Be careful when looking for mortgage changes

John W. Schoen Senior producer • Profile • E-mail

The stalled pace of the government's effort to head off home foreclosures has left families looking for other ways to save their homes. There are people out there who can help. But you have to pick very carefully.

Can an attorney actually get you a loan modification if the system is stalled like it appears to be? If so, how do you find a reliable one?
— Kathleen H.. Corona, Calif.

None of the government’s efforts to help Americans save their homes has put any legal pressure whatsoever on lenders and their representatives to offer more affordable terms to homeowners stuck in bad mortgages.

With mortgage rates at historic lows, millions of homeowners could get substantial relief if they were just given a new loan at current market rates. But most lenders and investors holding mortgages aren't going along with that solution.

And despite recent claims by the Treasury, which last week announced its Making Home Affordable program has helped 500,000 homeowners, the government’s foreclosure relief program has fallen short of what’s needed.

That was the conclusion of a report by the committee set up by Congress to oversee the Troubled Asset relief Program — aka the $700 billion TARP program created to bail out the big banks that created these toxic loans. Having sunk the global financial system and driven the economy into the deepest downturn since the Depression, these banks have largely refused to take the steps needed to stop the ongoing wave of foreclosures created by their earlier wave of rogue lending. With some 12,000 new foreclosure filings a day, the problem is only getting worse.

Part of the reason is that foreclosures are now claiming the homes of families that took out conventional mortgages, put 10 percent to 20 percent down and have now lost their income to unemployment. None of the government’s programs were designed to deal with people in this situation.

Nor are these programs designed to provide relief for homeowners who owe more than their home is worth — either because home prices have fallen or because the price they paid for their home was based on a fraudulent appraisal, or both. There is no provision in any of the government's programs requiring a lender — or even offering incentives — to forgive part of the principal owed, even if it clearly represents home equity that will never return.

The current foreclosure relief program says: That's the homeowner's problem, not the lender’s. Never mind that it was the lender who made the unimaginably costly miscalculation, when it made the loan in the first place, that house prices wouldn't fall.

Some members of Congress tried and failed — more than once — to pass a law that would have provided real relief for homeowners. A simple change in the bankruptcy law would let a judge modify the terms of a mortgage from the bench — just as they do for every other form of debt, from credit cards to car loans to mortgages on second homes or yachts.

Each time the change was proposed, lenders fought fiercely to stop it. None of the other measures the government has tried — from the Hope Now Alliance to Hope for Homeowners to Making Home Affordable — has made any significant dent on the pile of bad loans that is forcing families from their homes, driving home prices lower and creating a gigantic headwind for any economic recovery.

All of which has helped create a fresh round of mortgage fraud by an active group of “foreclosure rescue specialists.” Desperate homeowners who seek out these folks are told that, for a fat upfront fee, their home can be saved. The scam takes a variety of forms. But none of these empty — and costly — promises will save your home.

There is a small group of lawyers out there who are having some success challenging foreclosures using a variety of legal arguments. Some have attacked the paper trail created when millions of mortgages were bundled into trusts, chopped up into pieces and sold off to investors. Others attack the validity of the original mortgage with evidence of predatory lending when it was written.

MORE FROM ANSWER DESK

Answer Desk Section Front

Repairing consumer credit  Jobless benefit bedlam Who needs overpaid bankers? Who gets extended jobless benefits Easing job losses point to wobbly recovery Long-term jobless face frayed safety net GDP growth overstates case Recession over? Readers don't believe it Breaking down the cost of health care Commercial real estate bust looms Answer Desk Section Front   Add Answer Desk headlines to your news reader: