The Obama administration has been working hard to reduce the number of foreclosures and help consumers remain in their homes. The Banks and their Analysts are bristling about the prospect of mandatory requirements for lenders to offer a mortgage modification to every borrower. They do not want to take into account contributing factors, which include bank servicing errors and lax underwriting which placed many individuals in homes that they could not afford. Two other major contributing factors beyond anyone's control are the economy and unemployment.
The banking community opposes the idea of a unified settlement requiring banks to pay over $20 million in civil fines for mortgage-servicing errors or fund the same amount in modifications, with a focus on principal reductions.
Restructuring a loan with a mortgage modification provides the borrowers a chance to get back on track and a chance to stay in their home. Writing down a loan balance is only going to help a consumer if the outcome makes the monthly payment affordable. Lenders complain about this concept and cite that they must eat excessive costs to make modifications work.
The banks complain that more consumers will take advantage of the opportunity to reduce their loan amount with a mortgage modification. Most homeowners that seek mortgage modification relief do so, because of a hardship. The parameters are very clear in the mortgage modification lending process. It is not easy or prudent to prove a hardship just because the person is delinquent in paying the mortgage. A successful mortgage modification that leads to a balance reduction will have the facts and documentation to prove the homeowners request is legitimate. The banks know and understand this, yet they fight against the mortgage-loan plan with the arguments that this could encourage more homeowners to seek mortgage relief and extend the housing crisis.