Just a year ago, lenders processed loan modifications quickly, sometimes in as little as a month. In the last few months, the picture has changed drastically. Banks are understaffed and disorganized, losing borrower information and failing to communicate effectively with the very borrowers they are foreclosing on. "The judges are seeking more and more a pattern of indifference to record-keeping and good business practices," said Robert Lawless, a law professor at the University of Illinois who specializes in bankruptcy law.
Some common examples of lender irresponsibility include (1) Routine loss of borrower financial information that has been submitted for loan modification (in some cases up to three times); (2) Lenders purposely disconnecting phone lines are putting a caller on hold for a long time; and (3) Multiple representatives from the same lender giving the borrower conflicting information. Even HUD-approved housing counselors face the same stonewalling tactics used on homeowners. Depending on who they [housing counselors] talk to, and the level of seniority and the level of training and the different servicers (they deal with), they get completely different outcomes," said Helene Raynaud, an executive at the National Foundation for Credit Counseling.
Friday, November 20, 2009
Friday, November 13, 2009
SB 94's Potential To Crush The Homeowners It Seeks To Protect
On October 11, 2009, an important piece of legislation was signed into law and filed with the California Secretary of State. Senate Bill 94 ("SB 94") is aimed at crushing loan modification scam artists, people who roguishly cheated money from desperate homeowners under the false promise of obtaining loan modification. But SB 94 has the potential to achieve the opposite effect, and in practice, crush the very homeowners it seeks to protect. If you're having trouble falling asleep, you can read the full text of SB 94 here.
SB 94 attempts to stop scam artists from perpetrating a fraud by, among other things, preventing a loan modification provider (including law firms) from collecting an advance payment for services to be provided in the future. This helps to prevent scams--which is definitely a good thing--but it fails to consider the traditional model of any business, including that of a legitimate loan modification provider.
It's no secret that banks are overwhelmed with homeowners seeking relief and modifications for their homes. In the past, banks were able to provide modifications at a relatively speedy pace, one to three months. Today, banks have unequivocally stated that the time period required to process a modification can be up to six months. SB 94 requires, in essence, a loan modification provider to operate the business for months at a time with no income stream whatsoever.
This begs the question, who has the ability to operate a business with a operating expenses going out on a monthly basis and no positive cash flow until the six month mark? Yes, non-profit organizations exist, but there are not nearly enough to assist the volume of struggling homeowners in California.
The legislature must find a way to allow legitimate loan modification providers and law firms to balance the cash flow in their businesses while complying with the terms of SB 94. If nothing is done, homeowners are in serious danger of being alienated by any business that would previously been willing to provide solid loan modification services. If nothing is done, the mortgage crisis will only worsen.
SB 94 attempts to stop scam artists from perpetrating a fraud by, among other things, preventing a loan modification provider (including law firms) from collecting an advance payment for services to be provided in the future. This helps to prevent scams--which is definitely a good thing--but it fails to consider the traditional model of any business, including that of a legitimate loan modification provider.
It's no secret that banks are overwhelmed with homeowners seeking relief and modifications for their homes. In the past, banks were able to provide modifications at a relatively speedy pace, one to three months. Today, banks have unequivocally stated that the time period required to process a modification can be up to six months. SB 94 requires, in essence, a loan modification provider to operate the business for months at a time with no income stream whatsoever.
This begs the question, who has the ability to operate a business with a operating expenses going out on a monthly basis and no positive cash flow until the six month mark? Yes, non-profit organizations exist, but there are not nearly enough to assist the volume of struggling homeowners in California.
The legislature must find a way to allow legitimate loan modification providers and law firms to balance the cash flow in their businesses while complying with the terms of SB 94. If nothing is done, homeowners are in serious danger of being alienated by any business that would previously been willing to provide solid loan modification services. If nothing is done, the mortgage crisis will only worsen.
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