Q: I am writing this for my son. He is recently divorced and his ex-wife signed their home over to him as they were underwater and had no equity in the home. However his mortgage payment is based on two incomes.

He applied for a loan modification under a “hardship” rule, and sent in all applicable paperwork. After four months he was told that he qualified for a loan modification.

His lender then said it misplaced his paperwork and he needed to resubmit all of it. Finally, last December he received word that he did qualify for a loan modification and needed to make three of the lowered payments (in January, February, and March) on time and he would receive the “final-final” paperwork.

He did all of this and then in April, the bank sent him a letter denying his loan modification application.

There is no way he can make his house payment. He is beside himself. It is against his principals to “walk away” from this mortgage, but feels he has no choice. Do you have any advice? Last year, my daughter was fortunate to have been able to get a loan modification.

Thank you for your help. None of this makes any sense and it is a sad situation out there for so many people.

A: Unfortunately, your son isn’t necessarily entitled to a permanent loan modification, despite being approved on a temporary basis. If the bank thinks it will make more money by foreclosing, then that’s what it will do. The bank doesn’t have to think about what’s in your son’s best interest, or whether his loan is affordable. The bank’s help in your son’s case may be limited unless your son has a legal case against the bank.

It sounds as though your son was actually approved for a temporary loan modification, which back in 2008, 2009 and most of 2010, were granted with (and sometimes without) a brief look at the documents but the banks would then go through those documents with a fine tooth comb.

President Obama said, if you make the three temporary payments on time and in full, you’d be approved for a permanent loan modification. Unfortunately, this wasn’t true. The loan modification program has been a voluntary program and the banks get to decide who gets a loan modification. Their decision making power has left millions of homeowners in loan modification hell. These borrowers have been waiting or did wait months and months to get their lenders to make a decision on their loan files.

Some banks have been slightly better than others about helping consumers, but overall, the loan modification program has only helped a small fraction of borrowers who applied.

It sounds as though your daughter was lucky. As for your son, while his wife signed over her share of the property, unless your son refinanced the mortgage (unlikely), she is still on the loan note. That means her credit will be trashed along with your son’s credit if he stops paying the mortgage and does a strategic default, allowing the home to fall into foreclosure. So, it’s in her best interests to help your son find a solution to this problem.

While your son feels that he is betraying his principals, he may not have any choice. The economy is extremely tough and there are a lot of folks who would much rather be paying their mortgages even if the property is underwater. That doesn’t seem to be an option for him.

If your son truly can’t afford the payments on the home, he might consider selling the home as a short sale. That is, he could market the home for sale and the bank would accept whatever comes from the sale to pay off the debt owed on the loan. While your son would be short on the amount owed to the bank, he could move on from his current predicament and move to a home that might be more affordable to him. He could even consider renting a home for a while.

If he feels as though he has been rejected unfairly for a loan modification, and seems to qualify under the HAMP rules at the government’s MakingHomeAffordable.gov site, he should complain to his lender’s regulator. If he is working with one of the big banks (Bank of America, Wells Fargo, Citibank, and Chase), then you’d want to file a complaint with the Office of the Comptroller of the Currency (OCC) which regulates those big banks. The website is HelpWithMyBank.gov.

Finally, I have to agree with your last point – none of this makes a whole lot of sense. But the banks (not to mention the government) never expected the country to still be mired in a housing depression two years after the recession technically ended (June, 2009). But it is, and there are millions of homeowners who are walking the same mile as your son. It is a sad situation, and I wish that there was a better answer for you and your son.