Journalism in the Public Interest

When Denying Loan Mods, Loan Servicers Often Wrongly Blame Investors

Homeowners who are refused mortgage modifications are sometimes given a reason that is false. Some loan servicers say that mortgage investors won’t allow the modification, but that is seldom the case.

After Hurricane Katrina, a series of problems including complications from a change in mortgage servicers left Arthur and Alberta Bailey behind on their loan. Now they're on the brink of foreclosure. (Matthew Hinton for ProPublica)

Arthur and Alberta Bailey are about to lose their home near New Orleans, and their mortgage company says one thing stands in the way of relief: The investors who own their mortgage won’t allow any modifications.

It’s a story heard again and again across the country as desperate homeowners try to participate in a federal program created to foster loan modifications and prevent foreclosures. Loan servicers say their hands are tied by Wall Street.

Federal officials, bank officers, housing counselors and investors themselves say that excuse is cited far more often than is justified. In fact, they say, few mortgage deals include such restrictions.

Consider the case of the Baileys. Litton, a subsidiary of Goldman Sachs, services their loan, and Litton’s contract with investors has no clear language banning modifications. In fact, documents show that over 115 other mortgages from the same investment pool have already been modified.

Even the representative of investors in the Baileys’ mortgage says only the servicer can decide when to modify loans. While he couldn’t comment on an individual case, Bank of New York Mellon spokesman Kevin Heine says it’s “misinformation” to say that investors make these decisions.

Servicers can pass the buck because one mortgage often involves many different companies. During the housing bubble, banks often sold mortgages to investors on Wall Street so they wouldn’t have to keep the loans on their own books, freeing them to make even more loans and protecting them from those that went bad. They then hired servicers to handle the day-to-day work of collecting payments from homeowners ­– and to decide when to modify loans. Now loan servicers have been inundated with requests from homeowners trying to avoid foreclosure through the government’s $75 billion mortgage modification program. The Treasury Department estimates that 1.7 million homeowners should qualify for help.

For homeowners, it can be difficult to understand who is responsible for what. This confusion gives servicers a ready excuse for refusing modifications.

Indeed, nobody knows the exact extent to which servicers are passing blame on to investors. Some housing counselors estimate that 10 percent of the denials they see are attributed to investors; others say they see as many as 40 percent. Either way, tens of thousands of homeowners may be affected, their attempts to modify their mortgage wrongly denied.

The prevalence of such false claims by servicers is a “legitimate concern,” said Laurie Maggiano, the Treasury Department’s director of policy for the modification program. “It’s been very frustrating for us.”

Investors are also dismayed, saying servicers are not acting in their best interests. “This is one of those rare alliances where investors and borrowers are on the same page,” according to Laurie Goodman, senior managing director at Amherst Securities, a brokerage firm that specializes in mortgage securities. She says investors have “zero vote” in determining individual loan modifications and, instead of foreclosures, prefer sustainable modifications that lower homeowners’ total debt.

 Investor-owned mortgages represent more than a third of trial and permanent modifications in the government’s program. Under the program, servicers must modify the loans of qualified borrowers unless contracts with investors prohibit the modification, or if calculations determine that the investors won’t benefit from a modification. Investors’ contracts rarely prohibit modifications, and at times, ProPublica found, they have been blamed for denials even though other mortgages owned by the same investors have been modified.

Even when contracts with investors do have restrictions, servicers don’t appear to be following federal requirements that they ask investors for waivers to allow modifications.

Such requests “never happen,” says David Co, a director at Deutsche Bank’s department that oversees 1,600 residential securities, the complex bundles of mortgages sold to investors.

Treasury’s Maggiano says the government is investigating investor denials and considering greater consequences for servicers that wrongfully deny modifications. Servicers’ compliance and accountability have been a major problem for the government’s program. Treasury has threatened penalties before, but it hasn’t yet issued any.

Whose decision is it?

“The very phrase ‘investor restriction,’ I think, is deliberately confusing,” says Joseph Sant, an attorney with Staten Island Legal Services, which represents homeowners in foreclosure. “What we’re talking about are not business entities or people, but inert documents.”

Typically, financial institutions set up mortgage-backed securities as a trust — legally their own entities — and then sell bonds from the trust to investors, which can range from mutual funds to pension funds. At the same time, they sign up trustees to manage the security and hire divisions of their own banks or other companies to act as servicers that work directly with homeowners.

While servicers often tell homeowners that investors decide whose loans can be adjusted, Heine, the spokesman for Bank of New York Mellon, one of the largest trustees that administer mortgage securities, says the responsibility to modify loans “falls squarely to the servicer.”

