Permanent Loan Modification Denied After Trial Modification Period - Is It Legal?

by Anonymous

What would be the reason for denying a permanent loan modification if you pay on time during the term of the trial modification period? And is that legal?


Mortgage Loan Modification Answer:

Unfortunately, it's not unusual that a lender would refuse to turn your trial loan modification into a permanent one. I'm sorry that you are currently experiencing this, but here's some information that may help you understand the bank's position and why they do what they do:

The Bank's Books - During the trial loan modification period, your mortgage is still on the bank's books at full value, even if in reality, your home's value may have drastically fallen or is upside down relative to the mortgage loan balance.

Once your loan modification becomes permanent, your loan becomes a liability instead of an asset on the bank's books. This is because the bank will be required to realize the new actual lower value of your home. This in turn negatively impacts their reserves to make new loans that may generate more revenues and profits.

Banks do not want their reserves lowered, and try as much as possible to avoid it, including denying loan modifications. Why would this make sense if they lose more when your home is foreclosed? On the contrary, some banks are making a killing foreclosing on distressed homeowners. You didn't mention who your bank is, but there are banks/financial institutions who have purchased non-performing loans for as low as 6 cents on the dollar, and actually stand to harvest huge profits if they foreclose and turn around and sell foreclosed properties even at below market value.

Is it legal for banks to deny you a permanent loan modification? Only if they give you a valid reason for the denial. Otherwise, if you meet all the guidelines (whether it was for the HAMP program or a traditional modification program), they should review your case further.

What You Can Do:

I don't know if the above is true for your bank or not, but you must ask for a written explanation as to why they denied turning your trial modification into a permanent one.

You did not mention if your bank approved your trial loan modification based on the HAMP (Home Affordable Mortgage Program). If so, you may have just had your one shot at a HAMP loan modification. But you can re-apply based on traditional loan modification guidelines, which allows you to re-apply multiple times unlike the HAMP program which allows you to only apply once.

One other thing you can do is:

Report your lender if you feel they are violating HAMP guidelines. But first, you must check if you did in fact qualify for HAMP.

To escalate your situation to the proper agency, you can start with the following contact info:

Government-Owned or Guaranteed Loans

Fannie Mae Loans
1-800-7FANNIE

Freddie Mac Loans
1-800-FREDDIE

Non-Government-Owned or Guaranteed Loans

HAMP Solution Center
1-866-939-4469

FHA-Insured Loans
FHA National Servicing Center
1-888-297-8685

VA-Insured Loans
Go to: VA Loan Service Contacts

Please feel free to post again if you have additional questions or comments. It would greatly help others in the same predicament, who read this, if you would come back and let us know the outcome of your situation. All the best to you.

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