Banks Continue to Foreclose During Loan Modification Process Despite Treasury Rules

After the Treasury rolled out Supplemental Directive 10-02, we questioned whether the servicers and lenders would stop foreclosing during the loan modification process.  We have received our answer.  Lenders are still foreclosing during the loan modification process despite language in Supplemental Directive 10-02 which expressly forbids lenders, who are participating in the federal program, from foreclosing until the loan modification process had been completed.

In March, the Treasury exhorted lenders for foreclosing during the loan modification process.  Supplemental Directive 10-02 expressly forbids lenders from foreclosing during the loan modification process: 

"A servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and until at least one of the following circumstances exists:
The borrower is evaluated for HAMP and is determined to be ineligible for the program; or
The borrower is offered a trial period plan, but fails to make a trial period payment by the last day of the month in which such payment is due; or
The servicer has established right party contact, has sent at least two written requests asking the borrower to supply required information in accordance with this Supplemental Directive and has otherwise satisfied the Reasonable Effort solicitation standard, and the borrower failed to respond by the dates indicated in those requests; or
The servicer has satisfied the Reasonable Effort solicitation standard without establishing right party contact; or
The borrower or co-borrower states he or she is not interested in pursuing a HAMP modification and such statement is reflected by the servicer in their servicing system."

We are still receiving complaints by borrowers that their lenders are foreclosing during the loan modification process.  I suspect lenders will continue to ignore the HAMP guidelines until a federal court judge decides whether or not a lender participating in HAMP has to strictly adhere to the temporary loan modification contract and the HAMP guidelines.