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Mortgage Servicer Violations in Loan Modifications

GeorgetteMillerLaw.com > Practice Areas  > Loan Modification Lawyers > Mortgage Servicer Violations in Loan Modifications

When a homeowner applies for a mortgage loan modification, his or her application will be handled by a mortgage servicer. It is common for servicers to make serious mistakes while they are processing loan modification applications, causing homeowners to be denied for the modifications or to be wrongfully foreclosed upon. There are several things homeowners can do when mortgage servicers violate the rules concerning loan modifications.

Mortgage transaction parties

In order to understand the common violations that occur within the mortgage servicing industry, it is important to first understand the various parties who are involved in mortgage loan transactions.

1. Mortgagor: The homeowner who is borrowing the money, pledging his or her home as security for the loan.

2. Mortgagee: The lender who provides the loan to the mortgagor.

3. Mortgage investor: A party that purchases mortgages from lenders, providing the lenders with money they can use to offer more loans.

4. Mortgage servicer: A company that manages mortgage accounts on the mortgagee or mortgage investor’s behalf. Mortgage servicers manage loan accounts on behalf of the mortgagee or investor. The servicer is typically responsible for the following:

  • Sending the monthly loan statement to the homeowner
  • Processing payments
  • Tracking account balances
  • Managing escrow accounts
  • Reviewing applications for loan modifications
  • Initiating foreclosure proceedings when the mortgagor defaults

Loan Modifications

Loan modifications are permanent changes to the terms of the loans in order to lower the monthly payments, making the loan more affordable. Lenders may agree to any of the following in a loan modification:

  • Lower the interest rate
  • Lower the balance of the principal
  • Convert the interest rate from variable to fixed
  • Extend the length of the mortgage loan

Common Mortgage Servicer Violations in Loan Modifications

There are several common errors that servicers make during the loan modification process.

1. Not processing the application in a timely manner

It is common for homeowners to experience long delays while they are waiting for the servicer to decide whether or not a modification should be granted. Sometimes, servicers fail to tell homeowners that they need missing documents in order to make their decisions. In other cases, servicers simply fail to review the application in a timely fashion.

Federal mortgage servicing regulations that went into effect on Jan. 10, 2014 are meant to reduce the delays. Under these laws, mortgage servicers who receive loan modification applications from homeowners 45 days or longer before foreclosure sales must
review the modification application, determine whether the application is incomplete or complete and notify the borrower within 5 days to let them know what other information is required or if the application is complete. Servicers who receive complete applications more than 37 days prior to scheduled foreclosure sales must review them and determine whether the borrower qualifies within 30 days.

2. Telling homeowners that they must be in default to qualify for a modification

While it used to be true that homeowners had to be late with their payments before qualifying for modifications, that is no longer true. For example, people may qualify for the Home Affordable Modification Program if they are behind on their payments or in danger of falling behind on them.

3. Requiring homeowners to resend information

Servicers sometimes ask homeowners to resend information multiple times, especially with income verification. Servicers also simply lose paperwork and may ask borrowers to send them again. Borrowers should resend the information that is requested, but they should record the date they send it and who it is sent to. It is best to send information via a method that is easily tracked, such as certified mail with return receipts of faxes with confirmations.

4. Asking for down payments

A majority of the time, people should not be required to make down payments in order to qualify for loan modifications. The Home Affordable Modification Program, or HAMP, does not have a down payment requirement.

5. Processing the NPV with incorrect income information

When loan modification applications are evaluated, the servicer reviews financial data about the loan, the property and the borrower. Then, the servicer compares the cash flow the investor will receive through a modification versus a foreclosure. If the investor will be in a better position if the servicer forecloses, then the servicer is not required to modify the loan. This is called the NPV calculation. Under the law, servicers are required to inform the homeowners of the values that they used when calculating the NPVs. If it used incorrect information, the denial can be appealed. Under HAMP, borrowers have 30 days to correct NPV values that are inaccurate. The servicers must then review the data again.

6. Including waivers in the loan modification documents

Servicers sometimes include waivers in loan modification agreements that purport to waive all legal claims the homeowners may have against the servicer or mortgagee. HAMP prohibits servicers from conditioning loan modification approvals on waiving legal rights.

7. Not converting trial modifications into permanent loans

Most loan modifications begin with a three-month trial period. As long as homeowners make timely payments during that trial period, the loan modification is supposed to be converted into a permanent loan modification. Servicers sometimes fail to convert trial periods into permanent modifications.

8. Servicing transfers during a modification

In the mortgage industry, it is common for servicing transfers to occur. The new servicer may then fail to follow the modification agreement that was in place with the prior one.
Mortgage servicing regulations require that the former servicers send new ones all of the information regarding loan modification discussions as well as any agreements that have been made. The new servicer must also ensure that it follows loan modification agreements that are already in place.

Contact an Attorney

If a mortgage servicer has committed any of these violations, it could cause you to have increased costs and fees in order to avoid a foreclosure. You may also end up losing your savings while trying to get a loan modification, be wrongfully foreclosed upon or miss out on other foreclosure alternatives. You can schedule a free consultation with The Law Offices of Georgette Miller and Associates by calling 1-866-96-GMLAW to learn more about your rights.