And the contracts that servicers often blame are usually not a roadblock. A report by John Hunt, a law professor at the University of California, Davis, looked at contracts (PDF) that covered three-quarters of the subprime loans securitized in 2006 and found that only 8 percent prohibited modifications outright. Almost two-thirds of the contracts explicitly gave servicers the authority to make modifications, particularly for homeowners who had defaulted or would likely default soon. The rest of the contracts did not address modifications.

Jeffrey Gentes, an attorney at the Connecticut Fair Housing Center who works with hundreds of homeowners across the state, estimates that in 80 percent of the cases in which he has seen the servicing contracts, no language prevents modifications as the servicers have claimed.

Homeowners’ advocates say that when they successfully disprove a contractual restriction, the servicer just gives another reason for denying the modification. “The investor is cited first until the borrower can prove it otherwise,” says Kevin Stein, associate director of the California Reinvestment Coalition, which helps low-income people and minority groups get access to financial services.

Sant, the Staten Island attorney, says a servicer told one client that the contract with investors forbade extending the length of the mortgage, one key way monthly payments can be reduced through government’s program. But the government has addressed the objection, ruling that if a servicer can’t extend the length of a mortgage, it can still give a modification and just add a balloon payment to the end of the loan. Sant pushed back on the servicer’s attorney, who dropped that reason for denial and instead said the homeowner had failed the computer model that determines eligibility. Sant currently is reviewing the case to determine how to proceed.

Struggling to get information

Homeowners looking to challenge investor restrictions need information that is not easily accessible, or sometimes even public. “All of the information seems to be in the hands of the servicers,” Stein says. “Even the investors don’t know what’s going on.”

Tracking down the servicer’s contract with investors, or even just the name of the mortgage-backed security that owns a loan, is often a struggle. Many homeowners and advocates report that servicers will not tell them the name of the security.

National City Mortgage turned down (PDF) Candice Sullivan’s request to modify the loan on her home in Northern California, writing that “the investor has denied the modification at this time.” On the phone, the servicer wouldn’t give Sullivan the name of the security that owns her loan, so Sullivan wrote a letter citing consumer protection laws (PDF) and asking for the information. PNC, which had bought National City, responded by stating (PDF), “We are unable to disclose any information regarding the investor of your loan due to our servicing contract with them.”

But in 1995, as part of efforts to increase consumer protections in the mortgage industry, Congress passed a law amending the Truth in Lending Act (section F) to require servicers to provide the name and contact information for the owner of a loan when a homeowner submits a written request. The Federal Reserve, which has authority over the Truth in Lending Act, confirmed the law’s requirement that the information be provided.

PNC declined to comment and referred us to the Mortgage Bankers Association, an industry group, which asserted that onerous requests from homeowners don’t require responses. It did not specify what it considered to be onerous.

These difficulties extend into court as well. Karen Gargamelli, an attorney with the nonprofit legal-services group Common Law in New York, says Bank of America took eight months to provide the contract that covered one client’s loan, despite being in state-mandated foreclosure settlement conferences. The bank produced the agreement only after a court order. After a year and a half in settlement conferences, the court-appointed negotiator recently found that the bank was not negotiating in “good faith” and recommended that a trial judge cancel the foreclosure.

Treasury has recently begun requiring servicers to provide a list of every potential restriction for every agreement that could impede a government modification. Though the department has not yet decided if it will make the list public, the government’s compliance teams will at a minimum have the list to check denials that homeowners or housing counselors bring to their attention.

“If there is a mistake made, the consequences are being felt by the homeowner, their family, their neighbors, the local government,” says Stein, of the California Reinvestment Coalition. “They are not being felt by the servicer.”

In limbo on the bayou

Sitting in his home in La Place, La., 20 miles north of New Orleans, Arthur Bailey says he is usually an optimist. At 68 years old, Bailey, a retired mechanic, thinks he’ll live “another 99” and hopes to live independently with his wife, Alberta, in their own home.

But after Hurricane Katrina, a series of problems, including complications from a change in mortgage servicers, left the Baileys behind on their loan. The new servicer, Litton, told them they had to pay up. Now they’re on the brink of foreclosure.

Photo by Matthew Hinton for ProPublica.

For two years, even before the government program began, the Baileys have been trying to get a modification. They say they can afford their original loan payment of around $500 but can’t pay the extra $238 a month that Litton demands to cover the late payments, accrued interest, and fees. Their only income is less than $1,600 a month from Social Security, and both are limited by health problems: Arthur had a stroke several years ago, and Alberta had a kidney transplant in February. “I’m a cripple putting off buying a $99 wheelchair,” Arthur Bailey said in his Louisiana drawl.

