The federal government says foreclosure prevention has helped millions of people. But sometimes it seems hard to find a pundit or news story that mentions foreclosure prevention program without using the word “failed,” often in the headline.
Whom should you believe?
Government officials say 2.8 million homeowners at risk of foreclosure have had their home mortgages modified, lowering monthly payment by an average of about $500 since April 2009. But critics point out that not all of those modifications have lasted.
For example, of the 1.2 million trial modification started so far through the Home Affordable Modification Program (HAMP), about a third, or 429,696, have been canceled, according to the latest reports. Many skeptics worry that foreclosure prevention has merely delayed foreclosure for millions of homeowners who are still likely to eventually lose their homes.
First, let’s look at the big number: the 2.8 million modifications claimed by the government. That includes the 1.2 million HAMP trial modifications, 400,000 modifications through the Federal Housing Administration, and another 1.2 million loan modifications negotiated by HOPE NOW, a national coalition including government-approved loan counselors, mortgage companies and investors.
Based partly on these modifications, officials are taking credit for stabilizing a collapsing housing market. “We already know that due to the Obama administration’s efforts, the housing market is significantly better than anyone predicted a year ago,” said Housing and Urban Development Secretary Shaun Donovan.
But that still leaves the question of the what happened to the close to half-a-million people who had their trial modifications canceled. They were kicked out of the program for a range of reasons: Some had mortgage payments already less than 31 percent of their income, missed trial payments or had incomplete or unverifiable documentation, according to Treasury officials.
According to a January statement by JPMorgan Chase, for every 100 trial modifications begun through the fall of 2009, a quarter had not paid as agreed. Another 29 borrowers did not submit all the required documents. “Many borrowers return forms missing key information (signatures, Social Security numbers, etc.) or do not return one of four required documents,” according to a statement from Chase. Another 13 out of a 100 borrowers are not eligible for HAMP but will qualify for another type of loan modification and 33 out of 100 borrowers are able to be underwritten for permanent HAMP modifications.
What happened to these people? How were they “helped?”
It now appears that about half of the borrowers that didn’t qualify for HAMP had their loans permanently modified anyway by their loan servicers under alternative programs, according to a survey of the eight biggest loan companies in the HAMP program. Another quarter of the canceled modifications were still awaiting action by the lenders, according to the survey. The remaining quarter of the canceled modifications ended in a variety of ways, ranging from a payment plan, a loan payoff, a bankruptcy filing to knock out heavy credit card debts, or a short sale. Only 7 percent had gone to foreclosure by the end of May.
And here’s another unexpected thing — 10 percent of the loans that had their modifications canceled are now current. The borrowers got out of foreclosure and kept their homes without any help from the program. It’s not clear from the report where these borrowers got the money to get up to date on their loans. Some may have had the money all along. Others borrowers who had lost income may have found new employment.
The survey results are a surprise for all the pundits, myself included, who thought loans that had their trial modifications canceled would be headed straight to foreclosure.
Of course, the future is still unclear for many borrowers who entered foreclosure-prevention programs. More than 400,000 borrowers still have unresolved HAMP trial modifications. Researchers and officials have also begun to track the hundreds of thousands of borrowers with permanent modifications, to see how many slip back into foreclosure, according The Associated Press.
Whatever you think of the federal plan to stop foreclosures, the last page of the latest government-issued Housing Scorecard report has some important numbers. In addition to the tally of temporary and permanent modifications, there’s the number of borrowers who are “underwater,” meaning they owe a larger balance on their home mortgage than the home is now worth: 11.3 million, according to First American CoreLogic. These people might not all give up their homes to foreclosure, but they are vulnerable to new economic shocks. The report also counts 2.4 million seriously delinquent loans, according to LPS-McDash and HUD. Finally, officials count 3.6 million vacant homes held off the market, according to the Census Bureau. Those homes will eventually have to be sold.
