rssLoan Servicers Work the Fine Print in Obama Foreclosure Plan
Thursday, July 30, 2009 at 6:00 am
- 34 Comments
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Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on.
Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where borrowers may be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama administration’s Making Home Affordable plan, consumer attorneys say. They were stunned to find the legal waivers still being used, despite more than a year of efforts – including calls from lawmakers – to get rid of them.
Illustration by: Matt Mahurin
“It was shocking to see that people are still being asked to waive their legal rights,” said Bruce Dorpalen, national director of housing counseling for ACORN Housing Corp. “I mean, this should be abolished. It’s incredible that it’s still in there.”
The Obama modification plan, launched five months ago as the centerpiece of the administration’s anti-foreclosure efforts, includes financial incentives for servicers to participate, with the government paying $1,000 for each loan they modify, and $1,000 per year for up to three years. The goal is to rework loans with more favorable terms and lower interest rates, and to keep delinquent borrowers or those at risk of default in their homes.
The Treasury Department’s published guidelines for the $75 billion taxpayer-funded program specifically prohibit the waivers. Mortgage giants Fannie Mae and Freddie Mac removed the waivers from their standard loan modification agreements earlier this year. But Diane Thompson, an attorney with the National Consumer Law Center, said she has seen legal waivers resurface in loan modification agreements by Aurora Loan Services, Ocwen Financial Corp., and other firms. She also is getting complaints about waivers in Bank of America agreements.
“The waivers continue to be an issue,” Thompson said.
Complaints about the waivers come just as the Obama administration tries to ramp up loan modifications under its plan, which has gotten off to a slow start. More than 200,000 trial loan modifications have begun under the program’s Home Affordable Modification Program initiative, the Treasury Department said, well short of the initial goal of 3 to 4 million agreements. On Tuesday, top officials from the Treasury Department and the U.S. Department of Housing and Urban Development met with 25 servicers to put pressure on them to complete more loan modifications – something Thompson described as a “come to Jesus” meeting. The administration will begin publicly reporting loan modification progress by individual servicers next month, HUD said in a news release. The government also will develop a “second look” program with Freddie Mac to make sure borrowers aren’t wrongly turned away.
But the re-emergence of the waivers shows how dramatic gestures or public shaming might not be enough. They’re an example of how problems exist deep in the the fine print of loan agreements — something media attention to a high-level meeting of servicers in Washington doesn’t address. The waivers prompt concerns about how carefully the program was put together, and how well Treasury is supervising it. And they raise questions about how effective it can really be, if there are no real consequences or penalties for doing loan modifications improperly, or for not doing enough of them.
Frustration over the program has been growing. Sen. Christopher Dodd (D-Conn) chairman of the Senate Banking Committee, sent a letter to Treasury Secretary Timothy Geithner last week, asking for an investigation into violations in loan modifications, including the waivers. Thompson testified before Dodd’s committee on July 16, providing copies of the waivers found in loan agreements.
Adam Levitin, a Georgetown University law professor and credit expert, said the inclusion of waivers by servicers being paid by the government to complete proper loan modifications is especially galling. It’s not clear how widespread the use of the waivers is. It’s also unknown many servicers are charging the government for loan modifications that include waivers, and how many are simply doing them independently of the government’s program. But it’s also obvious that the waivers aren’t rare exceptions, he said, and that the administration should be looking into them.
“Is Treasury paying money for this?” Levitin said. “If so, it’s like paying a government contractor for performing substandard work. Why are servicers getting millions of dollars for doing loan modifications if they’re not going to do them the right way? We’re relying on the servicers to do the right thing and time after time, they don’t do it. These companies just say one thing in front of Congress and then go and do something else. Treasury should be demanding its money back and handing out some penalties for this.”
The fact that the administrations’ main foreclosure program allows for a slip-up like the waivers also is troubling, he said. Getting loan modifications done “does not seem to be the top priority of this administration,” Levitin said.
Legal waivers in loan modifications have a long history. Until last summer, they were regularly included in loan modification contracts, often buried in a long list of requirements. Borrowers often had no idea they were signing their rights away. The waivers could mean that borrowers would have to give up all legal claims related to their mortgage, not just to the loan modification, even in cases where borrowers signed up for predatory loans they didn’t understand.
