Homeowners Often Rejected Under Pres. Obama - Tim Geithner's Loan Modification Plan
Ten months after the Obama Administration began pressing Lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.
These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won't get help after all.
How many is hard to tell. Lenders participating in the administration's Home Affordable Modification Program, or HAMP, still don't provide the government with information about who's rejected and why.
To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That's averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.
In the fine print of the form homeowners fill out to apply for Obama's program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.
This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.
That's what happened to Evangelina Flores, the owner of a modest 902 square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.
"The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December," said George Bosch, the legal administrator for the law firm of Edward Lopez and Rick Gaxiola, which is handling Flores' case for free.
Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.
Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.
"They arrived real demanding, saying that they were the owners," recalled Flores. "I have high blood pressure, and I felt awful."
Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days. The eviction notice had a scribbled signature, and under the signature was the name of attorney John Bouzane.
A representative in his office denied that Bouzane's law firm was involved in Flores' eviction, and said the eviction notice was obtained from Bouzane's Web site, www.fastevictionservice.com.
Why would a lawyer provide for free a document that gives the impression that his law firm is behind an eviction?
"We hope to get the eviction business," said the woman, who didn't identify herself.
Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn't even know about.
"I had my dream, but now I feel awful," said Flores, who remains in the house while her lawyers fight her eviction. "I still can't believe it."
How could Flores go so quickly from getting government help to having her home owned by Shark Investment? The answer is in the fine print of standard HAMP documents.
The Aug. 25 cover letter from Central Mortgage Company, the servicer that collects Flores' mortgage payments, offered Flores a trial modification with this comforting language:
"If you do not qualify for a loan modification, we will work with you to explore other options available to help you keep your home or ease your transition into a new home."
CMC is owned by Arkansas regional Arvest Bank, itself controlled by Jim Walton, the youngest son of Wal-Mart founder Sam Walton.
A glance past CMC's hopeful promise finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders.
The document warns that foreclosure "may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law."
This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn't qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner.
Until now, lenders haven't even had to notify borrowers in writing that they'd been rejected for permanent modifications.
In January, 11 months after Obama's plan was announced, homeowners will begin receiving written rejection notices, and the Treasury Department finally will begin receiving data on rejection rates and reasons for rejections.
The controversial clause notwithstanding, the handling of Flores' loan raises questions.
"Foreclosure actions may not be initiated or restarted until the borrower has failed the trial period and the borrower has been considered and found ineligible for other available foreclosure prevention options," said Meg Reilly, a Treasury spokeswoman. "Servicers who continue with foreclosure sales are considered non-compliant."
CMC officials declined to comment and hung up when they learned that a reporter was listening in with permission from Flores' legal team. Arvest officials also declined comment.
McClatchy did hear from Freddie Mac, the mortgage finance agency seized by the Bush administration in September 2008. Freddie owns Flores' loan, and spokesman Brad German insisted that Flores was reviewed three times for loan modification.
"In each instance, there was a lack of documentation verifying that she had the income required for a permanent modification," German said.
That response is ironic, said Michael Calhoun, the president of the Center for Responsible Lending, a nonpartisan group in Durham, N.C., that works on behalf of borrowers.
"These lenders gave loans with no documentation and charged them a penalty interest rate for doing so. And now when the people ask for help, they are using extravagant demands for documentation to give them the back of their hand and continue to foreclosure," Calhoun said.
German said that Flores was sent a letter on Nov. 24, which would have arrived several days later, given the Thanksgiving holiday, informing her that she'd been rejected for a permanent modification. Flores and her attorney said she never got a letter, and neither Freddie Mac nor CMC provided proof of that letter.
Exactly one week after the letter supposedly was sent, Flores' home was sold to Shark Investments. That company was formed on Aug. 19, according to records on the California Secretary of State's Web site. Shark Investments, apparently an unsuspecting beneficiary of Flores' woes, has no phone listing. The Riverside, Calif., address on the company's filing as a limited liability company traces to a five-bedroom, four-bath house with a swimming pool.
German didn't comment on whether Flores received sufficient notice under Freddie Mac rules, or how the home could move to sale so quickly.
Flores' legal team, which specializes in foreclosure prevention, thinks that lenders and servicers are gaming Obama's housing effort.
"It seems servicers are giving people false hopes by sending them a plan, and they are using the program as a collection method, getting people to pay them with no intention of modifying the loan," said Bosch. "I believe they are using this as a tool to suck people dry."
Dashed hopes aren't exclusive to the working poor such as Flores.