Despite the troubles, Litton isn’t planning to lower their monthly payments. “They are saying that the investor don’t want to do it,” Arthur Bailey said. “But the investor said Litton can do it.”

Alexa Milton, who oversees a team of counselors at Affordable Housing Centers of America, has been helping the Baileys try to get a modification and said Litton’s message is clear: “They seemed pretty straightforward in saying the investor prohibited all modifications of loans in the security.”

But data that the security’s trustee reported to investors shows that more than 115 mortgages in Bailey’s pool have been modified.

Litton told ProPublica that it cannot speak about a specific homeowner’s situation but said it encounters language in contracts "from time to time that prohibits the modification of loans.”

The Baileys have reached an impasse. Litton canceled a foreclosure sale in March when Alberta Bailey had major heart surgery after complications from the kidney transplant. Arthur Bailey says he is “just living in limbo.” Litton could put the house up for sale any day.

Reporter Paul Kiel contributed to this story.

This is an excellent article, but fails to mention the reason WHY servicers might deny modifications that both the homeowner and investors want.  One good (for the servicers) reason is that servicers collect extra fees from loans that are in default or foreclosure.  Thus, modifying a loan and taking a homeowner out of “default” status costs them money.  This middleman who works against the real parties to the loans is one of the hidden costs of the securitization “innovation” that got us (or at least substantially contributed to getting us) into this fiasco.

What should we be doing to take back our homes? This is not a rhetorical question.  These people worked their whole lives only to have the weight of losing there homes stealing their peace of mind.  I am tired of living in fear and I am relatively young and healthy !  Is the government paying attention to which companies have money to gain by denying these loans modifications ?  If this is addressed some lives could change !

Karen -

EXCELLENT job on this story!!!  This is EXACTLY what Chase is guilty of doing and we need to go after them full force with this information.  I appreciate all of your hard work and help with this whole process.  Thank you to you, too, Paul!!

Just curious about this due to the excellent reporting of the ProPublica staff: are there any class-action lawsuits in the works over these issues?? Every day it seems like there is a new article about people fraudulently foreclosed on because of this worthless program, lying by mortgage services, breaking of government guidelines. Surely at some point, enough people will have been screwed that some group of lawyers will see the pile of money to be made suing these companies for easily provable offenses!

This is a fantastic article. This is exactly what happened to me at first. Chase told me Deutsche owned my loan and that Deutsche didn’t allow modifications. After lots and lots of pressing and after reading some statements from Deutsche itself saying that the decision to modify is solely in the hands of the servicer, and after two additional denials for bogus reasons, I finally got my HAMP. But it is a grueling process.

The banks are absolutely abusive to the homeowner and often to their advocates and even their lawyers. I was totally knocked off my feet when I realized how much power Wall Street has been given in this country, and how ruthless they are allowed to be.

We homeowners are fighting back, when we can, on sites like and, but we need help. Articles like this one are wonderful. We also need Dr. Elizabeth Warren at the head of the CFPB before the American Middle Class vanishes.

Dominick Mastroserio

July 23, 2010, 2:37 p.m.

That business conducted in in public is allowed to be kept secretly nebulous about its machinations underscores what’s wrong with how capitalism has metastasized into an insatiable social carcinoma threatening ordinary people’s lives.

So long as parasite capitalists can brow beat, lie and steal from the very people who must pay mortgages worth, over time, a ridiculously higher amount than its assessed value - to the lender, servicer, invester and other vampiric non-productive leeches allowed to gamble with the real money behind the scenes - hard working folk; all of us will continue to be subject to the worst swindling and prevaricating predators imaginable behind the scenes.

What is the most important life’s purchase of buying a home for most ordinary people has to be taken away from those who complicate the process and make it surreptitious.  It has to be streamlined, made transparent and simplified - even if government has to make it all a ‘fee simple’ proposition.

Those capitalist vultures who are legally enabled to hide what needs to be blazoned documentarily in a lucid manner for all to scrutinize its legitimacy, validity and fairness - I say those capitalist parasites need to be debarred from conducting this life-critical business.

One of the very sad side effects of all this is that we are training a great many young people in business that lying to and deceiving their customers is just a part of business. They will carry these business practices with them into future jobs.

I don’t believe there was anything in the programs that required the lenders to participate in loan mods.