In a dramatic confrontation last July, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, told representatives of Bank of America to get rid of waivers in their agreements. His pronouncement came after Bank of America representatives denied they were using the waivers – and Julia Gordon, senior policy counsel at the Center for Responsible Lending, produced one from her briefcase.
Then, in January, Fannie Mae and Freddie Mac also removed the waivers from their standard streamlined loan modification agreements, following a TWI story about the practice.
Advocates hailed the end of the waivers as a win for borrowers, who would no longer be forced to give up their rights to pursue legal action regarding their mortgages, in order to get a loan modification. As a result, they find the resurfacing of the waivers particularly troubling.
“At this point, it’s this constant whack-a-mole exercise,” Gordon said. “By this time, I would think the issue would have been aired sufficiently that servicers would be aware of this.”
Gordon added that the waivers illustrate that “there’s a lot of sloppiness out there” with regard to the administration’s loan program, which she finds disappointing.
For the program to work, there must be consequences for servicers that include the legal waivers or any other irregularities in their loan modifications, she said. “There shouldn’t be any gray areas here,” she said.
Thompson, of the National Consumer Law Center, said it’s possible that some servicers simply are using outdated forms that still require the waivers. Nonetheless, she said, it’s not in the servicers’ interests to get rid of the waivers in a timely manner – and some clearly aren’t doing so, she said.
Some advocates were particularly surprised to find that Ocwen had used the waivers, considering the servicer has been leading the industry in doing loan modifications. But Paul Koches, general counsel for Ocwen, said his company was just as surprised, and called their inclusion a mistake.
The waivers had been “fairly standard practice” in loan agreements for years, he said. But in late 2008, after meeting with representatives of the National Community Reinvestment Coalition and hearing concerns about the waivers, Ocwen agreed to remove them from all loan modification agreements.
The company assumed all the waivers were gone, until Thompson’s testimony showed otherwise. Ocwen then realized one of its old forms still included the waiver. Ocwen is working to fix the form. Only a handful of borrowers were affected, and they’ll be assured the waivers won’t be enforced, Koches said.
Including legal waivers “is no longer our policy and we will be so notifying the homeowners to whom we mistakenly sent the old version,” he said.
Bank of America stopped using the waivers in September of last year, said spokesperson Jumana Bauwens. She did not know why or how waivers might be showing up in Bank of America loan modifications, and said the bank had not been aware of complaints about them. Bank officials will look into the matter, she said.
Aurora Loan Services could not provide a representative to comment.
Dorpalen, of Acorn, said his staff saw waivers showing up in loan modification agreements in May. Counselors told servicers to take them out before allowing their clients to sign contracts, he said. Since then, the waivers haven’t appeared in loan modifications that his group sees, he said.
Some kinks in launching a new program are to be expected, and the Treasury Department doesn’t have past experience with loan modifications, Levitin noted. But it’s hard to remain patient with the slow pace of the administration’s efforts to slow down foreclosures, he said. At this rate, by the time Treasury gets all the program’s difficulties ironed out, it will be slated to expire.
“I lost patience a year ago,” Levitin said. “At this point, it’s just sad.”
Gordon, of the Center for Responsible Lending, said the waiver mess shows once again how Congress’ failure to approve mortgage cramdown legislation is adversely affecting foreclosure prevention. Allowing bankruptcy judges to modify mortgage loans was the “backstop,” if voluntary loan modification wasn’t enough.
Lenders that opposed cramdown argued that the loan modification program was a better choice, Gordon noted. But so far, loan modifications aren’t keeping pace with foreclosures, and some borrowers already in trouble are unknowingly signing their legal rights away.
34 Comments
Pingback posted July 30, 2009 @ 7:19 am
[...] News Sources wrote an interesting post today onHere’s a quick excerptiStockphoto Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on. Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where they might be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama [...]
Pingback posted July 30, 2009 @ 8:23 am
[...] Loan Modification, Mortgage Loans, Mortgages, News Sources, Plan News, Tactic, Waivers News Sources wrote an interesting post today onHere’s a quick excerptiStockphoto Even as the Obama [...]
