

Sources: February report

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