However, if they elected to participate in loan modifications, they owed it to everyone involved to be honest about what they could and couldn’t do.

I think the whole thing is another example of how bad things can get screwed up when the government moves in to “help”.

Going back to another ProPublica story, it doesn’t appear that any of the banks are being held accountable for how they have conducted themselves. I’m not the least bit sure that the program even requires them to BE accountable. That part may have been left out of the program in the rush to make the people think the politicians were going to do something to help.

Thank you Karen (and Paul) for your commitment to this issue, and your wonderful ongoing work on it.

Readers, ProPublica has been the only organization that has been covering this issue in depth, as well as many other important issues that the “popular” media ignores.  A number of their investigations have led to the popular media picking them up.

Please spread the word among your friends and relatives, and help ProPublica expand the base of readers (I have absolutely no connection with ProPublica beyond a profound respect and appreciateion for their good works.)

The truth is, they tell you anything as they attempt to scare you into sending just one more payment. In my own case, I was dealing with Chase who kept referring to the investor. Finally learned that the ‘investor’ was Chase itself.
I finally hit a point where after 19 months of being jerked around, I told them they would get another payment when they assured me that if I started making payments again, they would not foreclose. Okay, said I, then go ahead and foreclose.
I suspect that sooner or later they will, but I haven’t heard a thing from them now in two months.

And at this juncture, I’ve made other plans. They can have the house (as soon as there’s a sheriff’s sale and the equity of redemption period passes). They can try to sue me for the balance, but they can’t touch our social security checks.

They’re too stupid to realize that in their attempt to screw me, they’ve screwed themselves.

What needs to happen is for somebody in Washington to wake up and realize just how badly the banks are cheating the homeowners and the government.

Oh, well.

Know what you get when you cross a commercial lender with a cockroach? You get nothing. There are some things even a cockroach won’t do.

I am confused as to why, if lenders and servicers are ignoringtreasury “Regulations”, private litigation hasn’t been instituted.  It’s my understanding that Regulations have the force of law, and can be brought to Court to force compliance.

Regulations differ from recommendation as I understand in that recommendations do not have the force of law.

If anyone can add to or correct my understanding, I will apperciate the feedback.

Thank you.

N.J. Connolly

July 23, 2010, 5:36 p.m.

Tom, the point here is that there are no teeth in any of this and lenders even wrote some of the verbiage in the HAMP rules. To their favor, of course. Borrowers have to traverse a nearly-impossible paperwork gantlet to win any attention from the bailed-out banks.
Meanwhile, they spend savings they could better redirect to a new situation on their underwater mortgages, hoping to look good when they get a turn at a mod. This proves to be a futile effort for some 96% of applicants.
The Treasury’s penalties are vaporware, and banks have freely shrugged off criticism for months. Now, the end of the program is in sight and they retain cemented into place, saying no to one and all.
Bye the bye, it is especially insulting when the banks disparage borrowers as speculators who went overboard, indulged themselves with SUVs and vacations. Elizabeth Warren and others have established that the majority of struggling homeowners are coping with reduced or eliminated wages, medical bills and/or divorce.
SUVs have little to do wit it. Banker insults are duly repeated by Treasury dopes, who parrot even raspberries like “the paperwork is incomplete.” Many borrowers have sent several iterations of apps., only to be lost in red tape hell. Lost faxes, erroneous customer service ‘advice’ and so on have made this a living hell for many already-traumatized homeowners.
If you intend to screw me over, why not save the trash talk? The act itself is repugnant enough.

Also - there are some people who have won in court but those are few and far between. Matt Weidner, an attny from FL, has a blog and seems to have had some success. But if you are in a non-judicial state (like I am in CA), the courts rarely see the cases. And people who have a hardship that makes them unable to pay a mortgage don’t have the money usually to pay an attorney too. It’s such a conundrum. I got a mod on my first after 18 months and hundreds of hours, but I still have my second. My house is underwater by less than my first. But I need a new roof. I want to take care of this house, but if I am going to lose it should I take the chance on the $5,000 for the roof? What would YOU do? And my problems are so small right now compared to so many others. At least I have a job!

Fantastic Article!  I am utilizing it to the fullest!  I have been trying to make sense of what the investor gains by not modifying and couldn’t figure out the answer. Now I have my answer.  I have a 2 year mod but my home goes back to original pmt in August of 2011 number 1 I can’t afford the original pmt and am trying to get my mtg company to accept current mrkt value which my husband has been approved for FHA mtg at 97% doesn’t get much better than that number 2 my house is more that 200,000 underwater so why would I pay that, it is one third of its value I was told my investor doesn’t allow principle reductions.  I feel a sudden sense of impowerment and will no longer be playing nice in the sandbox I AM KEEPING MY HOUSE.  Thank you so much for the article and the enlightnment!

