Loan modifications at first blush seem not only the humane thing to do in the middle of a foreclosure crisis, but also a practical alternative for lenders who’d rather not take back properties dropping in value. Loan modifications are the proverbial “win-win” solution to keeping folks in their homes and viable loans on the books.

So you may be wondering…what’s the hold up?

Loan Modification Impasse

It is virtually impossible to get a servicing company to discuss a loan modification with a borrower in default these days. If you don’t believe me, check out the comments in any of our servicing company reviews.

Our readers report nobody will discuss restructuring loans in any reasonable way. The servicing companies go through the motions - sending out forms, reviewing forms, and then completely ignoring the customers until the inevitable happens. It is the most frustrating and seemingly avoidable process.

The clients are left bewildered with no explanation as to why they are told in the media they can get help, but when they try…there is no help to be found. It becomes further infuriating when the same company whose servicing department just ignored or denied your modification request, gets a multi-billion dollar bailout from the Federal government!

Who’s to Blame?

It’s hard to tell. It depends on who you believe.

If you believe the servicers, it’s the investors fault. They say servicers are simply “ham-strung” due to investor agreements which if broken could lead to lawsuits.

The American Banker reports the problem,

“If the loan has been securitized, the servicer must work with a myriad of investors and get their approval before the loan can be modified. Otherwise, the investors can and will likely sue the servicer,” said Anne Canfield, the executive director of the Consumer Mortgage Coalition, whose members include the industry’s biggest banking companies with servicing arms.”

The investors say it’s the fault of the servicers. Investors supposedly are willing to take a little less, if only the servicers could get it done.

My guess is the blame falls partly on both parties involved and as long as both sides can blame the other, the stalemate will continue.

You see servicing companies are not staffed appropriately to handle this level of foreclosures. Nor is there a mechanism in place to pay the servicers for this obviously more expensive function of loan modifications. After all the typical servicing contract provides for little more than taking in payments, transferring funds, and sending out late notices. Any activity above that standard contract cuts into the profit margin of a third party servicing company. Asking servicers to do loan modification work without additional compensation is barking up the wrong tree.

Until the industry eliminates the legal liability from mortgage lender to mortgage servicer, there will not be a solution to the impasse. Until the industry finds a why to compensate the folks who negotiate the modifications, you will not see a solution to the standstill in loan modifications.

If the new President wants to help homeowners stay in their homes, he’ll have to address those two issues first.

Good Luck!

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