Banks Blame Homeowners For Banks' Failure To Issue Permanent Loan Modification

Several news sources have presented myriad explanations for banks' failure to issue permanent modifications as required by new government guidelines. The biggest challenge, according to a December 9, 2009 report in ABC News, is that only one in three homeowners send back the necessary paperwork to achieve permanent loan modification under the Obama administration's new program.

To me, this is shocking.

The amount of paperwork that homeowners must complete to be offered even a trial modification is gargantuan. It is logic defying that 66% of homeowners will comply with the banks and send in this paperwork up to the point they are offered a trial modification, and then stop dead in their tracks and pass up the a permanent modification.

Any bank exec that says that homeowners are not cooperating is lying. Well, maybe not lying (because I'm sure there are some homeowners that have not cooperated), but definitely stretching the truth.

But how can banks rely on this excuse? It's simple, really: neglect to provide homeowners will an complete list of paperwork that is necessary, and then blame them on the back end for not complying with their instructions.

And do banks really do this? YES. At least one bank, IndyMac, has pulled this stunt with my firm. IndyMac approved one of our clients, who will remain nameless, for a trial modification. As part of the trial modification package, IndyMac enclosed a bullet-point list of the documents necessary to accept the modification. I instructed our client to bring me all of the requested documents, met with him for about 30 minutes, and overnighted the complete package and a check for the first month's trial payment to IndyMac. And yes, I double checked my work to make sure every document on that bullet-point list was enclosed.

Less than a month later, when we called to check on the status of our client's case, we learned that he had been denied loan modification. The reason? Because all the documents that were supposedly required were not submitted. Immediately, I called IndyMac and demanded an explanation. IndyMac told me at this time of two or three other documents it needed, including tax returns, were not enclosed with the acceptance package. This was especially surprising to me, because nowhere in any of IndyMac's instructions did it indicate that tax returns or any additional documents would be required.

Ok, fine, I thought. No problem we'll just submit the requested documents and supplement the acceptance package. But no, that would be too easy. IndyMac told me that our client would have to start the entire loan modification process over again, from scratch.

Undeterred, I called again the next day and was able to speak with a supervisor. He was sympathetic to our client's situation and gave me a special fax number so that we could supplement the acceptance package with the required documents. But that was a few months ago, and we still have not received any sort of permanent modification.