Carrington Mortgage not following the Rules

Carrington Mortgage is a prime example of how some mortgage companies are benefiting from loan modifications. The lending industry has provided relief to at least four million homeowners over the last two years according the federal government, however not all loan modifications are equal.

One homeowner from Santa Ana, California who is an emergency room nurse has actually received two loan modifications from her lender, Carrington Mortgage Services. The homeowners spouse had a stroke and they could no longer afford the payments on the adjustable mortgage. Carrington Mortgage agreed to modify the mortgage which ended up ballooning to over four thousand dollars a month in 2006. Carrington Mortgage again offered the homeowner a modification into yet another adjustable arm mortgage without any other alternative the homeowner again agreed to the modification.

ACORN Housing, a nonprofit that tries to prevent foreclosures says that if Carrington Mortgage would have modified the loan using the Making Home Affordable Plan that the homeowner would have been modified into a fixed rate mortgage and that they would have been paying a fixed rate of one thousand six hundred dollars a month for a term of thirty years. The current modified mortgage the homeowner received from Carrington has a monthly payment of two thousand eight hundred dollars. The difference would have put the homeowner in a better situation and would have been fair to the homeowner.

A spokesperson for Carrington Mortgage declined to comment on the company’s modification practice and in a statement stated that they had modified nearly half of all its homeowners and assisted them with avoiding foreclosure and that on average seventeen percent have had their payments reduced. The spokesperson further remarked that Carrington Mortgages approach not only assists its homeowners that are having difficulties but maximizes proceeds for the Trust by maintaining payment streams. They contend what is good for the Trust is good for homeowners and is within public policy. They also confirmed that they launched a program to enable homeowners to keep their homes as renters if they are in risk of foreclosure. Carrington believes they have made a successful foreclosure rental program as requested by the government. The government asked us to modify loans and slow foreclosures and we have done what was asked and our modifications are performing better than any other lenders in the industry.

Carrington Mortgage was one of the first services to join on the Administration’s Plan and was given one hundred ninety five million dollars to encourage more modifications. Carrington for its efforts has modified five hundred and ninety seven borrowers into the Making Home Affordable Plan although fourteen thousand of its borrowers are eligible. The company has also been processing hundreds of it own modifications like the one given to the homeowner who had the stroke. The company has modified half of the over seventeen billion in subprime loans it collects which is double the rate of any other mortgage servicer.

Bruce Rose, Carrington Mortgage Chief Executive, makes money on every loan that is modified because his Greenwich, Connecticut hedge fund, Carrington Capital actually owns many of the first loss pieces of the mortgage securities that his servicer collects. The secondary investments are designed in a manner that Rose will continue to receive interest payments as long as the loans remain current.

Carrington Mortgage seemed to deliberately not foreclose on one homeowner by allowing her to remain in her home without making a payment for over twenty eight months. The company then advanced her one hundred seventy three thousand dollars to get her current again and added the amount to her current loan.  The result was that Carrington received an instant payoff and received funds back for all the expenses related to the homeowners lack of payments and thus kept the loan on track. The combination of these events keeps income coming into Rose’s hedge fund.

Wilbur Ross has butted heads with Rose over the investor’s subprime servicer, American Home Mortgage. American Home Mortgage collects payments on securities that Rose does not service in house. Ross claims that Carrington intentionally delays the sale of foreclosed homes to enable Rose to continue to collect interest on flat line properties and harms investors in the process. Carrington sued American Home Mortgage in June citing that they sold properties at fire sale prices and short changed investors. Ross’s American Home received a bid for a property in WI. The price was sixty five thousand and fifteen percent higher than the last appraised value. Carrington blocked the sale and required that the home be relisted for twenty thousand dollars higher. The home remained on the market for seven months and sold for four five thousand dollars however Rose’s hedge fund collected interest until it was sold.

Money managers like Pacific Investment Management and Neuberger Berman have owned Carrington bonds but have divested due to the downgrading of the investments and Rose’s endless mischief. Rose has not only frustrated industry players the Attorney General of Ohio, Michael Cordray sued Carrington on allegations that the company takes advantage of borrowers and forces borrowers to modify without seeing the documentation. In addition Cordray charges that Carrington charged bogus fees for modification.

Carrington Mortgage may be an extreme case of modification gone wrong. Many lenders have offered step-modifications which provide low interest rates for a few months but will eventually rise to an unaffordable rate in the future.

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