Loan Modifications

Bank of America has agreed to reduce the loan balances of underwater homeowners more aggressively than other banks, saying that by next month it will start contacting 200,000 borrowers who may qualify. The pledge is part of a side deal that BofA signed when it and other large providers of mortgage customer service reached a recent $25-billion foreclosure-abuse settlement with state and federal government agencies. Writing down the balance of home loans for underwater borrowers — people who owe more than their homes are worth — is a controversial practice.

SACRAMENTO -- A much-anticipated first vote on a package of bills aimed at helping homeowners stave off foreclosures didn't happen as scheduled Monday. Action on a pair of bills sponsored by California Atty. Gen. Kamala D. Harris was postponed after Chairman Mike Eng (D-Monterey Park) of the Assembly Banking and Finance Committee asked that debate be postponed for a week. According to his office, the bills needed to be amended so a compromise could be reached during negotiations with consumer groups and mortgage bankers.

Federal programs aimed at modifying loans to stem foreclosures aren't working, witnesses told a Senate Judiciary subcommittee, and some lawmakers called on Congress again to pass a bill allowing bankruptcy judges to modify home loans -- a procedure known as mortgage cram-downs. Separately, the Federal Reserve took steps to make lending terms more understandable as part of its efforts to avoid another mortgage meltdown, which triggered the deep recession worldwide.

Three California companies offering auto loan modifications were sued by the Federal Trade Commission, which accused them of deceiving consumers with false promises. Hope for Car Owners in Folsom, Kore Services in San Diego and Nafso VLM in Roseville charged clients hundreds of dollars in upfront fees to obtain car loan modifications, according to the FTC. But the firms allegedly did not fulfill their agreements to get the modifications and refused to give full refunds as advertised.

Echoing recurring complaints about mortgage lenders, authorities in Arizona and Nevada have filed civil fraud lawsuits accusing Bank of America Corp. of misleading troubled borrowers into expecting loan modifications that never came. The desert states, among the hardest hit by foreclosures, are also part of a 50-state coalition that is negotiating with major banks over a host of foreclosure-related complaints. But while that joint effort began only recently under the leadership of Iowa Atty.

Last year, Noel Sandoval, an accountant in San Mateo, Calif., who is disabled from epilepsy, asked Bank of America to ease the terms of his $369,000 mortgage under a federal program designed to help homeowners in distress. After almost 12 months of back and forth, the bank told him no. Its explanation: The mortgage was owned by an investor who wouldn't permit any modifications. It turned out, though, that the bank wasn't telling the truth ? something Sandoval's legal services lawyer discovered only after she finally obtained a copy of the mortgage servicing agreement.

A report from federal regulators contains bits of encouragement for struggling homeowners seeking to have their mortgages modified. In the second quarter, 78% of loan modifications involved actually reducing borrowers' payments, up from 54% in the first quarter, the report says. The shift came as mortgage servicers became less likely to merely add missed payments to the balance of a reworked loan. The joint report from the Office of the Comptroller of the Currency, which regulates national banks, and the Office of Thrift Supervision, the federal overseer for savings and loans, surveyed servicers of 64% of all U.S. home loans.

Three Columbia University professors recently tackled one of the thorniest problems of the housing debacle: how to increase modifications to soured home loans that have been bundled into mortgage bonds. Troubled mortgages that back securities in the private market, with customer-service outfits collecting payments, are far likelier to go into foreclosure than those in which the lender keeps the loan, the professors say. They propose creating financial incentives for loan servicers to modify loans to make them affordable, along with some changes in laws to remove impediments.

Three California companies offering auto loan modifications were sued by the Federal Trade Commission, which accused them of deceiving consumers with false promises. Hope for Car Owners in Folsom, Kore Services in San Diego and Nafso VLM in Roseville charged clients hundreds of dollars in upfront fees to obtain car loan modifications, according to the FTC. But the firms allegedly did not fulfill their agreements to get the modifications and refused to give full refunds as advertised.

More than 650,000 homeowners have entered into trial loan modifications under President Obama's plan to help the housing market, about one-fifth of those eligible, the Treasury Department said. The Treasury said there were 650,994 active trial modifications through October, or 20% of eligible borrowers, up from 487,081 through September. About 16% were participating through September.

The Federal Trade Commission filed a lawsuit accusing several California auto loan modification operations of deceiving consumers with false promises and then leaving their cars to be repossessed. The agency alleged that Hope for Car Owners in Folsom and Kore Services in San Diego charged clients hundreds of dollars in up-front fees for help obtaining car loan modifications, but then did nothing and refused to provide the full refunds they had advertised. The FTC also said it filed suit against individual participants Patrick Freeman from Hope and Michael Kamfiroozie and Naythem J. Nafso of Kore, which conducted business as Auto Debt Consulting.