So, no matter what you think federal foreclosure prevention effort — and I think the feds are doing better than anyone gives them credit for — the housing market still faces huge challenges that won’t go away soon.
Source: Housing Watch
The big mortgage financing company, which owns or guarantees millions of mortgages, announced on Wednesday that it would sue homeowners who have the capacity to pay but default anyway. It also said it would prevent these strategic defaulters from getting a new Fannie Mae-backed loan for seven years, which could potentially shut millions of buyers out of the market.
But it was unclear, the experts said, why Fannie Mae was threatening delinquent owners and what it hoped to achieve. The new direction seems to run counter to the Obama administration’s efforts to reinvigorate the housing market. And there were basic questions about how Fannie would be able to distinguish between those homeowners who defaulted intentionally and the unfortunate ones who had no choice.
“How are they going to do this, and for what result?” asked Grant Stern, president of the Morningside Mortgage Corporation on Bay Harbor Islands, Fla. “So they can find the people who have a little money left after their house crashed and take it away from them?”
A Fannie Mae spokeswoman said that the goal of the new punitive policies was to force defaulting homeowners to work with their servicers to surrender their houses through either a lender-approved short sale or by formally giving up the deed.
“We really want to encourage borrowers to pursue alternatives to foreclosure,” said the spokeswoman, Janis Smith.
Fannie’s newly aggressive stance comes as the debate is heating up over how much, if at all, borrowers should be held liable for their foreclosures.
Republicans recently added a measure to a Federal Housing Administration financing bill in the House of Representatives that would forbid strategic defaulters from getting an F.H.A.-insured loan.
The California Legislature is debating a proposed law that goes in the other direction, shielding many more delinquent borrowers from debt collectors.
Fannie and its sister company, Freddie Mac, control 30 million mortgages, providing liquidity to the housing market. They have been under government conservatorship since September 2008; the ultimate cost of the rescue to taxpayers might hit $400 billion.
Chris Dickerson of the Federal Housing Finance Agency, which regulates Fannie, said, “We support Fannie Mae taking a policy position that discourages borrowers who can afford to pay their mortgage from walking away.”
Fannie Mae will announce the details of its new program next month, when the servicers who collect mortgage payments on Fannie’s loans will get explicit instructions on how to make recommendations for lawsuits.
But for some in the mortgage business, the new direction seemed little more than a cruel joke.
“Fannie wants to lock people up in a jail of negative net worth for much of the rest of their lives,” said Lou Barnes, a Colorado mortgage banker. “They’re bringing back the debtor’s prison.”
The plan poses some political problems as well as practical ones. Fannie Mae might be a ward of the government but its new policy is at distinct odds with the Obama administration, which has been trying to restart the fragile housing market by lowering interest rates, offering tax credits and insuring millions of new loans.
A Treasury Department spokesman said Fannie Mae’s plan did not represent official Obama administration policy. A spokesman for Freddie Mac said it was closely following Fannie’s moves but had not yet adopted them.
Strategic defaults have been a rising concern for years. Lenders first noticed people purposefully ditching their houses early in the financial crisis. In late 2007, Kenneth D. Lewis, then chief executive of Bank of America, said people were remaining current on their credit cards but defaulting on their home loans, a phenomenon that he said “astonished” him.
The lenders are less surprised now, but perhaps more worried. Bank of America said recently that it was putting owners in danger of foreclosure into payment plans that were supposed to be affordable — but that a third of the borrowers were failing to pay anyway.
“You could say the customer is choosing not to make those payments,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans.
Borrowers who stop paying the mortgage can get a year of free rent, and sometimes two. “There is a huge incentive for customers to walk away,” Mr. Schakett said in a recent media briefing.
Fannie is not saying how many of its borrowers are strategically defaulting. The firm’s delinquency rate, traditionally about 0.5 percent of its portfolio, began sharply ascending in mid-2007. At the beginning of this year, it leveled off at 5.5 percent.
