Loan modification program breeds corrupt servicing companies, investigation finds

TRD New York /
Aug.August 06, 2009 09:44 AM

Some of the money that the Obama administration is spending on the Home Affordable Modification Program, aimed at homeowners facing foreclosure, is benefitting corrupt mortgage servicers, an Associated Press investigation found. Under the program, if a borrower who received a mortgage modification makes payments on time for three months, the mortgage servicing company that modified the loan may receive up to $5,500 for each successful modification. In order to receive a larger payoff, some companies have turned to illegal practices. Of the 38 servicers the government is paying to help distressed homeowners, at least 30 face lawsuits from homeowners and advocates claiming they charged illegally high fees; 14 have been accused of misleading customers before the program began; and three have settled federal predatory collection allegations by pledging to correct their behavior. The Treasury Department said it has no choice but to work with all servicers — refusing to work with a non-reputable firm would deprive homeowners whose mortgages came from that servicer from getting modifications, said Treasury spokesperson Jenni Engebretsen.

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