David Smith owns a beautiful home in San Clemente, Calif., the location of the Richard Nixon Presidential Library. Smith purchased his five bedroom home four years ago for $1.3 million. Today, the real estate Web site Zillow.com estimates the value of Smith's home at $981,000, slightly below the $1 million he still owes on it.
Smith said he went from "making a lot of money to making hardly any" as the national and California economies plunged into deep recession. He's a salesman serving the hard-hit residential and commercial construction sector. On top of his hardship, Smith's mortgage exceeds the limits for the HAMP plan.
In late August, Smith signed and returned paperwork in a prepaid FedEx envelope to Bank of America that said it had received the contract needed to modify the adjustable-rate mortgage he originally took out with the disgraced lender Countrywide Financial, which Bank of America bought last year.
The modification agreement shows that Bank of America agreed to give Smith a 3.375 percent mortgage rate through September 2014, and everything Smith paid between now and through 2019 would count as paying off interest. He'd begin paying principal and interest in October 2019, with the loan maturing in 2037.
The deal favors the lender, but Smith, 55, jumped on it because it kept him in the home.
Armed with what he thought was "a permanent modification," Smith returned a notarized copy of the agreement and made subsequent payments on time.
In return, he got a surprising notice from Bank of America saying that his house would be auctioned off on Dec. 18.
"It looks like they're trying to sell this out from underneath me," Smith said. "My wife cries all the time."
After a Dec. 16 call from McClatchy asking why Bank of America wasn't honoring its own modification, the lender backed off.
"The case has been returned to a workout status and a Home Retention Division associate will be contacting Mr. Smith for further discussions," said Rick Simon, a Bank of America spokesman. "The scheduled foreclosure sale will be postponed for at least 30 days to allow for review of the account in hope of completing a home retention solution for Mr. Smith."
The Center for Responsible Lending says such problems are common.
"Everyone acknowledges that the system is not working well," Calhoun said.
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Gov't Mortgage Plan Provides Little Permanent Help
The Obama administration's embattled mortgage relief plan has provided permanent help to only 4 percent of borrowers who have signed up, weak results that could threaten the housing market's recovery.
Among big lenders, Bank of America Corp. had the worst performance in the Treasury Department report card released Thursday. The nation's largest lender completed just 98 modifications for the 160,000 borrowers who had signed up by the end of November. GMAC Mortgage had the most modifications of any lender, just 7,100.
About 760,000 have signed up for the program since it launched in March. But as of last month, just over 31,000 homeowners had received permanent loan modifications. Nearly the same number have fallen out of the program completely either because they missed payments or were found to be ineligible.
The report shows the administration is not going to hit its long-term target of helping up to 4 million borrowers with modified loans, said Ted Gayer, an economist at the Brookings Institution.
The more borrowers the program can't reach, the more foreclosed homes will spill onto the market, pulling down home prices. About 14 percent of homeowners with a mortgage are either behind or in foreclosure.
''Nobody really knows how big that wave will be,'' Gayer said.
The Treasury Department said it will step up pressure on the industry to improve. The administration's focus is to ''get as many of those eligible homeowners as possible into permanent modifications,'' said Phyllis Caldwell, chief of Treasury's homeownership preservation office.
When the poor progress was clear last summer, Treasury set a goal of enrolling up 500,000 borrowers by Nov. 1. With the clock ticking, many lenders started giving homeowners verbal approval for a temporary modification.
''They were going to do anything to hit that number,'' said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.
Under the program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a financial hardship letter.
Lenders blame the low success rate on borrowers who don't return the necessary paperwork to complete the process.
But Michael Heller of Salinas, Calif., says he and his wife have submitted all of the required documents and made six months of $1,800 payments to JPMorgan Chase & Co., but have yet to receive an answer.
''Every time we send them documents, they send us a form letter that says your modification is risk, you screwed up, you didn't send us the necessary documents,'' said Heller whose landscaping business has taken a severe hit due to the recession. He figures the house he bought for $640,000 in 2006 is now worth $250,000.
''You never talk to the same person twice,'' he said. ''It makes you a little bit kooky. This has been extremely stressful.''
JPMorgan Chase had no immediate comment on their case.
Mike Brauneis, director of regulatory risk consulting at consulting firm Protiviti Inc., predicts that only 20 percent of borrowers who were verbally approved for modifications will ultimately sign up.
''Either people qualify verbally and never send their paperwork in, or they send it in and the numbers are different,'' he said.
Wells Fargo & Co. has enrolled about 3,500 homeowners in the Obama program so far. There are 14,000 more who have completed all their paperwork and are likely to finish the process soon. Another 9,000 have made three payments but haven't sent back any documents, while 11,000 have sent some paperwork.