About a quarter of homeowners with mortgages, or about 11 million households, owe more than their home is worth, and are potentially vulnerable to a strategic default. A flat or rising real estate market could encourage many of them to hold on; a declining market would suggest it was time to go.
Fannie was established as a federal agency in 1938 but was chartered by Congress as a private company in 1968. For years it prospered by virtue of its special status as a government-sponsored entity charged with increasing the nation’s homeownership rate, enriching its shareholders and executives in the process.
During the housing boom Fannie overreached and bought many loans of buyers who were ill-equipped to pay them. Its fate is uncertain; it is not even clear it will be around in seven years to enforce any edicts.
Christopher F. Thornberg, a principal at Beacon Economics who correctly forecast that the housing boom would implode, said he understood what Fannie was trying to do, and even sympathized to a degree.
It is rational economics, he said, to assume that someone who walked away from an unpaid mortgage once might do so again. It also made sense, he said, for Fannie to try to limit strategic defaults from becoming an even bigger problem. And the new program also addresses the moral hazard question, Mr. Thornberg said: If borrowers are not punished for their missteps, they might not learn their lesson and might do it again.
And yet, he noted, the banks were bailed out, and their executives walked away rich. “Why should I pay my dues when they did not?” he said. “There is no clean answer on this.”
Once more they are going after the WRONG PARTY and they KNOW IT!
Fannie and Freddie were responsible for so much of this meltdown – and now we have to listen to their ranting and thuggery. Is there a hole deep enough for these guys?
They are so angry because their precious RMBS trusts are being exposed as schemes to loot pension funds, and that will make it harder to sell the next batch of poison they are cooking up.
First Posted: 06-23-10 11:03 PM | Updated: 06-23-10 11:28 PM
Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday.
A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.
About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won’t return to positive equity until late 2015 or early 2016.
And Fannie Mae, an arm of the federal government and a big part of the Obama administration’s housing policy, wants to make sure that if struggling families walk away, they suffer for it.
Homeowners who strategically default or did not work “in good faith” to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years. The firm said it will also pursue homeowners in court, seeking so-called “deficiency judgments” to recoup outstanding debt by seizing borrowers’ other assets. Thirty-nine states do not limit the ability of lenders to recover what they’re owed.
Fannie Mae said that next month the firm “will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.”
“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” Terence Edwards, Fannie’s executive vice president for credit portfolio management, said in a statement.
Strategic defaults among homeowners have been on the rise. More than a million homeowners went that route last year, nearly double the amount in 2008 and more than four times the level in 2007, according to a recent analysis by the credit reporting company Experian and Oliver Wyman, a management consulting firm. A study by a team of academics from the University of Chicago and Northwestern University estimated that nearly a third of home mortgage defaults in March were strategic. The deeper underwater homeowners are, the more likely they are to walk away from their mortgage, the researchers noted.
Earlier this month, the House of Representatives passed a bill barring strategic defaulters from obtaining home mortgages backed by the Federal Housing Administration. The agency guarantees nearly one in four new mortgages.
“I can’t help but notice that every group now frantically calling for tough penalties for homeowners who walk away was virulently opposed to judicial modification of mortgages in bankruptcy,” Rep. Brad Miller, a North Carolina Democrat, told the Huffington Post.
Bank of America and Citigroup, the nation’s largest and third-largest banks by assets, respectively, support changing existing law to give federal judges the power to modify mortgages in bankruptcy, otherwise known as “cramdown.” Proponents argue that if homeowners were able to modify their mortgages in bankruptcy, the number of strategic defaults would substantially decrease, if not nosedive.
About 3 million homes will receive foreclosure notices this year, real estate research firm RealtyTrac estimates. More than 1 million will be repossessed by lenders, adding to the nearly 2.2 million homes that lenders took over from 2007 to 2009.
