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Mortgage Modification, More Problems - Part 2

Our post yesterday discussed the overall breach of contract claim in lawsuits filed against Bank of America for HAMP mortgage modifications. However, the homeowner complaints against Bank of America allege problems much deeper than just "they denied my modification against the terms of the contract." The complaints allege that Bank of America did not act in good faith during the modification process.

The Washington couple's complaint alleges that "Bank of America has seriously strung out, delayed, and otherwise hindered the modification processes...representatives regularly inform homeowners that modification documents were not received on time or not received at all when, in fact, all documents have been received."

Homeowners entered the trial period with the intent and understanding that if they followed all of the modification requirements, and made all of the payments on time or even early, they would receive a permanent modification. A major problem is that other opportunities were foregone by homeowners that could have prevented the situation they find themselves in now. Many homeowners could have restructured their debt by filing for bankruptcy or selling their homes. Instead, their credit scores have plummeted and for many foreclosure proceedings have already begun.

Some complaints even allege openly illegal activity such as requiring an upfront fee of $1,400 to even be considered for modification. One New York homeowner claims he was told by Bank of America that the only way to be considered for a HAMP trial modification would be to stop making any payments at all. The homeowner stopped making payments for two months and was then denied modification.

The Treasury Department attributed some of the problems to the HAMP program itself. Phyllis Caldwell, the Treasury's chief of the homeownership preservation office commented that "The HAMP program was an unprecedented response to an enormous crisis in this country's housing market. The administration needed to act quickly." Treasury officials claim that it is an administrative problem. Due to the rapid launch of the program some servicers failed to verify income or financial hardship in order to immediately assist a large amount of people. The Treasury says that the government improved the conversion of trial to permanent modification rates by requiring participating servicers to use strict verification processes.

Although this specific lawsuit is against Bank of America, an Aug. 20 Treasury report declared that over 620,000 trial modifications since spring of 2009 have been denied. Many homeowners with mortgages from many lenders could be affected.

Source: USAToday.com, "Home mortgage modification snags spark lawsuits," Stephanie Armour 9/10/10

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