Chase and BOA are the worst. Chase sent a property preservation company out to my property and they stole all of my property outside which amounted to $1500. Chase was able to get a judgment against me when even when they could not produce my note.  Both companies will string you along with the hope of a modification while pursuing a judgment against you at the same time. Had to file Chapter 13 BK to keep property. DON’T GIVE UP - HIRE A GOOD ATTORNEY!!!!!!!!!!!

Underwater in the dessert

July 24, 2010, 1:41 a.m.

Aren’t most of these loans also backed by gov’t insurance?  Of course, this insurance is really taxpayed-backed entities like Fannie, Freddie, and FHA.

So the lenders don’t care if they foreclose, because they get most of their losses back.  However, they don’t recoup anything on a loan mod, maybe $1k.

Somebody please explain the role of Fannie, Freddie, FHA and insurance in this mix.

The banks are not going to modify loans when they make more money foreclosing.  With their ability to blame the homeowner and investor without anyone looking over their shoulder to prove that incorrect, why bother doing a modification?

If anyone is on a never ending trial program, stop making those payments.  The bank is simply trying to get as much money out of you as they can before they foreclose.  If your trial agreement states that you are to make 3 (or 4, or whatever it states) and you make more payments that what is specified in the agreement, you have violated the terms of the agreement.  So stop making payments!

The government does not care about homeowners, taxpaying citizens.  The top 2% of this country are enjoying life just as they were when they invested in our home loans. 

Hopefully some lawyers will see the potential to make a ton of money by filing class action lawsuits against these giants and we will see some form of justice in the future.

Thanks Karen and Paul for keeping this crisis at the forefront, where it belongs.

It is people like you at Propublica who are the voice of millions and for that, I will be forever grateful to you.

Here’s the latest trick from Reisdential Credit Solutions, the mortgage loan servicer Citimortgage sold me to:  RCS said I wasn’t eligible for the HAMP program because I didn’t have enough income.  Then I learned the processor arbitrarily decided to review only ONE of my three bank accounts.  So they were only looking at 1/3 of my financial picture.  They also denied even receiving the 6 months worth of bank statements I’d sent repeatedly. They shelved the P&L I sent because ‘it didn’t match up with your bank account.’  Although it would have, of course, matched up if they’d included all 3 of the accounts. 

The reason I even have one of these 3 accounts is that I am trying to exit Bank of America, its fees and its policies. So it has the lowest number of deposits. And THAT’S the only one they’re using!

Now, the latest twist:  my Hope Hotline counselor tells me that the processor doesn’t want to count my Schwab statement because ‘it isn’t a business account.’  Which is ludicrous.  And since when do the HAMP guidelines include the KIND of accounts that count toward evaluating Income?

This is all another stall tactic; one that’s calculated to get me to throw in the towel in despair. Which only makes me dig in deeper. I’ve been toiling at this Sisyphean challenge for a year now and while their unethical efforts infuriate me, their behavior also convinces me that none of us should let them get away with it.

David C Breidenbach

July 24, 2010, 1:25 p.m.

Some servicing agreements, together with other securitization documents, allow the servicer to retain net proceeds of foreclosure sales in a “collection account”. The servicer is specifically entitled to retain the income derived from Qualified investment assets. A group of homeowner promissory note may meet the test of being a qualified investment. The servicer also is entitled to select the qualified assets in which the collection account balance is invested allegedly “for the benefit” of the investors in senior-most tranches for decades to come. The servicer is entitled to investment income derived from this “held in trust” income. This is justified by servicing agreement conditions for the servicer to guarantee [ie make up] up any losses made in those investments. The servicer receives a substantially greater income stream return if he invests in a controlled bank CD that lends money to an affiliate that invests in high flying Far Eastern venture, or other speculative investment——than if he simply moves a “modified” note into his “collection account” investments in qualified assets. The return at 5% or so—even with fees—- is not as enticing as the high risk high return overseas investment. There may be an argument that the investment in U.S mortgage loans on property in market value free fall, payable by workers facing looming shrinking labor demand is not in the investors interest because if the servicer suffers losses on those loans held in the collection account—it must make up the losses. If there are servicer employees who have info on acct balances please contact me .(JavaScript must be enabled to view this email address)

The article refers to the fact that a large number of servicing agreements do not expressly prohibit the servicer from modifying a loan without investor approval.  However, not mentioned is the liability exposure the servicer faces for modifying a mortgage loan without the approval of the investor.  The standard by which the servicer’s conduct will be judged, and thus its liability exposure determined, may be set forth in the servicing agreement or may just be determined under the common law principle that holds a person liable for losses incurred by negligent conduct.  The upshot of this situation is that the servicer is in the middle in choosing whether to modify and incur the anger of, and possible liability to, the investor or not to modify and be subject to defending claims by the borrower who is seeking to avoid foreclosure.  I question whether the servicer’s compensation was determined with these risks in mind.