Fannie Mae and its sister firm Freddie Mac guarantee nearly three out of every four new mortgages, according to leading industry publication Inside Mortgage Finance. The two firms control about $5.5 trillion in home mortgages, according to their federal regulator. That’s nearly half of all outstanding mortgage debt in the U.S. Their share of the mortgage market is nearly double what it was 20 years ago.
Because Fannie controls such a large portion of new mortgage issuance, the freezing out of homeowners for seven years could prove devastating.
Brent T. White, a law professor at the University of Arizona, recently wrote in an academic paper that most homeowners can recover from a foreclosure within two years. In fact, defaulting on a mortgage is not as bad as most people think, White notes.
“Lenders are unlikely to pursue a deficiency judgment even in recourse states because it is economically inefficient to do so; there is no tax liability on ‘forgiven portions’ of home mortgages under current federal tax law in effect until 2012; defaulting on one’s mortgage does not mean that one’s other credit lines will be revoked; and most people can expect to recover from the negative impact of foreclosure on their credit score within two years (and, meanwhile, two years of poor credit need not seriously impact one’s life),” he writes.
There is a “huge financial upside” for seriously underwater homeowners to strategically default on their mortgages, White said.
While it’s still taboo among most homeowners, it’s common behavior among corporations.
In December, Morgan Stanley, the nation’s sixth-biggest bank by assets, walked away from five San Francisco office buildings the $820-billion firm purchased as part of a landmark $2.43-billion deal near the height of the real estate boom. A group led by Tishman Speyer Properties gave up a 56-building apartment complex in Manhattan in January after defaulting on some $4.4 billion in debt. A spokesman for the California Public Employees’ Retirement System, the nation’s biggest municipal pension fund and one of several investors in the venture, told the Huffington Post that they “basically walked away from it.”
Fannie was effectively nationalized in September 2008. Taxpayers own 79.9 percent of Fannie and Freddie. The Obama administration announced on Christmas Eve that it would provide unlimited financial assistance to the firms, disregarding what was a $400 billion cap on taxpayer bailouts. Their debt is backed by the U.S. government.
The two firms, facing growing losses on sour mortgages in perhaps a worsening housing market, have already taken $145 billion from taxpayers. Fannie Mae is responsible for $83.6 billion of that bailout.
Freddie Mac did not say it would take a similar position on strategic defaulters.
“Such so-called strategic defaults, once rare, are now common enough to jeopardize the already-weak housing and mortgage markets,” wrote economists Celia Chen and Cristian deRitis of Moody’s Economy.com in an April 13 note. “If the trend continues, strategic defaults could both accelerate the pace of home foreclosures and also make it harder for new borrowers to obtain mortgages. Both factors would in turn worsen the decline in house prices.”
JPMorgan Chase, the nation’s second-largest bank by assets with more than $2.1 trillion, warmed investors last month that underwater homeowners may not continue to make their payments even when they’re able to, according to a May 10 filing with the Securities and Exchange Commission.
A top executive at Freddie Mac posted a note on the firm’s website pleading with homeowners to not intentionally walk away from their homes.
“Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy,” Freddie Executive Vice President Don Bisenius argued in a May 3 note.
The firm warned investors and analysts about the risk of increased strategic defaults in March 2008. Referring to it as “ruthlessness,” Dick Syron, Freddie’s former chairman and CEO, said the firm was “seeing an increase in ruthlessness” that had “the potential for changing consumer behavior.”
Fannie Mae said Wednesday that borrowers who have “extenuating circumstances may be eligible for new loan in a shorter timeframe” than the seven-year period it’s warning about.
Republicans in the House recently tried to rein in the twin mortgage giants. Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, attempted Wednesday to amend the financial reform bill under consideration by the House and Senate to mandate that the federal government appoint an inspector general to oversee Fannie and Freddie. The mortgage behemoths’ federal regulator has been operating without an independent watchdog looking over it and Fannie and Freddie since 2008.
