This problem was highlighted in a Wall Street Journal article yesterday, which reported that the Acting Comptroller of the Currency John Walsh has directed banks to halt foreclosure proceedings if borrowers are starting loan-assistance programs, "if legally possible." The article observed that "the so-called dual-track system in which banks proceed with foreclosures while evaluating borrowers for loan assistance has gained attention in recent weeks. At a Senate Banking Committee hearing Wednesday, Walsh called the system 'unnecessarily confusing for distressed homeowners.'”
Although it is nice that government officials are expressing concern about a problem that has existed for years, it is not clear whether Mr. Walsh's directive will have any practical effect (the qualifier "if legally possible" is a big one), and not everyone is in agreement that there is a problem. The article states that "Edward DeMarco, acting director of the Federal Housing Finance Agency, said simultaneous actions are necessary at times. That’s because foreclosures can take an extended period of time and because borrowers don’t always respond to offers for help, he said."
The article itself was also met by skepticism. One commenter stated that "Mr. Walsh and his organization are ineffective at protecting consumers. Language in his testimony is biased in favor of the NA Banks and against consumers." A fellow New Jerseyan observed that maybe Mr. Walsh's words need to be enforced by state laws. "Perhaps if they had to wait to institute foreclosure proceedings until after assistance avenues are exhausted they would be more timely and forthcoming with the loan modification process."
In my opinion, what Mr. Walsh is doing is not enough. The states need to adopt stronger laws when it comes to foreclosure proceedings where homeowners clearly qualify for mortgage modification programs like HAMP. In New Jersey, where there is mandatory mediation, perhaps there should be a requirement that the courts must sign off on a mortgage company's efforts to complete the modification process in good faith before the foreclosure process can go further. Until that happens, I would urge New Jersey residents to apply for a modification before they get behind on payments, or at the very least before formal foreclosure proceedings are commenced. The earlier they start the process, the more likely it is that it will be completed one way or the other before foreclosure sale. Ultimately, they should consult with me about a possible chapter 13, as it is always good to have a backup plan.