Loan modification stalls lead homeowners to forced evictions

Mortgage borrowers are being challenged yet again in their efforts to keep their homes and avert impending foreclosures as loan modification failures are on the rise, which ultimately lead to forced evictions. The government’s Home Affordable Modification Program is being criticized for allowing late fees and loan dues to pile up while submitted documents mysteriously disappear, paving for home seizures.

The Center for Responsible Learning reported that many homeowners are also burdened with accumulated arrears while on a trial modification. This practice could trigger mass foreclosures among unwitting borrowers who are still reeling from their piling debts.

The government as well as some big lenders, such as the Bank of America and JP Morgan Chase Co. have already taken steps to avert a foreclosure disaster by offering programs that cut interest rates for as long as five years and easing mortgage terms through extended repayment schemes of up to 40 years. With more than 7 million homes in danger of foreclosure or are already in the process of being foreclosed, these steps could mean some good break for many borrowers.

According to the US Treasury Department data, almost half of the 1.4 million temporary trial modifications processed since March 2009, when the program started, had already been cancelled and only 466,708 borrowers have been granted permanent modifications. The rest or about one in five of the canceled modifications either resulted in foreclosure or bankruptcy.

But borrowers are cautioned that late fees, penalties and back payments could suddenly become due on their modified mortgages that could lead to home seizures. And this could happen even to borrowers with approved loan modifications and who have never missed a single payment.

A survey of 40 loan counselors that represent 14,000 borrowers by the California Reinvestment Coalition found that 100 percent of mortgage firms and servicers either lose or ignore submitted documents that make borrowers more vulnerable to foreclosures. The process had also been under fire recently for allegations of robo-signing, where lenders and firms submit and process foreclosure documents without adequate verification steps.

Amid all these, the Treasury Department assures borrowers that HAMP modifications allow mortgage payment reduction to up to 31 percent of a borrower’s monthly gross income. Homeowners are also encouraged to submit their documents early at the start of the modification process in order to up their chances of getting permanent modifications.