Loan modification? good luck with that

WASHINGTON (MarketWatch) — I’m deviating from my usual Q&A format this week to bring you an email from a reader, JN, in Richmond, Virginia. I run it in its entirety, with a bit of editing, because it details in excruciating pain the trials and tribulations homeowners go through trying to convince their lenders to work with them to modify their mortgages.

I receive many similar letters, but this is one of the best I have seen explaining the difficulties faced by landlords.

“It’s an endless game banks play with customers,” JN said. “If all the banks are doing this, I’m surprised most people haven’t just given up and let their homes go bankrupt.”

JN also sent the letter to the Senate Banking Committee, before which his lender testified earlier this month. The lender talked about offering 600,000 trial edits, but never once mentioned people like JN going through the wringer. “I didn’t hear the word endorsement anywhere in his statement,” JN points out.

I have chosen to omit the name of the institution as I do not believe it is necessary to distinguish this lender from others. Judging from the emails I receive, most are guilty of the same shenanigans.

A landlord’s horror story

With that, here is the letter:

I am a frustrated consumer who has an FHA insured loan with a major national bank. In April of last year (around the first of the month) I applied for a home modification because my wife lost one of her jobs and we had unforeseen medical expenses which barely prevented us to keep your head above water.

After submitting all the necessary documents, I waited for someone from the bank to call, email, or send a notice that they had at least received our application. Around the middle of May, I got very frustrated and emailed the CEO and all the board members complaining that their loan modification process was very poor and it was not working. That was no way to deal with customers, especially those with major issues. While I didn’t expect to get a response to my email, I was frustrated and wanted to take it out on the managers.

On May 27, 2009, I received an email response that basically said that they appreciated my letter and that my information had been forwarded to the “Executive Resolution Group”. I was told that I should receive an email/call from them within 1-2 business days.

As promised, within two business days I received a call from someone in the resolution group who had been assigned my case. I thought I was on my way to happiness, but it turns out my elation was short-lived.

I was told that they never received the original package I sent and that I had to send it back. I faxed another copy of the application/forms/documents as instructed and waited for a response. After several days without hearing from them, I called my contact at the bank and was told that it would take two to three weeks before it was actually delivered to the assigned worker. So I asked if I could scan everything and send them as a PDF file and was told yes, that would be allowed. After emailing all the paperwork, I waited a few days before checking out to make sure my package had been received. Within hours I received a response saying my package had been received.

I was advised that it would take between six and eight weeks to check everything out and that my contact would keep in touch with me during the process. But I was the one who had to keep in touch with them by email and phone calls. Around mid-July, I started sending emails asking about the status of my application and was told that it hadn’t been assigned to a processor yet. It didn’t make me feel like a very good bank customer. About a month later, I was told over the phone that I did not qualify for the normal modification, but that the bank would continue to look for other avenues for me. I wasn’t sure what “normal modification” meant, but at least it seemed like the bank wanted to work with me.

Approved or not?

On August 28, I was informed that I had been approved for a modification and that my loan would be reduced to $1,508.34 per month for a three month trial period before becoming a permanent monthly mortgage payment. I was told that our monthly mortgage was going to be due on the 24th of every month starting in September and the paperwork would be sent out for our signatures. My wife and I were very excited by this news, but our jubilation was again short-lived.

By mid-September, we still hadn’t seen the paperwork, so I started emailing and calling every other day. I eventually got fed up with not getting a response and sent my original contact an email detailing my frustration with the process. I said I hoped they didn’t treat all their customers like that, but I was beginning to think they actually did. The next day I received a call and was informed that the processor who had handled my case had fallen ill, which is why the documents had not been sent.

To help eliminate my stress and fears, I was told that yes, I was still approved and that my approval was even checked with the processor supervisor. It was also stated, again, that payments would begin September 24 for $1,508.34 for a three month trial period and that I would receive the documents as soon as the processor returned from leave of illness.

However, on the anointed date, still no papers, so I made a payment of $1,510. I kept emailing and phoning my processor, and on October 1, I received an email from her that there seemed to be an “additional income” issue that was causing a surplus. Needless to say I was very upset and confused. There was no additional income on my side; otherwise, we wouldn’t have started this process to begin with.

I felt like we had an agreement on amended payments, both verbal and electronic, and I wanted the bank to honor it. But the bank argued there was no deal and wanted me to start making the full payment and make up the difference between what I paid in September and the original mortgage amount. I told them there was no way I could find the difference and if they wanted the house come get it. As you can see, I was tired and tired of running around.

Payment disagreement

At that time, I was told that the bank would continue to work on a solution for me, but that I should be ready to start paying the initial monthly payment. On October 7, I received an email with a new proposed change for $2,320 for 360 months, basically a refinance at a lower interest rate. Although this reduced our payment by $300, I still wanted the bank to honor the first offer. I countered the bank’s offer by asking for an interest-only payment for the next 24-36 months, after which I would start making full payments again. I was just looking for a way to reduce the payments to between $1700 and $1800 for a while to allow me to catch up on some past debts. The bank replied that there was no negotiation on this – take it or leave it!

The new offer was to take effect on January 1, 2010 and would include any interest I had missed and the term of the loan was increased to 360 months. The paperwork arrived Thanksgiving week. My wife and I both signed the papers, enclosed a check for $1,510, which turned out to be the same amount I paid for the first modification loan payment, and put the package through mail the day before Thanksgiving. He was received the Friday after Thanksgiving.

We were all ready, at least we thought we were all ready. But on December 22, we received our new mortgage statement and, to our surprise, the payments were back up to $2,620, only $19 less than what we were paying before the change request started. The interest rate and principal amount appeared to be correct and matched what was on the change letters, but the escrow amount had increased significantly.

We could not figure out what happened between November 24 and December 22 that would have caused the sequestration to increase like that. So I called the bank just after Christmas weekend to find out what was going on. After waiting a while on hold, I was passed from person to person before finally being told that due to the high volume of calls they would not be able to answer my questions. They hung up before I could say another word. By then, I was so fed up that I didn’t want anything to do with the bank anymore, so I just put it aside until after New Years.

On December 28, we received another notice regarding our loan modification request. It basically said that the bank was still reviewing the documents and that we were to continue making our trial payments under the amending agreement. That’s why I believe we had an agreement with the bank on the original amended payment, and I still maintain that was the case before we were bullied into making a larger payment.

It shouldn’t take someone eight months or more to get a change. Customers should not be jolted, raised their hopes, then knocked down and trampled by the banks. There are thousands of families who have stories like mine about my bank alone. … A report last month [talked] about a person who had something very similar to my experience with my bank. In fact, she was informed the same week as me that she had been approved for a modification before being told no, she was not.

This seems to be a pattern with my bank and their loan modification program where they give clients and families hope before crushing them. I apologize for the length of this letter, but I wanted you to know how banks treat their customers regarding loan modifications. True, we were given a modification. But we’re not totally happy with that, and I can only imagine people still stuck in “loan modification hell.”

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