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Loan Modification is Broken

This post is reprinted from the experiences of someone living through a current loan modification. I thought the first hand account was great to help others seem the frustration experienced by many.


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Illustration Credit: Steve Rhode

First of all, I’d like to state how entirely demoralizing it is to seek financial assistance, but the way banks are handling the loan modification programs is a complete embarrassment for all parties involved.

Having both established lucrative careers at the same company, my wife and I were confident in deciding to purchase a new construction home. After a year and a half though, we both found ourselves laid off and without income.

We immediately hit the streets, looking for anything we could. My wife found a job making around 60% of her salary. I on the other hand, found it a bit harder, and had to rely on unemployment until I could get my own IT consulting business going.

We decided to apply for a loan modification due to our extremely decreased income as well as homes in our neighborhood still being built for around half what we paid (for the same model), thus lowering our home’s value dramatically. We were stuck, couldn’t sell, and had no where else to turn.

We initially applied in October, 2009 and were declined within 10 days for the reason of not making enough money. (This seemed ironic, as this was the precise reason we applied in the first place.)

After drumming up a few clients and launching my business, we decided to try again in early November, 2009. We were offered a trial payment plan for 4 months and told to make these payments and that a decision would be made.

Each and every month I would call to check on our lender to see if any progress was being made, and each month would be told to keep making trial payments, and that they were backed up.

After the first two months, we began receiving phone calls from our lender that we were delinquent and our loan was in default. It turns out that because none of the departments in this giant conglomerate company talk to each other. Our smaller payments than normal (Trial payments) were showing in the main system as shorted and thus we were behind on our mortgage. Our credit reports were literally being raped because of paying exactly what our lender told us to, and exactly when they told us to..

It took quite a few phone calls to get these departments all on the same page, and a lot of headaches before finally getting our credit reports straightened out.

Finally, early in the morning on April 24th 2010, I received the call we had been waiting for. We had been approved for a loan modification and would be receiving paper work in the mail with instructions and forms that needed to be filled out within 1 week.

Upon receipt of these papers, I was confused to see that the paperwork read as if we were declined for our loan modification. Further investigating showed that the reason for the denied modification was “Reason 11: Incomplete submission”. This was extremely frustrating as we had gone to great lengths to make sure everything was correct and complete the entire process. They were instead offering us a program called “Alternative Modification” Our payments were less than our trial payments to start with, then would gradually increase throughout a 9 year period then be steady for the remaining years of the loan.

The modification was using a deferred principle method, which takes a chunk of the principle and places it at the back of your mortgage, tax and payment free. You still have to pay it, but you save on interest. We were still optimistic about this type of modification and only had a few questions.

When I finally got a hold of the loss mitigation department to ask my questions, I was told that everything was correct, and we had nothing to worry about. The one question they couldn’t answer is how we were supposed to pay off the deferred amount at the close of our loan, but they promised to notate and that if we called back an answer would be in the system from a supervisor.

Upon contacting our lender to retrieve this answer, we were told that the paperwork we recieved was an error, and that they had sent out the incorrect paperwork to 45,000 customers. I was to shred the papers I received, and would be receiving another packet within 10 days.

How could a bank have screwed up 45,000 loan modifications in a single day and it not be reported in every news paper around the country?

It is my hope that someone in power sees this and makes sure this doesn’t happen again.


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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Roger Joseph

    This does work We settled a $ 500,000 second for 10%. but we do seem to be getting the run around on our first. We are into our 5th pmt. But they did pay our ins. for the year, which was not in our original mort. I do get the late pmt letters. They just do not communicate internally. I say give it a try, write a really good hardship letter–show a permanate hardship, if possible, and send them everything they ask for EVERY TIME they ask for it and do this by fax or E-mail ASAP. that is all I can say, except and God bless us all.

  • FFHUSA debt

    That is why more struggling families are turning to professional debt counselors for help. There are available debt solutions to lower your credit card payments by as much as 60% in some cases. There is a way to avoid rate hikes, penalties & bankruptcy. We can point you to various sources of debt help so you can have more cash in your pocket.

  • KarenJ

    I am beginning my own modification for similar reasons next week. I am putting it off because I know what I am in for and wonder if I’m up for the challenge. We applied for a modification on a severely under water investment property we had purchased and couldn’t get rid of. We have an interest only and the balance on the mortgage is about $50,000 more than the home would sell for (it is in a low middle class area, doubtful it would sell at all). We began the modification in May of 2009 and were strung along for a year before being denied based on the fact that there were no programs available for investment properties. They didn’t know that a year ago? Now we are trying with our primary residence with a different lender. We were denied for a Making Homes Affordable refinance because our home equity line was with a different bank even though we didn’t want to refinance the line. Now we’ll go the modification route. I plan on documenting the entire thing and I won’t be afraid to name names! Wish me luck!

    • Joshua Wright

      Hey there! best of luck! I only don’t name names because we’re still in the process.. I just fear of retaliation.. :(

      • KarenJ

        Yes, I can understand that! They are to be feared as they hold all the cards. I just pray for the strength to get through this!

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