Republicans have also tried to amend the bill to subject Fannie and Freddie to the Freedom of Information Act so members of the public can keep tabs on the firms by compelling the disclosure of documents and records.
Both efforts were thwarted by House Financial Services Committee Chairman Barney Frank (D-Mass.), who ruled that they were not “germane” to the legislation under consideration.
Emails sent after normal business hours to spokesmen for the White House and Treasury Department requesting comment were not returned.
Ryan Grim contributed reporting. THE HUFFINGTON POST
The borrowers will think they are modifying their current loan when in fact they are starting all over again.
The Foreclosing entity which lacks standing to bring lawsuit, is not authorized to modify anything since they are not the owner of the loan in question.
Since the real parties in interest are nowhere to be found, they are taking it upon themselves with the help of their lawyers to steal your property.
The borrower is actually getting a new loan which may enjoin borrower from rescinding new transaction.
The foreclosing entity is STILL not using their own funds to modify (new loan) loan. They are getting funds to lend borrowers through Federal bail outs, insurance proceeds and believe it or not Investors. [same process]
Their lawyers are not acting in a lawyer’s capacity but as BROKERS; [middlemen] they are getting paid commission on every new loan they help brokered.
What Does Loan Modification Mean?
A modification to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.
Why would they need to re-qualify if they claim they would make the borrowers payments and rates to be less?
The borrower took the loan out with lender “A” but an unknown lender “B” is trying to modify it.
When the modification is said and done, the borrower will have lender “B” as the lender. What happened to lender “A”????
Exactly what is in the waiver they ask you to sign if any?
Last November, Michael Hill of Lexington, S.C., finally got the call he’d been waiting for. Congratulations, a rep from JPMorgan Chase told him, your trial mortgage modification is approved. Hill’s monthly payment, around $900, would be nearly halved. Except there was a problem. Chase had foreclosed on Hill’s home a month earlier, and his family was just days away from eviction.
“I listened to her and then I just said, ‘Well, that sounds good,’ ” Hill recalled. ” ‘Tell me how we’re going to do this, seeing as how you sold the house?’ ” That, he found out, was news to Chase.
Millions of homeowners face losing their homes in the continuing foreclosure crisis, but homeowners often have more than the struggling economy and slumping house prices to worry about: Disorganization within the big banks that service mortgages has made a bad problem worse.
Hill was able to avoid eviction — for now. Chase reversed the sale by paying the man who’d bought the home an extra $19,500 on top of the $86,000 he’d paid at the auction. But other homeowners say they lost their homes because the communication breakdown within the banks was so complete that it led to premature or mistaken foreclosures.
“We believe in many cases people are losing their homes when they should not have,” said Kevin Stein, associate director of the California Reinvestment Coalition, which counts dozens of non-profits that work with homeowners among its members.
In the worst breakdowns, such as Hill’s, banks — and other companies that service loans — actually work at cross-purposes, with one arm of the company foreclosing on the home while the other offers help. Servicers say such mistakes are rare and result from the high volume of defaults and foreclosures.
The problems happen even among servicers participating in the administration’s $75 billion foreclosure-prevention program. Servicers operating under the year-old program are forbidden from auctioning someone’s home while a modification decision is pending.
It happens anyway.
Consumer advocates say the lapses continue because they go unpunished. “We’ve had too much of the carrot, and we need a stick,” Stein says. The Treasury Department has yet to penalize a servicer for breaking the program’s rules. The program provides federal subsidies to encourage modifications.
Treasury officials overseeing the program say they’re aware of the problems and have moved to fix them. Some states are going further to protect homeowners, however, with recent rules that stop the foreclosure process if the homeowner requests a modification.
Many homeowners, seeing no other option, have gone to court to reclaim their homes. At least 50 homeowners have recently filed lawsuits alleging the servicer foreclosed with a loan mod request pending or even while they were on a payment plan.