Here is a roundup of alleged cons, frauds and schemes to watch out for. Beauty queen — Prosecutors in Santa Clara County have accused a former Mrs. Pakistan World of enticing desperate homeowners to pay her tens of thousands of dollars in a loan-modification scam. The Santa Clara County district attorney's office charged Saman Hasnain and her husband, Jawad, with 17 counts of grand theft, accusing them of bilking 17 homeowners, the San Jose Mercury News reported. In the scheme, prosecutors allege, Hasnain and her husband told homeowners that for an advance fee of at least $4,500, they would negotiate with banks to reduce the homeowners' mortgages and forgive overdue payments.

Bank of America has agreed to reduce the loan balances of underwater homeowners more aggressively than other banks, saying that by next month it will start contacting 200,000 borrowers who may qualify. The pledge is part of a side deal that BofA signed when it and other large providers of mortgage customer service reached a recent $25-billion foreclosure-abuse settlement with state and federal government agencies. Writing down the balance of home loans for underwater borrowers — people who owe more than their homes are worth — is a controversial practice.

Mortgage lenders call it "dual tracking," but for homeowners struggling to avoid foreclosure, it might go by another name: the double-cross. Dual tracking refers to a common bank tactic. When a borrower in default seeks a loan modification, the institution often continues to pursue foreclosure at the same time. Lenders contend that dual tracking simply protects their investment if the homeowner is unable to qualify for new loan terms. Mortgage servicers can lose money if they don't foreclose in a timely manner, and repossessions often are complicated and lengthy.

Like a lot of homeowners, Mar Vista residents Faith and Gary Hunt found money a little tight during the recession and hoped they could work out some more accommodating terms with their lender, Chase bank. To improve their odds, they said they turned to a law firm that said it could possibly cut their mortgage payment in half. They also signed on with a "debt management" company that, according to the Hunts, said it could eliminate their credit card debt. After making thousands of dollars in payments, the Hunts said, neither business would return their calls or emails, and the couple received no assistance with their mortgage or their plastic.

When you take out a home mortgage, do you expect to be treated fairly and competently by your bank or loan servicer? Most likely you do. But the widely publicized "robo-signing" and foreclosure scandals suggest that for thousands of homeowners, fair dealing and competence have not been routinely available at some of the largest mortgage servicing operations in the country. According to witnesses at recent congressional hearings: ? Borrowers with on-time payment histories who sought loan modifications frequently were told they needed to stop payments for two to three months before they would be eligible to even discuss possible changes to their loan terms.

When Meghan Faux, a lawyer and foreclosure counselor in New York, calls JPMorgan Chase & Co. to help a homeowner modify a mortgage, she expects the runaround from representatives unwilling or unable to answer basic questions about the borrower's case. She's more hopeful calling Wells Fargo & Co., which like Chase is one of the three largest mortgage servicers, along with Bank of America Corp. "There's still a long way to go there," Faux said of Wells Fargo. "But they are at least responsive to our concerns.

With hundreds of thousands of homeowners having negotiated loan modifications or short sales or been foreclosed upon during the past year, the Internal Revenue Service has issued fresh guidance on how to handle canceled mortgage debt in the upcoming tax season. It's a huge issue, widely misunderstood by consumers and involves potentially billions of dollars of tax liability. Usually, when a creditor cancels debts, such as unpaid balances on student loans or credit cards, the forgiven amounts are treated as ordinary, taxable income by the Internal Revenue Code.

With hundreds of thousands of homeowners having negotiated loan modifications or short sales or been foreclosed upon during the past year, the Internal Revenue Service has issued fresh guidance on how to handle canceled mortgage debt in the upcoming tax season. It's a huge issue, widely misunderstood by consumers and involves potentially billions of dollars of tax liability. Usually, when a creditor cancels debts, such as unpaid balances on student loans or credit cards, the forgiven amounts are treated as ordinary, taxable income by the Internal Revenue Code.

Mortgage loan servicers negotiated 1.76 million permanent loan modifications for homeowners last year, but more than two-thirds of them were completed in-house and were not part of the federal government's Home Affordable Modification Program. A year-end report Wednesday from Hope Now ? a private-sector group of mortgage servicers, investors, insurers and nonprofit counselors ? showed that mortgage servicers arranged 1.24 million permanent modifications, compared with the 512,712 modifications under the government's more rigorous program.