''We're going to do all we can to try to get their attention,'' said Cara Heiden, co-president of Wells Fargo's mortgage division.
Bank of America said it is trying to reach 50,000 customers who have completed three payments but are missing some or all documents. It said its ''momentum in converting customers to permanent modifications'' will show results this month.
Some borrowers, who lied about their incomes when they originally took out their loans, still aren't able to show proof. During the housing boom, the lending industry didn't require borrowers to prove their income, and those loans are highly concentrated in the states hardest-hit by the housing bust.
More than half of loans made in California and Nevada from 2004 to 2007, for example, required little or no documentation, according to research firm First American Core Logic. Nationally, about 4.3 million of those loans were made during the boom years.
''You definitely have a group that shouldn't be in the loan in the first place'' said Terry Moore, managing director of consulting firm Accenture's North America banking practice.
A watchdog report this week said the government effort ''appears capable of preventing only a fraction of foreclosures'' and that only $2.3 million out of a potential $75 billion government commitment had been spent.
Steve Carpinelli, 39, of Alexandria, Va., thought he'd be a natural candidate for the Obama plan, after seeing his income drop 35 percent from about $65,000 two years ago. He's struggling, but has still made his monthly mortgage payments so far.
Though he was initially approved for a temporary modification, made four trial payments and sent back the necessary paperwork, Citigroup Inc. denied him last month.
''It is the most grueling processes I have ever been through financially,'' Carpinelli said.
A Citi spokesman declined to comment on his case but said, ''if the borrower does not qualify, we look for other potential loss mitigation solutions.''
NACA Continues Promising Mortgage Modifications Despite BBB Complaints
The Neighborhood Assistance Corporation of America, or NACA, promises to help struggling homeowners save their houses from foreclosure. But are those promises kept?
This weekend NACA will stage one of the organization's Save the Dream events in Charlotte. At a similar event in Columbia, S.C., earlier this year, 30,000 people showed up looking for assistance.
"We're the one shining light in the country when it comes to foreclosure prevention and restructuring mortgages to make them affordable," said NACA CEO Bruce Marks at a news conference to announce the Charlotte event.
But the president of the Better Business Bureau in Charlotte, Tom Bartholomy, said that is a bit overstated.
"There's nothing that they do that is more special than any other mortgage broker or lender will do for you," Bartholomy said.
In Charlotte, the BBB has logged 5 complaints against NACA. Nationally, there have been 63 complaints.
"At the end of it all, it comes down to that what they promised going in, they weren't getting at the end of it all," said Bartholomy.
Because NACA has helped thousands of satisfied homeowners across the country, the number of complaints is relatively small, so the BBB still gives NACA a B+ rating.
Katoma Cardwell was a NACA employee until he turned up at the news conference Tuesday afternoon. He admits he is in a pay dispute with the organization but also wanted to question CEO Marks about his claims.
"He is trying to distort what type of success NACA is currently able to provide for their members," Cardwell said.
Security guards barred Cardwell from going inside, telling him he had been fired.
A NACA executive who came outside told Cardwell, "Obviously you are attacking the organization so you can go through human resources to discuss anything further."
NewsChannel 36 questioned Marks about Cardwell's claims. Marks said, "There are some people that want to make a name for themselves by being on the media but we are focused on getting the job done."
More tax dollars for the self-proclaimed Bank Terrorist
Despite receiving taxpayer money, NACA doesn’t provide public reports on either its loan-brokerage business or its campaign to modify mortgages. Jim Campen, an economics professor emeritus at the University of Massachusetts, Boston, says he tried in the 1990s to analyze the performance of loans arranged by NACA, but Mr. Marks refused to provide data.
Mr. Marks says he feared the data would be used by another nonprofit to discredit his group. NACA does provide information to lenders that work with it, he says, but sees no duty to disclose it to the public.
“He’s been very effective in shaking money out of the banks,” says Mr. Campen, but “he’s not one to open up his records to public scrutiny.” Wall Street Journal
Article dated * May 20, 2009
NACA’s “Save the Dream Tour” Now Disappointing Thousands in Phoenix
It started this past July 31st and went through August 3rd, and 40,000 very nervous homeowners waited in long lines in the hopes of saving their dreams.
One woman, a 46 year-old single mom who had lost her job, fallen behind on her bills, but was working again, waited apprehensively to find out if her lender, Wells Fargo, would modify her loan or throw her out in the street. (I know that’s a harsh way of putting it, but I’ve decided that there’s been enough soft pedaling on this point.)
