NYC Court Official Slams Lenders For Failing To Modify Mortgages: ‘What’s The Holdup?’

Recently, the Obama administration has increased its verbal assault on banks and mortgage lenders that are failing to get troubled borrowers into sustainable modified mortgages. The banks have been firing back that borrowers themselves are to blame for the lack of progress, with the favorite claim being that borrowers aren’t doing their part in getting the appropriate documents together.

New York City is one of a handful of states and cities that force lenders to come to court and meet with borrowers before finalizing a foreclosure. And according to one court official helping to oversee the program, it’s not the borrowers who come to the mediation sessions lacking sufficient documentation, but the lenders:

Leonard N. Florio, a court-appointed referee, oversees such sessions in that dusty room in Queens. He is a chatty man and punctilious about not taking sides. But as he watched Mr. Ali, the Ozone Park homeowner, load his piles of bills and receipts back into his shopping bags, he could not help noting a pattern. “I have yet to see an attorney for a servicer cut a deal,” he said. “Update this, update that. I mean, what’s the holdup?”

This fits with a new study from The Center for New York City Neighborhoods (CNYCN), which found that lenders, not borrowers, routinely show up for mediation sessions woefully unprepared. In fact, “in spite of the law’s explicit obligation that attorneys for the lenders attend conferences with appropriate documentation and authorization to negotiate, lenders frequently send attorneys who know little about the case, have little or no documentation pertaining to its history or status, and lack authority to reach a deal on the lender’s behalf.” Here are some of CNYCN’s findings regarding the lenders’ efforts:

- Only 3% of the time was a copy of an offer already made by the homeowner actually in the attorney’s file;

- The attorney knew the status of an offer with the lender a mere 6% of the time;

-In only 13% of the conferences did the attorney have a phone number to call to reach a person with actual authority to settle.

And of course, “court orders to penalize lack of compliance with the law are scarce.”

As with many foreclosure prevention efforts, this one is suffering from a lack of real consequences for a bank that violates the law, and there’s no mechanism for holding lenders accountable for their inaction. Mediation programs like the one with which New York City is experimenting have been successful elsewhere, but only when the lenders take them seriously. Lenders in New York seem to be blowing off the program, and with foreclosures piling up, a stick with which to prod them needs to be created, sooner rather than later.