Pingback posted July 30, 2009 @ 12:07 pm
[...] Loan Servicers Work the Fine Print in Obama Foreclosure Plan – The Washington Independent.comEven as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t [...]
Pingback posted July 30, 2009 @ 1:04 pm
[...] Loan Servicers Work the Fine Print in Obama Foreclosure Plan – The Washington Independent.comEven as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t [...]
Pingback posted July 30, 2009 @ 7:28 pm
[...] Loan Servicers Work the Fine Print in Obama Foreclosure Plan – The Washington Independent.comEven as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t [...]
Comment posted July 30, 2009 @ 7:30 pm
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Comment posted July 30, 2009 @ 11:12 pm
You know, this article is only looking at half of the facts…
To have Barney Frank and the democrats rail on these servicers is rediculous. It was the democrats and congress that got us into the subprime mess in the first place.
The literally 'forced' lenders to lend money by “guaranteeing” that freddie and fannie would purchase them up on the secondary market. And now to go back and act as if the lenders aren't doing enough? Give me a break…
Lenders are in the business of making money. Unlike Barney Frank and Congress, servicers and lenders alike will modify loans, but for gosh sake… lets get the government OUT OF FREE ENTERPRISE… and let the lenders work with the homewowners…
If you just let free enterprise work, this will work itself out…
Comment posted July 31, 2009 @ 8:31 pm
Try looking at IndyMac Bank ..or whatever it is called now…my mom has started her loan modification with them back in 3/09…they did the whole delay game scheme until we hired a attorney..now they have had ALL THE PAPERWORK THEY NEED….HAS NOT ASKED FOR ANYTHING…TOLD THE ATTORNEY THEY DON'T NEED ANYTHING ELSE since 6/09…it is now 8/09 and guess what NO ANSWER!!!!..
Pingback posted August 4, 2009 @ 10:47 am
[...] Loan Servicers Work the Fine Print in Obama Foreclosure Plan [...]
Pingback posted August 4, 2009 @ 11:29 am
[...] afuller wrote an interesting post today onThe Washington Independent » <b>Loan</b> Servicers Work the Fine Print in <b>…</b>Here’s a quick excerpt [...]
Comment posted August 6, 2009 @ 12:29 pm
Yes, Loan Modification Program is a good choice. But they are not executed well..
Comment posted August 10, 2009 @ 5:50 pm
Learn your facts KLJ: Fannie and Freddie never guaranteed subprime mortgages. They were not allowed to do so by GOVERNMENT regulation.
Moreover, Fannie and Freddie's failure was not because of mortgage guarantees. Instead, it was because in addition to guaranteeing mortgage-backed securities, they also purchased mortgage-backed securities for their own highly leveraged portfolio. The MBS they purchased were not subject to GOVERNMENTAL regulatory restrictions and that was what got F/F into trouble–they were too highly leveraged to handle the losses in portfolio. Fannie and Freddie were just like any investment bank when it came to leveraged portfolio purchases (actually worse, they were leveraged at 100:1, not 33:1).
This isn't to say that it was a bad idea to allow Fannie and Freddie to have portfolio capacity (originally, that is all Fannie did)–the portfolio capacity allowed them to serve as buyers of last resort who can continue to supply liquidity to mortgage lenders when capital markets freeze up as they have repeatedly over past decades (9/11, LTCM, '74, '70, '66).
Sure, with free enterprise this will “work itself out,” but it will take several years and not before millions of Americans lose their homes. The “free market” (whatever that means, given that there is no part of the economy that is not influenced by government) doesn't work instantaneously, and it's real people who are the collateral damage.
Pingback posted August 18, 2009 @ 10:46 pm
[...] afuller wrote an interesting post today on<b>Loan</b> Servicers Work the Fine Print in Obama Foreclosure Plan | The <b>…</b>Here’s a quick excerpt [...]
Pingback posted August 20, 2009 @ 4:17 am
[...] Mary Kane, Washington Independent Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on… [...]