Long waits for help
In good times, banks and other servicers —Bank of America is the biggest, followed by Chase and Wells Fargo— were known mainly to homeowners simply as where they sent their monthly mortgage payment. But the companies have been deluged over the past couple years by requests for help from millions of struggling homeowners.
Homeowners commonly wait six months for an answer on a loan mod application. The federal program for encouraging loan mods includes a three-month trial period, after which servicers are supposed to decide whether to make the modifications permanent. But some homeowners have waited as long as 10 months for a final answer.
The experience of Hill, married with two children, typifies the delays and confusion. After the mistaken foreclosure, he began the trial modification last December. He made those payments, but two months after his trial period was supposed to end, Hill is still waiting for a final answer from Chase.
The miscommunications have continued. He received a letter in January saying that he’d been approved for a permanent modification, but he was then told he’d received it in error.
His family remains partially packed, ready to move should the modification not go through. “I’m on pins and needles every time someone’s knocking on the door or calling,” he said.
Christine Holevas, a Chase spokeswoman, said that Chase had “agreed with Hill’s request to rescind the foreclosure” and was “now reviewing his loan for permanent modification.” She said Chase services “more than 10 million mortgages — the vast majority without a hitch.”
Communication breakdowns occur because of the way the servicers are structured. One division typically deals with modifications and another with foreclosures. Servicers also hire a local trustee or attorney to actually pursue foreclosure.
“Often they just simply don’t communicate with each other,” said Laurie Maggiano, the Treasury official in charge of setting policy for the modification program. Such problems were particularly bad last summer, in the first few months of the program, she said. “Basically, you have the right hand at the mortgage company not knowing what the left hand is doing,” said Mark Pearce, North Carolina’s deputy commissioner of banks. Communication glitches and mistakes are “systemic, more than anecdotal” among mortgage servicers, he said.
“We’ve had cases where we’ve informed the mortgage company that they’re about to foreclose on someone.” The experience for the homeowner, he said, can be “Kafkaesque.”
“We’re all human, and the servicers are overworked and trying their best,” said Vicki Vidal, of the Mortgage Bankers Association. She said foreclosure errors are rare, particularly if struggling homeowners are prompt in contacting their servicer.
Frances Gomez, of Tempe, Ariz., lived in her house for over 30 years. Three years ago, she refinanced it with Countrywide, now part of Bank of America, for nearly $300,000. The home’s value has declined dramatically, said Gomez, who put some of the money from the refinancing into her hair salon.
Last year, the recession forced her to close her shop. Gomez fell behind on her mortgage, and after striking out with a company that promised to work with Bank of America to get her a loan mod, she learned in December that her home was scheduled for foreclosure.
So Gomez applied herself. She twice succeeded in getting Bank of America to postpone the sale date, and she said she was assured it would not happen until her application was reviewed. Gomez had opened a smaller salon and understood there was a good chance she would qualify for a modification.
She was still waiting in March when a Realtor, representing the new owner of her home, showed up. Her house had sold at auction — for less than half of what Gomez owed. “They don’t give you an opportunity,” she said. “They just go and do it with no warning.”
It’s not supposed to work that way.
Under the federal program, which requires servicers to follow a set of guidelines for modifications, servicers must give borrowers a written denial before foreclosing. When Gomez called Bank of America about the sale, she said, she was told there was a mistake but nothing could be done. She did get a denial notice — some three weeks after the house was sold and just days before she was evicted.
“I just want people to know what they’re doing,” Gomez, now living with family members, said.
After being contacted by ProPublica, Bank of America reviewed Gomez’s case. Bank spokesman Rick Simon acknowledged that Gomez might not have been told her house would be sold and that the bank made a mistake in denying Gomez, because it did not take into account the income from her new salon business. Simon said a Bank of America representative would seek to negotiate with the new owner of Gomez’s house to see if the sale could be unwound.
