Advocates are concerned a new program designed to replace the Federal Housing Administration’s Home Affordable Modification Program, which expired at the end of last year, is unfair, inconsistent and lacks transparency.

Beginning Oct. 1, 2017, homeowners who are delinquent on loans backed by Fannie Mae and Freddie Mac can consult with their mortgage servicer to see if they qualify for a modification of the terms of that loan under the Federal Housing Finance Agency’s (FHFA) Flex Modification program. Lenders may voluntarily use the program as soon as March 1, 2017.

To be eligible, the loan must be a conventional, first-lien mortgage on a primary residence and at least 60 days delinquent. In addition to other requirements, the loan can’t be in an existing modification agreement with any other program and the borrower cannot have failed an existing modification program in the previous year.

“By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the enterprises and taxpayers,” FHFA deputy director Sandra Thompson said in a statement. “And it will provide borrowers who face permanent hardships with a sustainable modification.”

As the FHFA is an independent agency and director Mel Watts’ term doesn’t expire for two more years, the new presidential administration is not expected to have a significant impact on the program.

Attorney Alys Cohen of the National Consumer Law Center, a consumer advocacy group, called Flex Modification a step in the right direction, but said that organization has “at least three” major concerns with this program. First among them is the fact that the program offers less assistance to borrowers who have been delinquent longer.

“It essentially punishes people who don’t act before they’re in foreclosure,” Cohen said. “A lot of people don’t know acting earlier will matter and human nature is that people seek help later. That’s just a fact of life. Denying options to people in foreclosure undermines performance, investor outcome and options for homeowners.”

The organization is also concerned that as interest rates rise, the program will work for fewer delinquent borrowers, and the rest will be foreclosed on. Finally, despite its name, the Flex Modification program lacks flexibility, Cohen said.

“It’s mostly a cookie-cutter approach,” she said. “There is a subset of homeowners – primarily those facing significant debt or life changes – who may need greater assistance, and we hope to see some more options for people like that.”

Banks Hold All The Cards

New Jersey attorney Joshua Denbeaux, who represents homeowners challenging foreclosures, said one big problem with the program is the balance of power is totally in favor of the lenders. He said borrowers who don’t know their rights could get railroaded by banks who are only concerned about their bottom line.

“My experience leads me to believe we’re going to have the same problems as with HAMP,” Denbeaux said. “The banks didn’t apply the guidelines. Most people aren’t going to know they’re being screwed. The paradigm doesn’t change. The banks make everything as opaque as possible.”

Banks receive funds from the FHFA when they successfully modify a loan, plus the income generated from a now-performing loan. But in markets like Massachusetts, where home values are rising quickly, a bank might deny a request for modification because it can make more money foreclosing on a property and reselling it, said attorney Adam Deutsch of the Northeast Law Group in Longmeadow.

“You can call that a skeptical assessment, but there’s got to be a reason for all the people being wrongly denied a modification, and I think that’s it,” Deutsch said.

Denbeaux said most consumers don’t know that if their application for a loan modification is denied, they have the right to request the documents on which that denial is based. If they don’t receive those documents within 30 days, they can challenge the denial and possibly recover attorney fees. Most attorneys take the cases on a contingency basis because struggling borrowers can’t otherwise afford to hire them.

Most mortgage servicers service mortgages for dozens of lenders, each one with different rules and regulations. Deutsch said that all but ensures confusion in the process and will result in some borrowers being wrongly denied a loan modification. Another problem for consumers is that while they may choose their mortgage originator, they can’t control who their loan will sold to and they can’t choose the servicer.

“In every other area as a consumer, you choose who you’re doing business with,” Deutsch said. “With mortgages, you have no control over who will be your loan servicer and who will own that loan. You could originate a loan with a community bank with a strong history of doing modifications and then five years later [when] they sell their portfolio, you’re stuck.”

Deutsch said he’d like lenders to design these modifications to maximize the likelihood that these loans will perform for 30 years, a win-win for both banks and consumers.

“I think the only way to move forward is for banks to view consumers as business partners,” Deutsch said. “If we’re partners then there has to be give and take on both sides. There has to be flexibility from the bank because they have all the power in the relationship.”