All the recent studies released by the Treasury demonstrate that the Making Home Affordable home loan modification plan may be a complete disaster. More than 1.5 million trial modifications were started ever since the plan started in 2009 and just 1% of all of these have become permanent. This is great for the 1% of people that this program really helped, though how about the other 99%? Regrettably, for these particular individuals, they’re confronted with the really real potential for losing their property to property foreclosure or needing to short sale. I have a very troubling demonstration of a loan modification gone wrong that I need to share with you.
I had been assisting an older man with a home loan modification on his property in Van Nuys, CA. Freddie Mac was the actual investor and his loan servicer is Bank of America. I struggled to get him a loan mod for longer than eight months. During that period, we were given the run around by Bank of America not to mention advised that the review was pending. In the interim, Bank of America continued with the foreclosure course of action and an auction date had been put on the home. Bank of America delayed this auction date one time as a consequence of approaching review of the loan modification. The modification was nevertheless under evaluation when the next auction time came up for the home. However, this time around, Bank of America could not stop the auction date as it’s Freddie Mac’s guideline to not put off a auction time more than one time. Sadly, this man lost his house to real estate foreclosure and ended up being evicted.
This story is not uncommon during these difficult financial times. So many families have been displaced from their homes. Oftentimes, these families are dealing with medical issues and loss of income. The above example is disturbing on a couple of levels. First of all, Bank of America should have processed the modification much quicker. If they had done so, the property would never have fallen into foreclosure. Secondly, Freddie Mac should not have such a harmful policy when it comes to postponing the sale date. Essentially, this homeowner was penalized because Bank of America didn’t process his loan modification quickly enough.
Bank of America’s inability to process the modification along with Freddie Mac’s unwillingness to postpone the sale date are just 2 examples of everything that is wrong with the Making Home Affordable program. At the same time, Bank of America never informed the homeowner that he could also short sale his house and walk away with some dignity, as opposed to being evicted by Bank of America. Had this homeowner decided to sale short his home, he could have avoided the foreclosure, had less damage to his credit and possibly received $3,000 back from the lender under the HAFA program.
Clearly, loan modifications are not the preferred method lenders are using to help distressed homeowners. Other than foreclosure, the only 2 options left to borrowers are short sale or deed-in-lieu. A real estate short sale is the best way to go because it releases the homeowner of all liability relating to all mortgage liens against the property and the homeowner can be eligible to purchase another home in as little as 2 years. A deed-in-lieu is where the homeowner essentially deeds the property back to the lender, but this is more damaging to credit and the credit bureaus treat it the same as a foreclosure.
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