Simon said the bank regrets when such mistakes happen due to the “very high volume” of cases and that any errors in Gomez’s case were “inadvertent.”
Even avoiding a mistaken sale can also be a stressful process.
One day in February, a man approached Ron Bermudez of Emeryville, Calif., in front of his house and told him his home would be sold in a few hours. This came as a shock to Bermudez; Bank of America had told him weeks earlier that he’d been approved for a trial modification and that the papers would soon arrive. He made a panicked phone call to an attorney, who was able to make sure there was no auction.
To contest a foreclosure under the federal program, Maggiano, the Treasury official, said a homeowner should call the HOPE Hotline, 888-995-HOPE, a Treasury Department-endorsed hotline staffed by housing counselors. Those counselors can escalate the case if the servicer still won’t correct the problem, she said.
That escalation process has saved “a number” of homeowners from being wrongfully booted out of their homes, Maggiano said. Hill, the South Carolina homeowner, is an example of someone helped by the HOPE Hotline.
Of course, the homeowner must know about the hotline to call it. Gomez, the Arizona homeowner who lost her home to foreclosure, said she’d never heard of it.
Many homeowner advocates say the government’s effort has been largely ineffective at resolving problems with servicers.
“I uniformly hear from attorneys and counseling advocates on the ground that the HOPE Hotline simply parrots back what the servicers have said,” said Alys Cohen, an attorney with the National Consumer Law Center. Cohen said she’d voiced her concerns with Treasury officials, who indicated they’d make improvements.
Offering more protection
Under the current rules for the federal program, servicers have been barred from conducting a foreclosure sale if the homeowner requested a modification but are allowed to push along the process, even set a sale date. That allows them to foreclose more quickly if they determine the homeowner doesn’t qualify for a modification.
As a result, a homeowner might get a modification offer one day and a foreclosure notice the next. As of March, servicers were pursuing foreclosure on 1.8 million residences, according to LPS Applied Analytics.
Maggiano, the Treasury official, said that’s been confusing for homeowners. Some “just got discouraged and gave up.”
New rules issued by the Treasury in March say the servicer must first give the homeowner a shot at a modification before beginning the process that leads to foreclosure.
They also require the servicers to adopt new policies to prevent mishaps. For instance, the servicer will be required to provide a written certification to its attorney or trustee that the homeowner does not qualify for the federal program before the house can be sold.
Maggiano said the changes resulted from visits to the servicers’ offices last December that allowed Treasury officials to “much better understand (their) inner workings.”
The rules, however, don’t take effect until June. Nor do they apply to hundreds of thousands of homeowners seeking a modification for whom the process leading to foreclosure has already begun. And Treasury has yet to set any penalties for servicers who don’t follow the rules.
Maggiano said Treasury’s new rule struck a balance to help homeowners who were responsive to servicer communications to stay out of foreclosure while not introducing unnecessary delays for servicers. Some borrowers don’t respond at all to offers of help from the servicer until they’re faced with foreclosure, she said.
Some states, such as North Carolina, have recently gone further to delay moving toward foreclosure if a homeowner requests a modification. State regulators there recently passed a law that requires a servicer to halt the process if a homeowner requests a modification.
Pearce, the North Carolina official, said the rule was prompted by the delays homeowners have been facing and puts the burden on the servicer to expeditiously review the request. “They’re in total control.”
Stopping the process not only removes the possibility of a sudden foreclosure, he said, but also stops the accumulation of fees, which build up and can add thousands to the homeowner’s debt as the servicer moves toward foreclosure.
In California, state Sen. Mark Leno, a Democrat from San Francisco, is pushing a bill that would do something similar. The servicers “should be working a lot harder to keep homeowners in their home,” he said.
Kiel is a reporter for ProPublica, an independent non-profit newsroom based in New York. USA TODAY editors worked with him in preparing this story for publication.