Alan - the banks are not dumb. They - both the lenders and the servicers - knew the market was being artificially inflated and knew that they were offering loans to people with promises they couldn’t keep, and encouraging people to put no money down on a HELOC or agreeing to an ARM or a number of additional shady deals. It is the investors (retirement funds and the like) and the homeowners who are the victims here.

I have no sympathy for the servicers. And on top of this their employees lie, harass, “lose” documents, deny modifications for bogus reasons, mismanage negotiations - you name it. There is no way all homes can be saved from foreclosure, but I’m telling you from personal experience that these servicers are fiscally and emotionally raping the American Homeowner trying to squeeze the last dime out of us or beat us into submission by perpetuating the nightmare.

What about the investors in all of this? With all of the foreclosures and non-performing loans some of them are starting to wake up and point their fingers not at the homeowner, but at Wall Street which manufactured this mess.

And I do disagree. Many PSA’s clearly give the servicer the authority to modify, in direct contradiction to what the servicers are saying.

You can look at this house by house, or home by home, or neighborhood by neighborhood or - hey - here’s a thought - look at what this is doing to the American Main street. We bailed Wall Street out. Where is our bailout?

Barbara: According to the UC Davis article cited by Pro Publica, about 60% (in dollar volume) of the servicing agreements examined permitted the servicer to make modifications, subject to express or implied conditions.  There was nothing in the article to indicate that the servicer had unconditional freedom to modify.  It follows, then, that the servicer’s flexibility would be dependent on meeting these conditions.  Under these circumstances, the servicer would have to take into account whether in agreeing to a modification, it could satisfy all of these conditions.  If the investor second guesses the servicer’s judgment, the servicer is taking on a potential liability to the investor.  I doubt that it will always be clear to the servicer when it can modify without risk of a claim from the investor that the modification was wrongful.  This means that the servicer’s level of compensation for servicing the loans should take into account this risk.  It’s doubtful, however, that the risk was known at the time the compensation was set.

I don’t doubt there are servicers that are not acting in good faith, particularly when (as shown in the Pro-Publica article) the need of a borrower for a modification is great and the consequences of being turned down are awful.  The circumstances of the borrower, however distressing, should not automatically dictate the decision on the requested modification. 

As for who created the mess, I think there are a lot of villains, including Wall Street, the U.S. Congress (for supporting the decisions of Fannie Mae and Freddie Mac to increase the size of their loan portfolios and make or guarantee sub-prime and Alt-A loans, as well as for enacting the Community Reinvestment Act), the banking regulators (for not supervising the banks’ increased exposure to this asset class), the credit rating agencies (for giving AAA ratings to mortgage securities composed of questionable mortgage loans) the main street media (for not identifying and publishing stories about the excesses in the mortgage market) and finally, but not necessarily the least responsible, unscrupulous or reckless borrowers.

Interesting discussion. Our perspectives are, of course, quite different. I come from living the nightmare of trying to get my own modification (I was successful) and helping others to varying degrees of sucess. I come from the position of the people on Main Street who were not trying to milk the system, but who trusted unscrupulous brokers and bankers. Clearly there is enough blame to go around and I agree with the culprits you have named, but from my perspective the people who are still getting the lions share of the abuse live on Main Street, no matter who is to blame. It is time this abuse stops.

David C. Breidenbach

July 24, 2010, 3:58 p.m.

The servicers place proceeds of foreclosure in their collection accout that for each nominal trust. The collection account is provided under the servicing agreement. The servicer retains income from the collection account as compensation under the servicing agreement. The servicer has more income if he invests in risky fast growth Asian ventures, than American Homes.

To all who has been betrayed by Chase. Please go to Google and type in.

Well I suppose if you wait long enough any rich internet discussion will start attracting seriously wacked out input.

