California Borrowers Struggling to Get Loan Modifications

As the nation's largest banks are facing lawsuits and being investigated by attorneys general and other regulators, many of their servicing problems and abuses continue to hurt homeowners.

One state that has been devastated by the foreclosure crisis is California because homeowners are struggling to access sustainable home loan modifications, according to a report published by the California Reinvestment Coalition.

In its report called “Race to the Bottom: An Analysis of HAMP Loan Modification Outcomes by Race and Ethnicity for California,” the CRC revealed that out of 568,630 borrowers who requested loan modifications in the Golden State, 46% were denied immediately.

Only 23% of applicants received a permanent modification, while the remaining third were either stuck in a trial modification or had their application cancelled, the CRC said.

Dual tracking has also been a problem, as 94% of housing counselors reported that homeowners are losing their homes while negotiating for a loan modification with their servicer.

“This data confirms that things are tough for all families trying to avoid foreclosure,” said Kevin Stein, associate director of the California Reinvestment Coalition and author of this report. “Federal and state regulators need to ensure that banks give all borrowers a fair chance to stay in their homes.”

The report analyzes loan modification applications submitted for the Home Affordable Modification Program, along with the CRC's April/May 2011 survey of 55 nonprofit housing counselors serving thousands of state residents at risk of losing their home.

Stein said it is even “tougher for borrowers of color” to receive a loan modification. In the HAMP data, incomplete modification requests were the most frequent reason for trial modification cancellation, and borrowers of color had the highest share of modifications terminated for this reason. In Fresno, Latinos and African-Americans had trials cancelled for incomplete modification applications 47% and 44% of the time, respectively, compared to 37% for white borrowers.

The issue of servicers losing documents several times also perseveres. An anonymous housing counselor said in the report that a loan servicer rejected a modification application because it was in Spanish.

In Los Angeles and Sacramento, African-Americans disproportionately had their trial modifications cancelled for the reason that it was “not accepted by borrower.”

Under HAMP, the federal government's goal was to modify loans for three to four million Americans who are delinquent or in imminent risk of default by making mortgages more affordable for these homeowners. The CRC said HAMP has not done its job and needs to be fixed.

In California, 65% of housing counselors believe that HAMP is not working as currently implemented by loan servicers. Out of the 55 housing counselors surveyed in the report, 72% said borrowers are denied permanent HAMP loan modifications “always or “almost always.”

“This data seems unusual and raises concerns that servicers are steering applicants to less favorable non-HAMP modifications,” the CRC said.