The Center for Responsible Lending (CRL) and the National Association of Consumer Bankruptcy Attorneys (NACBA) have both released statements criticizing various voluntary loan modification efforts.
‘[T]he underlying cause of both the worsening economy and the growing number of redefaults is that loan servicers have thus far failed to modify loans often enough or, when they do, to use the type of sustainable loan modifications most likely to succeed," CRL President Michael Calhoun said in a press statement. His comments come on the heels of a report released by the Office of the Comptroller of the Currency and the Office of Thrift Supervision that found the majority of loans modified in the first half of the year have redefaulted.
Calhoun also cited a study performed by Alan White, an assistant professor at Valparaiso University School of Law, in which White concluded that many modifications actually increased mortgage debt.
‘Today's reports underscore the need for large-scale mortgage modifications that are sustainable," Calhoun said. "By bringing a halt to the foreclosure epidemic and keeping families in their homes, we can begin to repair the economy.’
The NACBA states that fear of investor lawsuits has contributed to lackluster modifications. The group also says that piggyback seconds block voluntary mods in many instances. NACBA President Henry Sommer urged President-Elect Obama to mandate that loan modifications be supervised by the court.
"Court-supervised loan modification is urgently needed to deal with this problem," he says. "We call on the incoming Obama administration and the new Congress to adopt this solution without delay. The American home mortgage foreclosure crisis has gone from the danger zone to the full-blown crisis stage. â�¦Despite a proliferation of voluntary programs, we are not seeing evidence of a meaningful number of sustainable loan modifications."
The NACBA additionally criticized the modification plan put forth by Federal Deposit Insurance Corp. Chair Sheila Bair, saying it does not address the problem of piggyback seconds.
"Holders of second mortgages can block the modification of the first mortgage, even though the second mortgage typically would be wiped out in a foreclosure sale," the NACBA said. "Absent reductions in principal, the program will neither sufficiently reduce payments nor prevent later foreclosures when homeowners need to move or cannot refinance to resolve a financial problem. "
SOURCES: NACBA, CRL