Comment posted December 31, 2009 @ 7:37 pm
i am in my last month of trail for a modifacation loan only to find out hat i have a lein on my property for 1,645 dollors and it has to be paid in full before I can get loan modifacat
Comment posted January 1, 2010 @ 12:37 am
i am in my last month of trail for a modifacation loan only to find out hat i have a lein on my property for 1,645 dollors and it has to be paid in full before I can get loan modifacat
Pingback posted June 19, 2010 @ 1:16 am
[...] 6.Loan Servicers Work the Fine Print in Obama Foreclosure Plan « The “If so, it’s like paying a government contractor for performing substandard work. Why are servicers getting millions of dollars for doing loan modifications if they’re not going to do them the right way? We’re relying on the servicers to do the right thing and time after time, they don’t do it. http://washingtonindependent.com/53141/loan-servicers-work-the-fine-print-in-obama-foreclosure-plan [...]
Pingback posted June 21, 2010 @ 1:52 pm
[...] 7.Loan Servicers Work the Fine Print in Obama Foreclosure Plan « The The Obama modification plan, launched five months ago as the centerpiece of the administration’s anti-foreclosure efforts, includes financial incentives for servicers to participate, with the government paying $1,000 for each loan they modify, and $1,000 per year for up to three years. [...]
Pingback posted June 22, 2010 @ 12:48 am
[...] 6.Loan Servicers Work the Fine Print in Obama Foreclosure Plan « The The Obama modification plan, launched five months ago as the centerpiece of the administration’s anti-foreclosure efforts, includes financial incentives for servicers to participate, with the government paying $1,000 for each loan they modify, and $1,000 per year for up to three years. http://washingtonindependent.com/53141/loan-servicers-work-the-fine-print-in-obama-foreclosure-plan [...]
Pingback posted June 22, 2010 @ 2:23 am
[...] 12.Loan Servicers Work the Fine Print in Obama Foreclosure Plan « The The Obama modification plan, launched five months ago as the centerpiece of the administration’s anti-foreclosure efforts, includes financial incentives for servicers to participate, with the government paying $1,000 for each loan they modify, and $1,000 per year for up to three years. http://washingtonindependent.com/53141/loan-servicers-work-the-fine-print-in-obama-foreclosure-plan [...]
Comment posted September 2, 2010 @ 2:25 pm
i just hate to see that nowadays Banks owns people's life and people owns nothing !
Comment posted October 14, 2010 @ 2:19 pm
If you are dealing with Aurora Loan Services there are no modifications. Aurora Loan Services mod payments are about the same as your original payment was.Give Aurora a call sometime,you can talk to three different people and all three will tell you something different,they have not a clue.Im suprised the feds hasnt brought them down a long time ago.Put people in a payment plan and try to foreclose while in plan.
Comment posted October 14, 2010 @ 2:41 pm
My husband and i have been dealing with Aurora Loan Services for three years now tying to get them to help us.As time has gone by and a lot of internet searching and investigating on my own ive come to realize that i dont know exactly what it is but something is just not legal here.Approx eleven times now they cant find my paperwork or i didnt send all the paperwork.They put me in HAMP program for three month trial,i have now made nine payment and they try to foreclose on me.I received letter from Aurora putting me in new three month
program,only this time my payment is three-hundred more dollars than my last trial payment plan.my husband spent eighteen months in Viet Nam for this great country of ours, but i never thought as he got older he would be fighting a bunch of scavengers in our own country.
Comment posted October 14, 2010 @ 10:41 pm
I asked BofA for a mod on my home and was denied. I then asked if I could short sell it which they said yes. Then, the same day I put it on the market, I received a letter from them saying my Mod was approved? I never re-applied for it.
Pingback posted November 18, 2010 @ 12:03 pm
[...] Mary Kane, Loan Servicers Work the Fine Print in Obama Foreclosure Plan, calling shenanigans on the practical working of the HAMP program back in July 2009, seeing what it [...]
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Comment posted February 14, 2011 @ 6:31 am
While refinancing is technically different to loan modification, it is worthwhile to understand the nuts & bolts of it and what are actually involved in refinancing.
This refinance home loan infographics is a good start to understand refinancing: http://www.mortgagechoice.com.au/tips-and-checklists/refinance-home-loan-infographics.aspx
Also explained are the costs involved in refinancing, the dollar savings that can be made and the pitfalls to watch out for. Although made for Australian audience, the basic principles are the same and can be applied anywhere.
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