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Richard Zombeck Headshot

Loan Modifications: A $4 Billion Con Game

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Since last year nearly 1 million struggling homeowners facing foreclosure have been offered trial modifications on homes that have depreciated in value. The modifications reduce the monthly payments for homeowners and many have scrambled to make the new payments. Some have taken second or third jobs, borrowing from family, and depleting savings in hopes of being approved for a permanent modification on a home that is most probably underwater (worth less than what is owed).

In truth, a disturbingly large percentage are denied permanent modifications and given no reason as to why they are denied. These people will most likely face foreclosure, ruined credit, and shame, despite their best efforts and their proven ability to afford and pay the new mortgage. Bank of America for example, in what I can only assume is their "friends and family plan" permanently modified 98 mortgages of the 156, 864 trial modifications they started.

Many of the trial modifications have been extended unreasonably beyond the requisite three month period. The banks attribute the delay to questionable claims of lost paperwork and a lack of effort on the part of homeowners. Some homeowners have been stuck in a modification limbo for five or six months only to be denied a permanent modification after making the required payments.

With close to a million homeowners forking over a conservative estimated average of $3,000 - $4,000 over the course of the trial, that's nearly $4 billion banks and servicers have fleeced from homeowners on false hope and empty promises, only to foreclose any way.

For the relative few, like my wife and I who received permanent modifications after a 15 month battle, the fight is far from over.

One of the more populist arguments to the mortgage mess is principal reduction. Another is simply walking away, like corporations do all the time without the same perceived moral obligation homeowners are made to feel. Without equity in the property, it makes little financial sense to keep paying.

Ocwen's General Council Paul A. Koches was recently quoted in the New York Times as saying "We realized early on that if we don't include principal treatment, you just don't get the buy-in from the borrower to stay with it," referring to principal reductions.

Paul Koches was also notably quoted as saying, "We roll up our sleeves; we talk directly with the borrower. We find out what their situation is and we provide counseling and basically a complete underwriting of the delinquent loan, perhaps the way it should have been done at the point of origination."

But in speaking with Jennifer Levy, an Ocwen Bank Loan Workout Specialist and Ocwen CEO Ronald Farris' own secretary, Linda Ludwig, about our loan, both women stated emphatically that Ocwen never reduces principal, despite what their executives are quoted as saying. Ludwig even accused us of taking what they said out of context.

After my last post, I Refuse to be Ripped Off, Jennifer Levy of Ocwen called our home and screamed at my wife, "Don't call my number or e-mail me again. I will not be threatened," referring to her having been mentioned in the article. An ironic statement to make after having threatened to take our home for the last 15 months.

After three months of making every payment early and by wire transfer, Ocwen actually increased our principal by $13,000 and claimed an additional $12,000 as a charge off to the IRS (we'll owe taxes on that) and reported the value of our home to the IRS as $100,000 more than the appraised value. Based on an appraisal they ordered and made us pay for. In addition they tacked on some late fees, a half dozen certified mail fees, a $315 title report fee, four property inspection fees, a Loan Document Copy Fee, and threw in another appraisal. No one came to the house, no appraisal was done, we received no certified letters, and requested no copies.

It's important to note that when we first received the agreement for the trial modification and saw item 10c of the Agreement we were apprehensive.

10(c) Any expenses incurred in connection with the servicing of your loan, but not yet charged to your account as of the date of this Agreement, may be charged to your account after the date of this Agreement.

We asked that this particular wording be clarified and received the following:

The fees and fines referred to in section 10c and other parts of the document are in the event that [you] are late with our trial payments and any future payments, but do not apply to any fees incurred prior to this agreement as there is no itemization or breakdown in the actual document.

Needless to say, neither the $12,000 nor the $13,000 have been explained despite our repeated requests. A former Ocwen employee in contact with us has identified them as arbitrary junk fees that Ocwen notoriously adds to accounts to pad their books. In addition, the total payments we made over the three month trial period have not been credited to our account. They appear no where on any statement or report.

In May 2009 Louisiana Judge Elizabeth Magner, after reviewing multiple cases involving Ocwen Loan Servicing said they regularly acted in "bad faith". She issued a 15 page order (PDF) about Ocwen's "systematic abuse" and outlined specific accounting procedures. Despite this order their accounting and reporting remains convoluted and cryptic.

Ocwen President Ronald Farris during an interview with NPR told the reporter that "one of the largest, you know, banks in the world sat here in this room ..." and asked Ocwen for advice.

Ocwen has claimed almost 50 percent or nearly 30,000 of the country's permanent modifications. By simply adding an additional $50 with a few $5 and $10 arbitrary charges here and there every month to each loan, like they've done to us, it adds up. An additional $1.5 Million every month more than covers the executive salaries.

If this is the playbook they gave other banks, is it any wonder we're screwed? Maybe it's time for a good lawyer, but if I could afford a lawyer I wouldn't need a modification.

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