Lenders, Mortgage Servicers Continue To Force Borrowers To Waive Legal Rights As Part Of Loan Modification Process

The Washington Independent reports:

• Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on. Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where borrowers may be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama administration’s Making Home Affordable plan, consumer attorneys say. They were stunned to find the legal waivers still being used, despite more than a year of efforts – including calls from lawmakers – to get rid of them.

• “It was shocking to see that people are still being asked to waive their legal rights,” said Bruce Dorpalen, national director of housing counseling for ACORN Housing Corp. “I mean, this should be abolished. It’s incredible that it’s still in there.” [...] The Treasury Department’s published guidelines for the $75 billion taxpayer funded program specifically prohibit the waivers. Mortgage giants Fannie Mae and Freddie Mac removed the waivers from their standard loan modification agreements earlier this year. But Diane Thompson, an attorney with the National Consumer Law Center, said she has seen legal waivers resurface in loan modification agreements by Aurora Loan Services, Ocwen Financial Corp., and other firms. She also is getting complaints about waivers in Bank of America agreements. “The waivers continue to be an issue,” Thompson said.(1)

For more, see Loan Servicers Work the Fine Print in Obama Foreclosure Plan (A Year After Calls for Reform, Borrowers Still Forced to Waive Legal Rights for Loan Modifications).

(1) It may be time for the Obama administration to stop throwing money at the lenders and servicers for loan modification programs and redirect the cash towards establishing and supporting foreclosure defense programs for financially strapped homeowners the way Florida Attorney General Bill McCollum recently did. See Attorney General Launches Multi-Million Dollar Grant Program for Foreclosure Defense Assistance (The Florida Bar Foundation will help administer $4 million in grants to legal services applicants).

The thought of having to deal with "producing the notes," and otherwise establishing proper legal standing to initiate foreclosures, as well as addressing allegations of fraud and violations of the applicable consumer protection laws is sure to get the attention of the mortgage industry, in my view. After all, why else are the loan servicers so intent on getting homeowners to waive their legal rights?