Loan Mod Denials Often Create Massive Delinquencies

The scenario described below is nothing new. In fact, it’s a classic.


HUD has always played this game with home owners in distress.  Who remembers the HUD Forbearance program??  Back in the olden days when I served as a bankruptcy trustee, we had Chapter 13 petitioners involved in a “HUD FORBEARANCE”.  The program may still be in effect.  I don’t know and don’t have the stomach to look. 

HOW DID IT WORK?  A home owner in trouble once they were more than a few months behind and on the verge of foreclosure would make application to HUD for Forebearance.  If accepted, HUD would permit them to make reduced payments for 1, 2, 3, etc. years during which time the owner would make regular mortgage payments and the lender could not foreclose.   

However, the home owner’s arrears did not go away.  The arrears, plus accrued interest and penalty (still accruing), were added to the mortgage balance (sound familiar?). 

HOW DID THEY GET TO BANKRUPTCY COURT?  HA!  Easy.  The didn’t make their mortgage payments, even reduced payments.  The arrears continued to build, accrue interest and penalty and they were just getting farther behind and the mortgage balance continued to loom larger and larger.  Bankruptcy would give them protection from the lender and start their “clock” all over. 

Sometimes the chapter 13 plan would get approved and the debtor/home owner would make payments to the bankruptcy trustee for a while, but eventually, more than half would again default on the regular monthly payments.  Even though the chapter 13 plan showed sufficient income to make the payments. . . . . . . .

The more things change, the more they stay the same.

By Lenn Harley

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4 thoughts on “Loan Mod Denials Often Create Massive Delinquencies”

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