It would seem hard to defend the so-called dual-tracking of foreclosure proceedings and loan modifications.

When a mortgage servicer continues to pursue foreclosure while the borrower awaits an answer on her request for a loan mod, one naturally doubts the company's sincerity about wanting to provide relief.

But Jay Loeb, a vice president at National Creditors Connection, said the practice was useful in that it encouraged people who have been living in their homes rent-free to fish or cut bait. Pointing to the large number of such chronically delinquent borrowers — some 3.9 million home loans were 90 days past due or in foreclosure as of October, according to Lender Processing Services — Loeb says dual-tracking gives borrowers a specific time frame to determine whether they actually want to save their home and avoid foreclosure.

"Human nature tells us that the borrower will wait until the very end and procrastinate," said Loeb, whose San Diego firm gets hired by servicers to knock on borrowers' doors and help them fill out paperwork to get a loan mod. "When you have hundreds of thousands of borrowers in limbo who haven't paid their mortgage in over a year, if you don't force them into foreclosure they are absolutely cool with that."

Loeb stops short of defending foreclosures that proceed even after a borrower has been approved for a loan mod and is current on payments under the new terms. The federal consent orders imposed on the 14 largest banks this year ban this kind of dual-tracking.
Loeb blames "a lack of complete borrower engagement" in the process for the industry's failure to work out more troubled loans.

"Making phone calls and sending a FedEx package means you're relying on the borrower to understand the process but they have no one walking them through it," he says.

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