Foreclosure Victims Get Second Chance

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NEW YORK (MainStreet) – The government is making it more difficult for mortgage servicers to foreclose on reeling homeowners. That’s why more and more delinquent homeowners are getting another shot at a loan modification, even if they’ve reneged on one before, thanks to recent judicial court rulings.

On April 13 the Federal Reserve issued an order against 10 of the largest banks in the U.S, including J.P Morgan Chase (Stock Quote: JPM), Bank of America (Stock Quote: BAC) and Wells Fargo (Stock Quote: WFC) threatening “monetary penalties” against banks that had “a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing.”

The Fed also asked the banks to focus particularly on revisions needed to amend sloppy foreclosure and loan modification practices. It directed banks to:

  • Strengthen communication with borrowers by providing them with the name of the person at the servicer who is their primary point of contact.
  • Provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process.
  • Ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made.
  • Establish robust controls and oversight over the activities of third-party vendors that provide residential mortgage loan servicing, loss mitigation or foreclosure-related support.
  • Ensure compliance with state and federal laws regarding loan servicing generally and foreclosure services in particular.

The Federal Reserve, which has been heavily criticized by politicians, media types and consumer advocates for its handling of the housing market crisis, may be on to something here. Mortgage lawyers are already reporting that the new directives are helping them keep their clients in their homes.

Lenore Albert, an attorney in Huntington Beach, Calif., told American Banker on April 21 that the new regulations give her “another tool” to save her clients' homes from foreclosure.

Albert’s case was directly impacted by the government’s consent orders against mortgage lenders. She was able to block foreclosures on six Orange County homes in large part because the mortgage servicer, Aurora Loan Services, was engaging in “dual tracking,” a practice where loan providers launch foreclosure actions while a home loan modification deal is still going. That practice is specifically barred by the Federal Reserve’s consent order.

Now those homeowners will get a second chance to make good on a loan modification deal, and so will potentially thousands of other homeowners who’ve already tried and been rejected by lenders after their loan modifications fell through.

It’s not every day that the economists at the Federal Reserve have something to cheer about, but based on the California court rulings, it looks like the consent orders are already paying off for homeowners.

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