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Modification process and foreclosure can happen at the same time

A loan modification can greatly help a homeowner who is on the verge of foreclosure. With the modification, monthly mortgage amounts are decreased, and for some it's enough for them to be able to afford living in their home.

However, while a mortgage modification can be a great tool for a struggling homeowner, due to certain bank practices, obtaining one in a timely enough manner to avoid foreclosure can be somewhat tricky, and now some consumer advocates and the state attorneys general are pushing for regulations on bank practices that would ban what is commonly called "dual tracking."

"Dual tracking" is when a homeowner is going through the process of obtaining a loan modification at the same time that the bank is proceeding with a foreclosure. What this means is that many people will end up being foreclosed on, even though they believe that they are on the right path to obtaining a modification and payments they can afford.

To try and combat this confusion and misconception among homeowners the state attorneys general have proposed some new terms to banks as part of a foreclosure-system overhaul. Of those proposals, one would be that a bank could no longer start the foreclosure process once a homeowner has submitted an application for a mortgage modification.

As of now a similar ban is already in place, but only applies to those homeowners who go through the federal foreclosure relief program known as Home Affordable Modification Program. And while this is good news for those who try and obtain a modification through HAMP, it does not help homeowners who end up receiving a modification through a bank's in-house program.

When just looking at the numbers for 2010, 1.24 million received modification through an in-house program, while only 513,000 obtained a modification through HAMP, which means that the majority of homeowners who are struggling turn to in-house bank programs for help.

As of now the dual tracking provision has not been accepted, and is included within a 27-page term sheet that was issued by the state attorneys general to the banks. At this point the banks have responded with their own proposals, and the negotiations are still ongoing.

Source: Los Angeles Times, "Banks are foreclosing while homeowners pursue loan modifications," Alejandro Lazo, 14 April 2011

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