The event was yet another brought to homeowners by the Neighborhood Assistance Corporation of America, or NACA for short. The event’s brochure promised “Same Day Solutions” for homeowners who would get their loan modifications approved on the spot by many of the largest lenders and servicers in the country.
Bank representatives, dressed in their golf shirts with embroidered bank logos, would be on hand and would get things done for homeowners on a while you wait basis. NACA, a nonprofit based in Boston would be there with hundreds of housing counselors.
Wow. When I first heard about this whole “Save the Dream” thing, I thought it sounded absolutely fabulous.
When our single mom left the event that day she felt terrific. She was confident that her home would now be saved. A NACA housing counselor had reviewed her financial documents, and then she had met with a representative from Wells Fargo, who had agreed to modify her loan, taking her interest rate down from 6.375 to 4.375, and cutting her payment by more than $200 a month. Wells also agreed to a forbearance agreement that would allow her to skip the next six payments, and tack the amount onto the back end of the loan.
She was so happy.
The Wells Fargo representative couldn’t give her a written agreement, but it was a direct contact with her lender, and she watched as the representative wrote her name down along with her phone number and the promised interest rate… right on her NACA workbook.
She was so happy.
Fast forward to September 22nd, eight weeks later when she received a letter from Wells Fargo that specified very different terms than she was promised. In the letter it said that at the end of a six-month moratorium on payments, she would have to pay a balloon payment of all six payments missed.
So, as you might expect, our single mom tried to call her Wells Fargo representative at the number she had been given while she was saving her dream two months earlier… but she was never put through to her. Instead, Wells Fargo now told her to stand by… because Wells would be contacting her in a few months, at which time she could apply for a loan modification! And even better, Wells now said that it had no record of the agreed to interest rate reduction.
So, next she called NACA, left voice mails and sent emails but never got a response. And wouldn’t you know it… the identification number that she was given to track her file online on the NACA website didn’t work. Darn the luck.
So, now our single mom is concerned. She’s facing a balloon payment in January and is once again scared that she will lose her home… the home she purchased in 2002 with a 20% down payment…. the home in which she has close to 50% equity, but can’t refinance because of her credit score.
Now she’s angry. Very angry, I would think.
Here’s what she told the St. Louis Beacon:
“I’m angry at both the bank and the organization — Wells Fargo and NACA. Is the idea of ’scam’ in my mind? Yes. And that’s a quick turnaround for me. But, it was a very difficult 40-minute call I had with the bank — to see what I thought was a gift, of sorts, a break, just kind of disintegrate.”
NACA’s CEO is Bruce Marks, and he’s known for his outrageous acts in defiance of banks. I read about the guy and frankly, had to like him. For a while, he was delivering old, crummy furniture to the front lawns of bank executives on weekends. Pretty cool, right? Now I’m not so sure.
When Bruce was asked for numbers on how many St. Louis homeowners have received loan modifications and how many are in some sort of pending status, all he would say is that “it’s a rolling number”. It’s apparently a number that rolls. Bruce went on to say that that the focus would be on completing pending cases before the tour would resume in Los Angeles in late September. The “vast majority” will be completed by the end of this week, he told the St. Louis Beacon.
Were they? I don’t know. I can’t find any published numbers anywhere. I sure hope “the vast majority” of the 40,000 people that attended the NACA “Save the Dream” event… had their dream saved.
But I’m skeptical. Because when you consider that, according to the administration’s report cards that were published on August 9th, Bank of America only modified 4% of its eligible loans. Bank of America is the country’s largest mortgage holder, so it seems hard to imagine that the “vast majority” of 40,000 homeowners could save a dream out of that 4%. Maybe I’m not getting the math right.
At least NACA provides their housing counselor services FREE! That’s right, they don’t charge any of those distasteful up front fees everyone is so concerned about. Nope, NACA gets their money the old fashioned way… from the taxpayers… well, from the government who gets their money from the taxpayers. In fact, NACA recently got $16 million in government funding to provide housing counselors to distressed homeowners. But that’s not considered an up front fee, I suppose. So, you see… that’s free right there.
Oh, and one more thing… just for fun I looked up NACA on the Better Business Bureau Website and guess what? You guessed it… an ‘F’.
NACA’s Save the Dream? Or just another government funded nightmare?
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Sources: McClatchy Newspapers, Huffington Post, Wall Street Journal, NY Times, MSNBC, Michelle Malkin, WISTV, WCNC, NACA, Whitehouse.gov, BBB, Youtube, Google Maps
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