It's interesting to me how many lenders are still completely unable to handle the concept of 'loss mitigation' with regard to loan modifications and/or short sales today---over a full year since the onslaught of defaults that have been the result of so many 'adjusting' ARMS. Certain lenders have pulled staff out of their collections divisions to handle the job. Still others are hiring outside consulting firms, which creates a real conflict of interest. Chris Scott of GMAC's 'outside' loss mitigation contractor firm illustrated that conflict of interest clearly just a couple of weeks ago for me. Mr. Scott advised me that he and his co-workers work on commission. They won't even present a short sale offer, for example, to GMAC unless they know that they are getting at least 10% of the original note amount upfront. Now, GMAC doesn't get that money, understand. This consulting firm does. So, let's say that there is mortgage insurance on a loan that GMAC is servicing. You, via your company's 401K program investments, have money that was invested in that mortgage note. The senior lien is taking a large loss. Their insurance only allows them to contribute, let's say $1,500 to the junior lien, for example. The total note amount is $45,000. GMAC has to submit the request for reimbursement to the mortgage insurance carrier to see how much of the loss will be reimbursed to them. Those percentages can be different, based on whether the property is sold short with a bonafide loss to the senior lien, as well; or if it is foreclosed upon. So, Mr. Scott tells me that their independent contracting firm won't even submit the file to GMAC so that the insurance carrier can be engaged unless he gets his 10%, because he needs to be paid. So, not only is GMAC not even being advised of a pending offer, and the need to contact their own insurance carrier to mitigate some of the losses to the investor (Read : 'YOU'); my guess is that the contractor that has signed a contract to represent GMAC in the loss mitigation area is also with holding vital information from their contracted client. Seems like an ethical violation, but perhaps it's more. I suspect the investor who stands to lose more money without adequate loss mitigation efforts being employed may not be aware that his/her rights and, indeed MONEY, are being signed away by a party that is self-representing. But, it gets better: IndyMac Bank has now employed a contracting firm that is charging an UPFRONT $300 Fee to the borrower/consumer before they will even entertain the borrower's request for either a loan modification or a short sale. If the borrower doesn't send in certified funds to the contractor first for the $300, the loan never gets reviewed. In the event that the loan is a FHA or Fannie Mae/Freddie Mac backed loan; this fee is typically a violation of Federal lending laws. However, the number provided to the borrower to call if they believe or know for a fact that their loan is one of these federally insured/backed loan programs sends them into a loop where the call NEVER gets answered. I, personally, have had clients tell me that they were on hold for up to four hours or more on multiple days/multiple attempts. Faxes sent with requests for the company to call the borrower were ignored, etc. IndyMac, on the other hand, appears to be allowing these private consulting companies to take such actions without regard to the liability; both legal and financial, that IndyMac is being exposed to. It shouldn't surprise anyone that, if former collections agents who work on commission are put in charge of loss mitigation, that there will be more of a focus on lining the pockets of the agent for the outside contractor or the contractor themselves, than on 'loss mitigation' for the benefit of the borrower, the lending institution or investor who funded the mortgage, and/or the servicing company. In other words, some lenders have given up being able to provide the staff to handle the onslaught themselves; which is what they no doubt agreed to do when they signed contracts to provide the servicing for these loans. Instead, they are now 'farming out' that aspect to private contractors with no quality control or oversight being employed by the servicing company to avoid HUD violations, RESPA violations, etc. My suspicion is that, at some point in the next 12 months, there will be a massive lawsuit brought by either a class-size group of borrowers or investors who funded these notes to renumerate them for what will be the perceived losses that were incurred as a result of these sloppy practices. I've always been told that ignorance is not a defense in a court of law, whether criminal or civil. Based on that, I can't imagine that the loan servicers, such as GMAC and IndyMac, who are using these outside contractors will be able to claim ignorance of their practices as a defense. To see for yourself the staffing methods that these private 'loss mitigation contracting firms' areusing; Google "Loss Mitigation". At the top of the results, you'll find a banner or two of paid advertisers that state a person can "Make great $$ in loss mitigation working from home", etc. Let's be clear, here: these kitchen table, independent contractors will now have access to that borrower's social security #, etc. I know this for certain, because even if the lender didn't send them the information themselves---which they would have to---the borrower must submit extensive personal and financial information as part of the process of requesting a loan modification or a short sale. That is most definately a violation of Federal Privacy laws where the lender has provided the borrower's information to the contractor, or is requiring that the borrower work with this outside source that will be receiving such private information.

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