Despite fulfilling every obligation under trial government-sponsored loan modification programs, some homeowners can end up far worse off than if they had never joined up at all, Propublica reports. That’s because if they’re denied a permanent modification, they have to pay the entire amount that was being discounted, often within a very short period of time. This pushes already strapped families past the breaking point.

…the Treasury Department encouraged banks to start trials quickly, causing banks to make trial offers to people without fully vetting their eligibility, and ultimately letting in many homeowners who were destined to fail. After lingering for months awaiting final approval, thousands of homeowners are now being dropped from the program as banks eventually decide they don’t qualify.

…Lauten made the reduced payments for seven months, but was told in March that she’d been denied a permanent modification, after the bank seems to have decided her income wasn’t sufficient. The difference between the regular payments and reduced payments accrued during the trial period, meaning Lauten now owes $2,200 on top of her payments, which have returned to more than $900 a month. According to a letter Wells Fargo sent Lauten, the bank gave her one month to pay back the $2,200, or else the bank would begin the foreclosure process.

Gov’t Loan Mod Program Leaves Some Homeowners Worse Off [ProPublica]

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