Thousands of Americans expecting to keep their homes after starting trial modifications on troubled mortgages could wind up in foreclosure anyway, thanks to a murky technicality known as the investor-based denial.
Since launching its Home Affordable Modification Program (HAMP) last year, the government has buried in the fine print that not all 60-day delinquent loans are eligible -- and one major exclusion is investor contracts that preclude modification.
Desperate homeowners trying to keep a roof over their heads often have no idea that the company to which they send loan payments is only a middle man who services the loan, and not the ultimate decider of their fate. In many cases, a shadowy investor or group of investors actually owns the debt.
And that's where the trouble comes in. These investors can put the kibosh on converting a trial modification to a permanent deal, without the homeowner even knowing the investor's identity or reason for rejecting the workout.
Many homeowners undertake trial modifications -- with a reduction in monthly loan payments -- only to be told months later that they can't convert to a permanent modification because the investor won't allow it and they now owe thousands in back payments. Many homeowners are getting incorrect information from the servicer, attorneys and advocates say.