Attorney General Goddard is calling for loan servicers to streamline the process for loan modifications. Tomorrow a federal report card on how successful U.S.lenders have been with loan modifications is due out. Several lenders have been criticized for not doing enough.
Goddard spoke at a big foreclosure prevention workshop last Friday in Phoenix. More than 1,000 homeowners from across the state showed up to talk to their lender about help with their mortgage.
More than 20 lenders had representatives at the event that ran through Saturday and was sponsored by HOPE NOW Alliance, the city of Phoenix, Arizona Foreclosure Prevention Task Force, the Making Home Affordable program and NeighborWorks America sponsored the event, which was one of dozens it has done across the country.
Goddard encouraged homeowners at the South Phoenix High School event to contact his office if they didn’t receive help or answers about their mortgage problems at the event.
On July 24th, he and other state attorney generals recently sent this letter about changes need to loan modification programs to federal officials:
The Honorable Timothy F. Geithner
United States Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
The Honorable Secretary Shaun Donovan
United States Housing and Urban Development
451 7th Street, S.W.
Washington, D.C. 20410
Dear Secretary Geithner and Secretary Donovan:
We want to thank members of your respective staffs for taking the time to meet with us last Thursday,
July 16th, to discuss federal and state efforts to address mortgage fraud and the foreclosures that are
devastating families and communities in our states and across the country.
We commend you for convening a meeting with loan servicers on July 28, 2009. We believe that this
meeting can be an important step toward improving what has been, so far, an inadequate effort by mortgage
servicers to modify loans so borrowers can stay in their homes.
Virtually every day, we see firsthand the many problems caused by the failure of loan servicers to
complete loan modifications on realistic terms with responsible but struggling homeowners. Servicers’ efforts
have fallen short in three basic respects:
(1) Many servicers have failed to implement timely, consistent, clear, and accessible procedures
for considering and approving loan modifications.
(2) The modifications for those who make it through the process are often not significant enough
to avert foreclosures and invite later failure.
(3) Although all give lip service to the concept of modification to avoid foreclosure, in practice,
many lenders do not consider a homeowner for modification until a default has occurred. Even when a resetor adjustment is imminent and will clearly cause a default, anticipatory action is not taken and thehomeowner’s credit is ruined.
Based on our experiences, we have some suggestions in advance of your meeting that we believe willcontribute to achieving meaningful improvement in the loan modification effort. In particular, we suggest thatthe Departments of Treasury and Housing and Urban Development:
1. Not count towards servicers’ commitments or include in calculations of a re-default rate any
modifications that do not lower borrowers’ monthly payments. Modifications that result in a higher paymentdue to ca pitalization of arrearages and fees are unlikely to be a solution for borrowers.
2. In order to move borrowers into sustainable mortgages, servicers must begin to forgive fees
and, when appropriate, reduce principal and not just reduce interest rates and extend terms. Throughout this crisis, servicers have responded by taking half steps in hopes of an imminent or near term recovery in thehousing market. It is time to recognize the reality of the situation, accept losses and move on. This is particularly true for Payment Option ARMS, many of which will require a reduction in principal in order toachieve a sustainable modification.
3. Require that lenders/servicers provide a uniform, web-based application for borrowers seeking
loan modifications. Many consumers may not know who holds their mortgage or they have both first andsecond mortgages. A simple, uniform form and uniform modification document requirements will make theprocess easier for both consumers and servicers. If possible, the consumer should be allowed to upload anyrequired document directly to the web-based application.
4 Eliminate “back of the line” treatment. We have received numerous reports that consumers'
applications are rejected when documents are lost by the servicer or applications are incomplete. Consumersshould never lose their place in line because of servicers’ errors and they should be given a designated periodof time to complete their applications.
5. Insist that, within the next three months, servicers provide the staffing, training, and technology
to ensure that consumers are not met with long waits or conflicting answers. Consumers should not have to wait more than 30 minutes to reach a staff person who can process their modification request and they shouldreceive a decision on a modification request within 60 days of submitting completed paperwork to theservicer. If the loan modification is offered, the consumer should be allowed a minimum of 20 days to acceptor reject it.
6. In order to streamline the process for considering modifications, consider types of loans and/or
borrower characteristics for which wholesale modifications would be appropriate.
7 Require accurate and timely data from servicer/lenders in order to benchmark the progress of
loan modifications and foreclosures.
8. In order to deal with the problem of servicers losing documents that borrowers submit, require
servicers to send the consumer an electronic or paper receipt within one day of receiving each documentsubmitted by the borrower. If the borrower sent the documents electronically or by fax, the date of receiptshall be considered the date the consumer sent the document. If the consumer mailed the document, thedate of receipt shall be considered 5 business days from the postmark date. The receipt may be posted onthe web-based application.
As a direct result of the lack of response from servicers to desperate homeowners, we in law
enforcement are confronting rapidly growing criminal activity in the area of foreclosure rescue scams.
We will be happy to talk with you about any of these suggestions and stand ready to assist in any wayin the Administration’s effort to help homeowners and communities avoid unnecessary foreclosures.
Sincerely,
Terry Goddard
Chris Koster
Arizona Attorney General Missouri Attorney General
Thomas Miller Richard Cordray
Iowa Attorney General Ohio Attorney General
Catherine Cortez Masto Rob McKenna
Nevada Attorney General Washington Attorney General
cc: Michael S. Barr
Assistant Secretary for Financial Institutions