It is not a wacked out input it is the truth. And if your Grandmother would of been one of the victim who could not take her money out from Chase Bank in 1942 and sent to the concentration camp the opinion would be different.
People can see the the similarity that most of the banks are dirty and would sell out their own mother for a buck.
What Banks are doing to main street today is almost the same,except people are not sent to concentration camp. Instead Families and Children are thrown to the street. Only in under Nazi rule this was allowed before.
These Banks got our money in the bail out to help sabilize the economy and help homeowners. Has anyone here been help by their banks?

I totally agree with Aimee. At this point it should be crystal clear - to the feds, homeowners, non-profits struggling to help people who are qualified for the MHAP, attorneys across the country and ProPublica (by the way Thank You) that despite the regulations, Congressional hearings, etc. that loan servicers are determined NOT to comply with the mortgage modification program. For every person who tells their story there are tens of thousands who are going through the same hell with Chase Bank, Wells Fargo, Bank of America, etc. and all of those banks and servicers lined up and held out their greedy, corrupt hands and took bail-out $$$ yet turn around and gave this country their a__ to kiss.

This fiasco has gone on too long and makes the Obama Administration appear even worse than the Bush Administration which I believe the banks wouldn’t have dared cross this way - mostly because Bush & Co. and the banks worked hand-in-hand, but still . . .

There are now laws and regulations in place yet MHAP is being made a sham by the loan servicers and everyone knows what is happening.

Because ProPublica has rallied those suffering from the abuses and frustration of trying to modify their mortgages and having Chase, WFHM, BofA, etc. tell lie after lie - why can’t we all band together and pass along a petition to see how many homeowners are willing to bring a class-action suit against the servicers breaking federal law? It appears that will be the ONLY way to get the banks to stop playing games with our lives.

I’ll sign.

Please people help me out here.
I have read the servicing and other securitization documents of many of these off-balance sheet “trusts”. The terms carefully describe the manner of distribution to the various classes of MBS. Eg as the trusts’ bottom tiers—filled with predatory loans—collapse the upper tiers’ cash flow from their mortgage group is redirected to senior investors in the bottom tiers. When foreclosure proceeds are received by the servicer those proceeds are booked into the servicers’ “collection account” for the trust. These non-current payments -liquidation proceeds are held indefinitiely for the supposed benefit of the senior investors when the current mortgagor payments cease in 10-20 years. In the meantime the servicer invests the funds in its discretion [ eg its own CDs, as a cheap source of funds ] The servicing agreements generally permit the servicer to retain ALL of the income from the invested proceeds as part of the “compensation” package—similar to banks holding escrowed RE taxes. But I do not see where the provisions permit the servicer to waive receipt of interest income [much less principal—as is really needed!] and if the servicer waives-which investor class gets a reduced distribution? Please give me an example that i can call up on the SEC URLs of a trust with such servicing provisions. What section would a servicer use to defend against a suit by an investor that was just shorted? This is critical—please dont give me unverifiable statistics—-show me an example please?

Alan Barton:
Servicers are protected against liability for performing HAMP loan modifications in several ways:

1. PSAs typically require the Servicer to act prudently in accordance with industry standards when choosing whether to modify mortgages.  The Helping Families Saves Their Homes Act of 2009 protects servicers against liability to investors by declaring that generating a HAMP modification is categorically up to industry standards.

2.  Servicers determine that modifications offer a better net present value (NPV) than foreclosure before modifying under HAMP.  The Mortgage Bankers Association agrees that NPV is an adequate test for determining whether investor interests are best served by a modification.

3.  Beyond this, servicing contracts give a great deal of latitude for servicers to determine when mortgages in default or at imminent risk of default should be modified.  It would be extremely difficult to sue a servicer for using this very broad delegation of authority to modify a failing mortgage loan rather than foreclosing.  This is supported by the fact that to date, no investors have commenced lawsuits for modifying mortgages.  The only litigation that investors have commenced even remotely related to this issue concerns a servicer failing to abide by its obligation to purchase modified mortgages from the trust (Greenwich v. Countrywide).

Hello Joseph and Alan. Appears you both may be players in the industry or if not then some very informed laypeople, and I thank you for the information. Regarding investors and their apparent silence in this situation, that has been a puzzle to me for awhile, as has been the silence of states and counties who are losing income from assignments within the confines of the MERS system. The following article, though, reveals that more investors may be starting to get a whiff of how they have been scammed:

Joseph:  Thanks for your clarifications.  My observations are:

1.  I don’t believe that HAMP or any law can constitutionally retroactively change the pre-existing obligations of a servicer to the investors.  Such a law would be be depriving the investors of their “property” without due process (Fifth Amendment).  Of course, a law may affect the rights of investors under agreements entered into after the effectiveness of the law.

