Court Effective In Getting Loan Modifications

On Nov. 1, 2009, the U.S. Bankruptcy Court, District of Rhode Island, began a loss mitigation program to help homeowners obtain mortgage loan modifications from their lenders.

According to testimony given at a hearing led by U.S. Sen. Sheldon Whitehouse in Providence on Oct. 28, the Bankruptcy Court’s program is much more effective than the federal Home Affordable Modification Program (HAMP) at dealing with loan modification requests.

Critics have argued that HAMP, as a voluntary program, doesn’t do enough to give lenders the incentive to negotiate troubled mortgage loans.

“Treasury’s enforcement of HAMP’s requirements remains ineffective,” testified John Rao, of Newport, an attorney with the National Consumer Law Center in Boston.

But in Banktuptcy Court, the supervision of a judge makes a difference, witnesses testified.
Rao said the Rhode Island Bankruptcy Court’s loss mitigation program is similar to a program implemented by the Bankruptcy Court for the Southern District of New York, and that other county and state courts have implemented foreclosure mediation programs.

“These programs do not require servicers or lenders to implement a particular loss mitigation option,” Rao said. “Instead, they set a standard for transparency and accountability in the foreclosure process that is often lacking without this intervention.”

“We’ve known for some time that the large loan servicers play all sorts of games to slow down and derail the modification process, and earlier this month learned that they are playing fast and loose with the foreclosure process itself,” Whitehouse said at the hearing, held at Rhode Island Housing’s downtown offices.

“As a result of the securitization of home mortgages,” in which loans are held by thousands of investors, “the relationship between homeowner and lender was fractured and the foreclosure system became dysfunctional,” Whitehouse said.

“Decisions that make no economic sense overall get made, because the fracturing has created perverse incentives within the system, because it’s virtually impossible for a homeowner to find a human with authority to resolve their problem.”

Whitehouse said homeowners in the HAMP program often deal with lenders “who won’t give you their last name, won’t let you talk to their supervisor and won’t make any sense…. It’s a painful situation when it’s your home at risk.”
“It’s ironic,” said U.S. Sen. Jack Reed, who also attended the hearing of the Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts. “Five years ago, you could get a loan in 24 hours with no documentation. Now, to get it corrected, is a saga of years.”

(This article is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. If you have any questions about this Article, please call or e-mail Stephen Vokshori, Esq. (213.785.5366 / or any other member of Vokshori Law Group.)

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