mortgage

Reneging on trial mods

Oct. 1, 2009
Written 9:45 a.m. EST

BRING THE HATE: I have had a couple of e-mails from readers who completed trial mortgage modifications, and then the loan servicer reneged and forced them to go back to making the old, unaffordable payments. I want to hear from people that this happened to.

One reader says she negotiated a modification that resulted in a lower monthly payment. She was told that she would have to complete a "trial modification" in which she would make the lower payment three months in a row. The implication was that, if she made those three payments on time, the modification would be made permanent. If you're a native speaker of English, you assume that's what "trial modification" means.

This woman made four trial payments, and then the bank told her that her monthly payments would return to what they were before, when she couldn't afford them.

Last night, I heard a radio interview of a financial planner, and he said mortgage servicers renege on trial mods all the time.

It's infuriating. These companies took billions of dollars of TARP money. Then they renege on trial modifications while their CEOs resign in passive-aggressive, self-pitying snits over the criticism they received for handing decamillion-dollar bonuses to the people who got us into this mess.

I wonder if they file derogatory reports to credit agencies when borrowers make "partial" payments in trial modifications?

If your servicer reneged on your trial mod, let me know about it and how I can contact you for more info.

WALKAWAYS: Strategic defaults -- in which a deeply underwater homeowner stops paying the mortgage even though the payments are affordable -- might change from a trickle to a flood, a RealtyTrac exec tells Bloomberg's Margaret Collins.

UNDEAD VANILLA: Financial engineer Mike Konczal has eulogized the demise of the proposed requirement that banks offer "plain vanilla" versions of mortgages and credit cards and such. He has a geeky blog post that wonders if a revived securitization market will result in de facto plain vanilla mortgages. Warning: geeky.

Actually, it's author Alyssa Katz (whom Konczal quotes at length) who had this insight about plain vanilla mortgages and securitization. "Fannie and Freddie and their regulators made plain vanilla the standard for decades," she writes, adding, "It was only with the entry of essentially unregulated secondary market actors following 1980s deregulation that subprime and other gotcha mortgages came on the scene."

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