When banks refuse to modify mortgages

By Felix Salmon
January 14, 2010
Paul Kiel has an important story today on something I was not aware of at all: banks converting trial loan modifications into... trial loan modifications. This violates the government's guidelines, but it seems that the likes of Chase and Wells Fargo are doing anything they can to avoid doing what is clearly envisaged in the government plan: transform all trial modifications to permanent modifications if the trial-mod payments are made in full and on time for three months.

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Paul Kiel has an important story today on something I was not aware of at all: banks converting trial loan modifications into… trial loan modifications. This violates the government’s guidelines, but it seems that the likes of Chase and Wells Fargo are doing anything they can to avoid doing what is clearly envisaged in the government plan: transforming all trial modifications to permanent modifications if the trial-mod payments are made in full and on time for three months.

This screams “bad faith” to me. Up until now I’ve reckoned that a lot of the incompetence at mortgage servicers was due to incompetence rather than outright malice, and that they were simply overwhelmed by the volume of distressed mortgages they have to deal with. But there’s no reason at all for them to be asking for updated paperwork from people who have already completed their trial modifications — unless they’re desperately searching for excuses, legal or not, to avoid converting those modifications to permanent status. Shame on them — and I hope that somewhere a regulator with teeth is reading this story and preparing some serious penalties. Otherwise, this obnoxious behavior is only going to continue unabated.

6 comments

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An affidavit from a lawsuit against WF indicating that malice rather than incompetence was involved in pushing people into bad loans in the first place:
http://www.harpers.org/archive/2009/09/0 082630

The lawsuit alleges that minority borrowers were specifically targeted.

The banking industry has staunchly opposed even the most basic disclosure requirements on mortgages, which would allow consumers to make better informed decisions. Whether or not the allegations about specifically targeting minorities holds up, it certainly seems clear from the affidavit that WF (and I believe the practices were widespread) deceived customers into taking bad loans.

Posted by jrshipley | Report as abusive

this is obvious right? they don’t want to have to recognize the losses !!! ??? if they don’t make the mods permanent, they can extend and pretend…

Posted by KidDynamite | Report as abusive

I’m not sure what to think of Felix – is he THAT naive or is he too cynical to pretend to be THAT naive?

Honestly, banks are not set up to act responsibly or in good faith or to carry morality around with them; they are here to make profits. PERIOD. To expect anything else without either the promise of more profits, or the threat of less profits in the near future if they don’t do x, y, and z, is just… how shall I put it, naive (I have other choice words too).

To be all mad at banks and banksters is nothing more than being populist, and while understandable (I share the same outrage), is not doing anyone any good, in a concrete sense. We have to dig deeper than anger at bankers, which leads us to Congressmen and women who were (and still are) their enablers; which inevitably leads to the dysfunctional political system where campaign contribution determines everything.

Yes, money talks. I’ve no quarrel with that, until we can figure out something else that works better than money. But at the same time, we have to acknowledge that fact and try to find a way to counter the enormous weight money carries and influences everything in our lives. If we don’t, the financial system will suck us all dry eventually (and itself will die off of course, but that’s least of my worries). Not to mention that the environment will be polluted so, that everyone who’s still alive will have to live in protective bubbles to stay alive. Well, I digress, but you get my drift.

Posted by jian1312 | Report as abusive

What a lot of people seem to be missing is that there is no support for loan modifications in the general public. That’s why banks can refuse to do anything and public anger is zero. Most people do not think the foreclosed deserve modification because they were irresponsible to begin with. The perception (and I believe correct perception) is that either they tried to buy too much house or that they cash-out refinanced themselves into foreclosure. In the first case, most people placed very little if anything down, in the second, they used their homes like an ATM and it’s too bad but they’ve had a good time spending that money and now it’s time to pay up.

Try asking people what they think about the mortgage modification program. They’ll be guarded at first, but once you make it clear you won’t judge them either way, everyone I’ve talked to has been solidly against. This is a program politicians thought they could push to get popular support, but they’re out of touch. The public is against anyone getting a bailout, banks and defaulted borrowers.

Posted by azxcvbnm321 | Report as abusive

great point, azxcvbnm321 and i agree with you completely. it also ties into jian1312′s comment above you about populist anger.

Posted by KidDynamite | Report as abusive

I am so tired of all you better-than-the-rest-of-us people saying that foresclosures are the result of people being irresponsible or buying too much home. KISS MY ASS! I’ve been laid off 3 times since I bought my house, the 2nd time was 2 months after I re-financed. There was no hint at all of this 2nd layoff-we had zero notice and 2 months pay. We had refinanced because we got so far behind after the first time I was laid off and we wanted to catch up on all of our bills. We have 2 children who were quite young at that time. I had no severance at all when I lost my job. Took almost 2 years to find another full time job (contract) and yes I worked odd jobs as could be found in the interim. Then after 4 years of working under contract with promises of being made a “permanent” employee I was let go with 2 weeks warning. To try and keep our heads somewhat above water I took the first halfway decent job that came my way. Well I’m making less money now than I was 15 years ago, but at least I have a job. I finally got settled into my new job and my husband got laid off. We’ve never had extravagant things or fancy vehicles. I’ve never even been able to buy new furniture. Spending my money irresponsibly, really?

The investor bank has been dicking us around for months on end as we apply for and then are refused a modification because they “don’t do modifications”. But then we are required to try again and go thru the same charade. Before I got behind on my payments we had lived in our house for almost 10 years and not had problems. We’ve now lived there for 17 years and have been hanging on by a thread for many of those last 7 because the bank doesn’t want to work with us. So no, don’t accuse me of being irresponsible, or using my home as an ATM machine. HOW DARE YOU!!!! Try being in my shoes and see how it feels.

And how nice that you know how the majority of the country feels about modificaitons. Bull. I bet if anyone did a real survey of regular working class people you’d find that there are a lot of people in favor, and who could use the help.

So all of you that share this viewpoint, sit back and relax in your comfy little world and hope that reality doesn’t come knocking and try to boot you out.

Posted by katie-dallas | Report as abusive