What should you do if you’re foreclosed on while you’re waiting for an answer on your loan modification application?
Treasury officials say you should call the HOPE Hotline, 888-995-HOPE.It’s staffed by housing counselors, who will contact the servicer to try to resolve the situation.
If the counselors can’t resolve the problem, they can bring the issue to a “solution center” staffed by Fannie Mae, with which Treasury contracted to administer the modification program.
Those employees can intervene on behalf of the Treasury if the servicer is breaking the program’s rules, they said.
HOW MICHAEL HILL ALMOST LOST HIS HOME
A chronology of one borrower’s experience with a mistaken foreclosure.
Early 2009: After falling behind on his mortgage, Hill has many phone calls with JPMorgan Chase but is not offered a modification.
April 2: Chase files to pursue foreclosure on Hill’s house.
Aug. 6: Chase refers Hill to a housing counselor. With her help, he applies again for a modification.
Oct. 5: Chase sells Hill’s home at a foreclosure auction for $86,000.
Nov. 5: The sheriff issues Hill a notice saying he’ll be evicted in one week.
Nov. 11: Chase calls to tell Hill that he’s been approved for a trial modification.
Nov. 18: Chase buys the home back for $19,521 above the auction price.
Dec. 9: Hill begins the trial modification.
Source: ProPublica interviews with Michael Hill and Hill’s records.
HOMEOWNER LOSES HOME
More than 50 homeowners have filed lawsuits in the past year, alleging a communication breakdown led to foreclosure.In one of those suits, David Peterson of Grain Valley, Mo. says Chase Home Finance, part of JPMorgan Chase, assured him in December 2008, that he qualified for a loan modification and would soon receive the papers in the mail. The offer was not under the government program, which didn’t launch until April 2009.
When the papers had still not arrived a month later, he says he called to ask whether he should send in a payment. He was told to wait, the suit says, and was assured he would not be foreclosed on.
Nevertheless, Chase sold his home. More than three weeks later, Peterson says he received the modification papers in the mail. They were dated one day after the foreclosure had occurred.
Chase refused to reverse the sale, according to the suit, which was filed last month. Chase declined to comment on pending litigation.
On an emotional level, many Americans have never come to terms with the $700 billion bank bailout that passed in the waning days of the Bush administration. Though it garnered bipartisan support, and the overwhelming view of economists and businesses leaders was that it averted calamity, the idea of propping the very institutions that caused the crisis seemed like a bad use of taxpayer money. How could it be otherwise? So in response, President Obama decided early in his administration to take $50 billion from the bailout funds and redirect it to homeowners. The goal was to induce banks to modify the terms of millions of loans that were in danger of default because of declining home prices. It was always a dubious idea. Bailing out people who, in many cases, bought houses they couldn’t afford isn’t much more appealing than bailing out bankers. And besides, this is bailing out bankers because it’s impossible to help borrowers without helping lenders as well.
Roughly a year after the program was created, and a week after some changes were announced, what is becoming increasingly clear is this: The main part of the bailout is shaping up less as a bailout than a shrewd investment, while the loan modification program looks like an embarrassing failure.
Now that the threat of a second Great Depression is gone, the justification for bailouts of any kind is even more tenuous. And despite improvements, the mortgage program still looks like a sweetheart deal for banks, as well as select homeowners.
Jun 29th 2010 @ 1:13PM
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economists and businesses leaders was that it averted calamity, the idea of propping the very institutions that caused the crisis seemed like a bad use of taxpayer money. How could it be otherwise? So in response, President Obama decided early in his administration to take $50 billion from the bailout funds and redirect it to homeowners. The goal was to induce banks to modify the terms of millions of loans that were in danger of default because of declining home prices. It was always a dubious idea. Bailing out people who, in many cases, bought houses they couldn’t afford isn’t much more appealing than bailing out bankers. And besides, this is bailing out bankers because it’s impossible to help borrowers without helping lenders as well.
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