Since launching its Home Affordable Modification Program (HAMP) last year, the government has buried in the fine print that not all 60-day delinquent loans are eligible -- and one major exclusion is investor contracts that preclude modification.
Desperate homeowners trying to keep a roof over their heads often have no idea that the company to which they send loan payments is only a middle man who services the loan, and not the ultimate decider of their fate. In many cases, a shadowy investor or group of investors actually owns the debt.
And that's where the trouble comes in. These investors can put the kibosh on converting a trial modification to a permanent deal, without the homeowner even knowing the investor's identity or reason for rejecting the workout.
Many homeowners undertake trial modifications -- with a reduction in monthly loan payments -- only to be told months later that they can't convert to a permanent modification because the investor won't allow it and they now owe thousands in back payments. Many homeowners are getting incorrect information from the servicer, attorneys and advocates say.
"A lot of times there are no restrictions, and if there is one, it is usually limited [and] does not prevent the servicer from modifying under HAMP," says Margot Albert, staff attorney with Staten Island Legal Services. "[Servicers are] using any investor restriction as an excuse not to modify loans, even if there is another way under HAMP. . ."
Locally, Natalie Reyes, 38, fears she will lose her home after getting a confusing investor-based denial. Reyes bought a modest two-bedroom house in 2006, moving her twin daughters from a rough-and-tumble Brooklyn to Staten Island and a better shot in life.
Reyes scaled her real estate dreams to fit her budget as a single mom and New York City employee. But when an FHA loan at 4.25 percent fell through just days before her closing, she believed a smooth-talking broker who promised easy refinancing on an adjustable-rate mortgage.
Rather than lose her deposit and the house, she took an ARM at 7.625 percent.
When that mortgage reset in February 2009, Reyes fell behind and contacted the loan servicer Wells Fargo to work out a deal. Months of calls and reams of documents finally yielded a trial modification last September, and Reyes breathed a sigh of relief.
By completing three trial payments and submitting the appropriate paperwork, Reyes expected her loan would then convert to a permanent modification, as outlined in HAMP guidelines.
Instead, she got the shocking news that her modification was denied.
Reyes then spent her sleepless nights scouring the Internet for help, and filed a complaint with the Office of the Comptroller of the Currency. That yielded a letter from Wells Fargo in February stating that her modification had been rejected because "the investor's guidelines would not provide for a permanent HAMP modification."
Reyes had no idea what exactly the investor's contract stipulated, or even who the investor was. She's still trying to find out. Reyes continues to make the payments agreed to in her trial modification, and has turned to Staten Island Legal Services for help.
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