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It is no secret that the Obama administration has a lot vested in the success of the Loan Modification Program, also called the Home Affordable Modification Program (H.A.M.P). In order to help the program along the government has provided a long list of incentives, bonuses and other methods in order to encourage lenders and banks to do their part in making the program work.

First it was financial incentives in the form of cash payments for every completed loan modification of up to $4,000 over three years. This didn’t have the result they hoped for so the administration started naming and shaming tactics where underperforming banks or lenders were published on a list of the worst loan modifiers in the industry while the better performing banks were prized with kudos and positive publicity for “helping troubled homeowners”.

Recently the government has also added to the prize generous capital risk-weightings for banks that perform well with their loan modification application to completion rates.

Those tactics didn’t really lift the program off the floor, of the 750,000 applicants that have entered the loan modification program three month trial only 31,000 have to date actually received a permanent modification to their loan.

This is why the administration started to show its meaner side. Banks and lenders that did not support the cause have been threatened with fines, increased government scrutiny and recently even lawsuits.

Blown Mortgage readers will remember the lawsuit Ohio Attorney General Richard Cordray filed against New York based Barclays Capital Real Estate, doing business as HomeEq Servicing.

The lawsuit details that HomeEq / Barclays has been accused of issuing unfair loan modification agreements and providing inadequate and incompetent customer service to Ohioans who were at risk to losing their homes to foreclosures. HomeEq is accused of forcing troubled homeowners to sign one sided agreements that were unfair and deceptive. Homeowners were required, for instance, to realease HomeEq of all liabilities (which you can’t really do), pay extra fees (not supposed to that either) and waive their own right to defense (not a very popular measure with the Attorney General).

In addition to this Barclays was accused of breaking Ohio’s Consumer Sales Practices Act (CSPA) through their unsatisfactory customer service by not returning calls or responding to enquiries.

The question is this the real reason Ohio Attorney General is suing Barclays. I would say no. If you read carefully the statement of Mr. Cordray it is clear that the main complaint is “unfair” and “indadequate” customer service with loan modifications. Cordray is further reported to say:

There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures,” Cordray said. “Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses.”

If you check the latest servicers loan modification performance lists you will quickly see that HomeEq was way down there with 657 trial loan modifications and zero completed permanent loan modifications.

It doesn’t take a leap of imagination to see that the Obama administration has decided to start suing underperforming servicers and has started with a British company that has recently entered the industry. Targeting a foreign company could be seen as a warning shot to big banks like JP Morgan and Wells Fargo that have a measly conversion rate of 3 to 4 percent on their loan modifications.

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Loan Modifications have become loaded words politically and economically and as things get worse they get much more personal. Nationwide efforts have been made to educate homeowners in their search for the right loan modification for their home before they fall into foreclosure. Unfortunately only a small percentage 16% to around 25% of eligible homeowners (depending who you talk to) get a loan modification trial and even that represents a small percentage of the number of those that actually wanted or needed a loan modification but weren’t eligible.

The fear and anger of losing their home to foreclosure seems to have led 5 homeowners to torture, kidnap and beat two loan modifiers. Weston and Parmelee, two of the five to be arraigned, were, according to prosecutors, undergoing foreclosure on their home when they sought assistance from the victims. They were not happy with the results the loan modifiers were getting and asked for their money back. Weston, Pamelee, Gonzales, Canez and Parker arranged a meeting with the loan modification agents. It seems to be at that meeting that Daniel Weston and Gustavo Canez robbed and tortured the loan modification agents while the other three accused watched, according to prosecutors.

This unfortunate case underlines the desperate situation many find themselves when their home is going through foreclosure.
However this case seems to be a little more complicated. According to, again, the prosecutors, Gonzales, Parker and Parmelee had a standing business arrangement where they would send customers from their real estate business which adds a few question marks to any complaints the assailants might have against the loan modification agents.

We will have to wait for the official hearing but what does seem safe to state is that this case will only highlight more the credit crisis and the loan modification “solution” in general, as well as showing once more the potential for evil humans have.

Another lesson to learn from this case is that you are best dealing with a government paid, that means free for you, agent when you are looking for information and help on your loan modification. Free help is the best help in this case. This is a rather counterintuitive notion for those of us that are used to paying for quality information however in this case paid agents are more likely to be biased and charge us for things we can do ourselves (or with free help) for nothing.

The reason for this is that the government does not want an avalanche of foreclosures on their hands. Unfortunately due to a rise in unemployment this seems to be what the government is going to have to face. However they are willing to spend over 75 billion dollars to avoid to the best of their ability this situation. If you qualify for the loan modification they want you in. Your bank might not want to give you the loan modification because in some cases it really doesn’t seem to make financial sense to them.

So before you torture your local loan modification agent contact the making homes affordable program (HAMP) and see what they can do for you.

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The story repeats itself across the nation. Desperate homeowners that need an urgent loan modification to save their home phone their loan providers with little or no result. One borrower in Dallas explains relates how he is on his second counselor and he hasn’t been able to talk to either of them.
A common theme among frustrated borrowers is that they cannot speak to a decision maker. The current financial crisis has thrown people used to being in control of their financial situation into situations they are not used to handle.

Whichever way you look at it and there are a few, loan modifications are moving slowly and there are not clear signs of things changing. Treasury Secretary Timothy Geithner and Shaun Donovan, secretary for Housing and Urban Development have already expressed their opinion that “much more progress is needed” in a letter to mortgage companies.

What makes things worse for loan providers like Bank of America and Wachovia that are doing poorly in their loan modification turnover is that the performance among banks is inconsistent with some banks showing much healthier figures. The government wants results and his paying a hefty fee to get them, from their perspective it does seem that banks are simply not pulling their weight.

The perspective of banks is of course completely different. They understand the financial pressures everybody is experiencing because most if not all of the large banks have required and accepted financial help from the government to boost their own coffers. However banks will explain that they are simply not geared or designed to be mass producers of loan modifications.

Historically banks have limited themselves to lending, collecting and processing mortgage payments now they are in the process of reinventing themselves as loan modifiers, sometimes rearranging their whole outfits to meet the increasing demand. As John Dalton, president of the Financial Services Roundtable’s Housing Policy Council says : “It’s a new ballgame”. The figures are quite scary, there are 3 million people at this moment who are 60 days past due on their loans. Banks are simply not designed to deal with this volume of delinquent debtors.

Although there is no arguing the inconsistency between banks performance it does not require heroic amounts of empathy to understand it is not going to be easy for businesses to rearrange the way they work and provide services.

Think of a lemonade stands that sells readymade lemonade and suddenly has to deal with hundreds of customers who simply want more sugar stirred into their “old” lemonades. You are going to have to hire lemonade sugar adders and stirrers while you are trying to continue your main line of business.

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