Beware of Servicers Offering Homeowners Mortgage Modifications

I recently received a permanent modification offer from Chase on behalf of one of my clients. I was quite happy for the client until I read the actual modification offer. The client had his interest rate reduced to 2% for the first five years, with 4.5% at the end of the adjustment period. What could be better? The answer is following the HAMP Guidelines.

HAMP (Home Affordable Modification Program) was started in 2009 and promised help for homeowners who were in danger of losing their homes. The HAMP program started on a basic premise – adjust the payments to 31% of the gross monthly income of the household by reducing the interest rate to as low as 2% and extending the loan for up to 40 years, and in some cases reducing the principal and placing it at the end of the loan as a balloon payment. Each homeowner had to meet certain criteria and then it was simply a matter documenting income, filling out some forms and submitting them to the servicer. The servicer was supposed to analyze whether they got more money through modification or foreclosure. If the servicer got more money through modification they had to modify the loan.

The homeowners soon learned that documents were “lost” four and five times or the servicer claimed that they did not receive the document. The servicers chose not to follow the guidelines and some offered HAMP modification on the forms used by HAMP, but contained terms other than those in the HAMP guidelines.

That leads me back to the case at hand. Chase claimed that the lender would not allow for a term extension of the loan. There were 296 payments on the loan. If the loan was modified for a payback of 380 months there would be no balloon payment. However, since the length of the loan could not be extended the homeowner had to pay a $108,000 balloon payment.

However, there was one little “glitch” that Chase ignored. If the lender would not adjust the length of the loan then the servicer, in this case Chase, had to document this restriction. The documentation would come from the agreement between Chase and the lender (known as the Pooling and Servicing Agreement – PSA) dictating what Chase could, and could not do. Chase refused to provide this documentation. I was able to find out the identity of the lender (the entity that actually held the note) and looked up the PSA. The PSA did not contain any restriction in modifying the length of the loan.

I cannot tell you what the result is because the issue is not over. But for now, read and understand any proposed modification and check the math on the calculations.