Mortgage Servicer Encouragement To Default On House Payments To Qualify For Workout A Common Complaint From Homeowners Seeking Loan Modifications

In Washington, D.C., McClatchy Newspapers reports:

• Nearly three years into the deepest U.S. housing slump in generations, lenders are modifying only a small number of problem mortgages, and rising foreclosures are restraining the economy's recovery. The Obama administration has stepped up pressure on lenders and their mortgage servicers, who act as bill collectors on behalf of investors who own mortgage bonds. The administration on Aug. 4 unveiled the first of what will be monthly "name and shame" exercises, publishing data on the loan-modification efforts of about three dozen companies.

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• McClatchy's Washington Bureau received calls and e-mails from borrowers across the nation in response to a recent story about the "name and shame" effort. In subsequent interviews with them, a common theme emerged: Virtually all say they were encouraged, directly or indirectly, by their lenders to fall behind on their mortgage payments in order to qualify for loan modifications. Then the modifications never came, however. These borrowers burned through retirement savings, destroyed their credit ratings and suffered mental and financial hardship.

For some of their stories, see Homeowners tell how banks failed to modify mortgages.