2.  The fact that no litigation has been initiated is a positive factor in assessing servicer risk.  It is not fully dispositive of the problem. 

3.  The use of NPV by a servicer in making a modification decision seems like a rational approach to the subject.  However, it is not difficult to sue a servicer for an allegedly imprudent modification or, for that matter, anyone for anything.  It may be difficult to recover in such a suit, but it may be very costly to defend that suit.

This article is very insightful and thorough, but does not mention the underlying problem.  Bank participation in these programs is VOLUNTARY, which means that they are not legally required to modify.  Also, even if modification does occur, the final payment (after adding penalties, past due amount added at end of loan, etc.) does not bring down monthly payment in any significant way. 

The whole loan mod program was flawed from the start.

If the 2009 law changed the obligations embodied in PSAs, it would present both Due Process and Contracts Clause issues (both of which I think could be overcome, but they would be colorable concerns).  But the 2009 law only defines with more specificity general duties of care that the PSA references.  Since the parties entered into the agreement knowing that the standard of care was subject to state and federal definition, they would not be able to demonstrate an impairment of the PSA.  This is similar to, say, an insurance contract that provides coverage except for gross negligence—the parties can’t come back and claim an impairment when state or federal statutes or case law change the definition of gross negligence. 

While lawyers could come up with formal legal concerns at a critical distance, I think those concerns are theoretical.  As the article indicates, investors want HAMP modifications.  I don’t think legal skittishness is holding back modifications that fit HAMP guidelines.  If anything, the pressure is in the opposite direction.  The problems with HAMP are structural in the sense that the servicing industry is not equipped to deal with the problem, has no incentive to equip itself, and policymakers are not willing to do what it takes to generate those incentives, especially using the proverbial “stick” (whether bankruptcy reform or clawback of HAMP incentives).

This is a great discussion.  I am trying to help dozens of homeowners who are stuck in modification hell.  I would like to ask your permission to post your comments on - it is very good info and I believe our members would benefit from it.

Since HAMP is not a law, the banks do not have to modify anyone’s loan.  The treasury directives are full of “mays” and “ifs” but there is no penalty of the bank does not modify a loan.  Due to the securitization of the loans, it has become most difficult, if not impossible, to determine who really owns your loan. 

I agree with Alan’s assessment on the servicing agreements.  The bank is not going to risk exposing itself to liability to take a loan out of a pool and modify it. 

Change needs to happen at the highest level:  our government/the Department of Sachs, I mean Treasury.  If something is not done to change the way this program is being implemented, it will continue to fail.


You are referring to proceeds that servicers keep in Collection Accounts—these are filled either with payments of principal and interest (monthly payments from homeowners), or with liquidated assets of the trust (i.e. proceeds from foreclosure sales).  Loan modifications are not liquidated assets, so these provisions (while helpful in understanding servicer incentives) are not relevant to determining whether a servicer has the authority to modify principal and interest rates.

Modification authority is typically found in a different section of the PSA, typically Section 3.  What you’re looking for is something much simpler. 

For instance, this is from a loan trust called “Option One Mortgage Loan Trust 2006-2” Section 3.07:

“... in the event that any Mortgage Loan is in default or, in the judgment of the Master Servicer, such default is reasonably foreseeable, the Master Servicer, consistent with the standards set forth in Section 3.01, may also waive, modify or vary any term of such Mortgage Loan (including modifications that would change the Mortgage Rate, forgive the payment of principal or interest, capitalize the interest portion of past due Monthly Payments and outstanding Servicing Advances, or extend the final maturity date of such Mortgage Loan)...”

The banks are breaking laws and foreclosing on homes ILLEGALLY, but that is because the home owners are just letting them them get away with it! Do not leave your home if your bank has breached your loan contract and broken servicing laws. We need to make the banks accountable for this monstrosity that is taking place, and take our country and our lives back once and for all!  We have been mortified trying to modify our loan with Chase.  The lies, the money we sent in that must be applied to our loan that Chase just “lost”, and has been demanding it again along with the “late fees” is just plane robbery. We are not going anywhere, and Chase needs to find our money and we will hold them accountable to the laws of our land no matter what! I suggest everybody do the same if we want this to end.

I had to file a complaint with the BBB, the OCC, the attorny generals’ office and file a case with ACORN in order to get Bank of America to give me a loan modification. Only after all of that did they finally give it to me. And I’m sure it’s only because they got sick of me!

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

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