Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Part of the truth about helping borrowers keep their homes.

Subprime: Big talk, little help

Lawmakers are talking the talk, but mortgage lenders are having a hard time walking the walk when it comes to helping at-risk borrowers.

By Jeanne Sahadi, senior writer

NEW YORK ( -- The bullhorn message from the government to mortgage lenders has been: Bend. Do what you can to help struggling homeowners.

The message to troubled homeowners has been: Call your lender. You may be able to work something out.

Despite the persistent blare, there is not a whole lotta "loan modifying" going on yet.

A survey by Moody's found that most loan servicers this year had modified only about 1 percent of their adjustable-rate mortgages (ARMs) that had reset to higher rates by the end of July.

At the Consumer Credit Counseling Service (CCCS) of San Francisco, which has been working with borrowers referred by lenders, a loan modification is the rare exception rather than the rule.

In a modification, a loan servicer could, for instance, freeze the loan's intro rate for 24 months or perhaps fix the introductory rate for the remainder of the loan.

But based on what the credit counselors have seen from lenders' responses, "if a borrower is behind because of the rate hike, in general that is not enough of a reason to modify the loan. The borrower needs to have a reason ( e.g., losing one's income or a medical crisis) and proof they can make the modified payment," said Erica J. Sandberg, CCCS of San Francisco's financial education and communications advisor.

And lenders are not likely to even consider a modification unless a borrower is already behind in their payments, Sandberg said.

There are competing reasons for why modifications are few and far between, and they don't necessarily speak to willful refusal on the part of lenders and servicers.

Swamped lenders. Lenders have been bombarded with requests for modifications and aren't adequately staffed to handle them, according to Mortgage Bankers Association spokesman John Mechem, who added that lenders are in the process of hiring more people.

Borrowers in too deep. Loan modifications don't make sense for some borrowers since they've already had trouble handling their mortgages before their rates reset higher. In those cases, Sandberg said, modifications "just stretch out the problem."

For those borrowers, a credit counselor might recommend they pursue a deed-in-lieu-of-foreclosure - whereby they sign over the deed of their house to the lender and walk away without further obligation or damage to their credit. Or they might ask their bank to agree to a short sale in which the bank will forgive the debt not covered by the sale of their home.

The "Mother, may I?" factor. Servicers who get loans in securitized bundles - say 3,000 to 5,000 loans per deal - may be restricted in how many loans they may modify without seeking the permission of investors in those securities, said Larry Litton, president of Litton Loan Servicing. A 5 percent cap on the amount of loans that may be modified is typical.

What's more, the servicers' contracts with investors may have rules governing when modifications may be made.

The "Are you my mother?" factor. Sometimes no one knows who to ask for permission to modify a loan. "The loans have been sliced and diced so many times, that the owners cannot be found," said Center for Responsible Lending senior vice president Eric Stein, in written Congressional testimony delivered this week.

No-shows. There has been a push by lenders to contact at-risk borrowers earlier and more frequently. But the borrowers are hesitant. Litton said that for every six letters he sends to at-risk borrowers, he might get one response.

In some cases, if borrowers overstated their income on their original loan application to buy more home than they could afford, they're reluctant to admit that to the servicer since lying on a loan is illegal, said Allen Hardester, a mortgage consultant in Maryland.

Why it pays to modify more loans

Some servicers, like Litton, have made a concerted effort to modify loans whenever they can.

Litton estimates his company will have modified 2,000 loans in September, up from 1,400 in August. Of those 2,000 loans, he said, roughly 1,500 are loans in which the borrowers are already delinquent in their payments and the other 500 are loans that were current but which would have reset within 90 to 120 days.

Of the loans he's modified so far this year, he estimates that about half were cases in which he opted to allow the borrower to keep their current rate fixed for the remainder for the loan.

Modifying loans in advance of their becoming delinquent makes good business sense, Litton said. It costs him six or seven times more to service a delinquent loan than a current one because of the added time and expense required to make calls to delinquent borrowers and to analyze the loans gone bad.

And foreclosure is a losing proposition altogether. A Federal Reserve study found that up to 60 percent of the outstanding loan balance can be lost to legal fees, foregone interest and property expenses.

-- Les Christie contributed to the reporting for this article  Top of page

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4 justice now

Just who are they trying to kid? Really...


Some servicers, like Litton, have made a concerted effort to modify loans whenever they can.

I have no doubt that Litton has made a concerted effort to modify loans... in fact, they've probably been successful in modifying many of loans they service. The problem is that: If they've ever done so, it certainly wasn't modified in a way that would ever benefit the home owner, and most likely wasn't legal either.

My opinion only.

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One question that could be asked is just how much money Litton made by modifying those loans? Depending on how the Pooling & Servicing Agreement was written for the prospectuses of any given pool that any given loan was securitized in, Litton may have been allowed to keep the modification fee as additional servicing compensation.

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DUH, my bad.
From what I have read, Jr jumps at the chance to get borrowers into a MOD.


Litton is arguing for “automatic mods.”

Thank you from one of the, "MANUFACTURED MASSES"...

One thing I find a bit disingenuous is the notion implied in the BlackRock comment that helping troubled borrowers is merely postponing the inevitable. I imagine it's more like triage: some borrowers clearly won't make it even with revised terms; some look like good bets (for instance, the default might be due to a personal crisis that has been resolved), and some are hard to judge. It's the third category that is most contentious, precisely because reasonable people can differ on whether the borrower will come through. But to judge a borrower that has one missed payment after a loan mod as a complete deadbeat (as the article does) seems unreasonable (a "missed payment" could merely be a late payment, and the source doesn't indicate what proportion of those who missed a payment were able to make it. That's the germane number).


Thomas Lawler, a former chief economist at Fannie Mae who now runs his own consulting business, Lawler Economic & Housing Consulting, in Vienna, Va.

“If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late,” he said.



The investor in securitized loans often dictates how much a loan can be modified. Litton said that his company has demanded more flexible terms from securitizers, which lets it modify problem loans with lower interest rates or extended terms.

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