After months of criticism that it hasn't done enough to prevent foreclosures, the Obama administration is expected to announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans.
The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration's existing $75 billion foreclosure-prevention program.
The people briefed on the plan asked Thursday that they not be identified because the details had not yet been announced.
The plan will also require the more than 100 mortgage companies participating in the administration's existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.
It also will include three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.
The changes "will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own," an administration official said.
To date, the administration's $75 billion foreclosure-prevention program has been a disappointment. Critics have complained the program does little to encourage banks to cut borrowers' principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are "under water" – they owe more than their property is worth – according to Moody's Economy.com.
An expansion of the foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.
Meanwhile, one long-delayed piece of the government effort is getting off the ground.
Citigroup Inc. on Thursday joined the government's program to modify second mortgages such as home equity loans. With Citi on board, now four big owners of second mortgages have joined. The others are Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co.
The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.
The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.
The administration's new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of such distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.
The problem of "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.
Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.
The measures have been in the works for weeks, but President Obama is finally to release the details days after his watershed victory on health-care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed -- concerns that are paramount for many Americans.
The administration has been facing increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75 billion marquee program, known as Making Home Affordable. In the meantime, there is a growing backlog of distressed borrowers awaiting help from their lenders, which threatens to undercut efforts to stabilize the housing market.
Challenges unmet
Assistant Treasury Secretary Herbert M. Allison Jr. told a House panel Thursday that "we did not fully envision the challenges that we would encounter" when the earlier program was launched.
The efforts have been hampered by the difficulty of helping unemployed homeowners, who struggled to qualify for the government's mortgage relief plan. In requiring temporary relief for jobless borrowers, known as forbearance, officials are hoping to give them time to find a new job. Some will still need more assistance after the six-month period while others will ultimately lose their homes, administration officials said.
"We certainly support a forbearance opportunity for unemployed borrowers," said John A. Courson, chief executive of the Mortgage Bankers Association. He said he had not seen full details of the program.
Four measures
In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made. Underwater borrowers now make up about a quarter of all homeowners, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.
The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.
Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.
"We would prefer to see a required principal forgiveness program. But this is helpful," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition, a nonprofit housing group. "This is another tool that will help consumers weather the crisis."
Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled home buyers to put little or no money down, and home equity lines of credit.
These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.
Federal officials have estimated that about half of all troubled homeowners have a second mortgage and last year launched a program to encourage lenders to restructure them. That effort has struggled to get off the ground.
Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.
Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.
For those borrowers who have more than one mortgage on their house, the FHA will allow refinancing of the first loan only. The new loan and any second mortgage could not exceed 15 percent of the home's value. This approach is meant to benefit not only borrowers but also lenders by allowing them to offload mortgages that might otherwise fail.
Only homeowners who are refinancing their main residence, have a credit score above 500 and can document their income are eligible.
Administration official say this refinancing program should not strain the FHA's already weakened finances because the effort will be financed with up to $14 billion out of the federal bailout program.
The centerpiece of the Obama administration's foreclosure mitigation policies is failing. Republicans and Democrats in Congress both readily acknowledge the effort, called the Home Affordable Modification Program (HAMP), is a boondoggle of a government program. The only entity that won't face the facts is the Department of the Treasury, which runs the program and has been desperate to hide the program's poor performance.
HAMP modifications start with a three-month trial, then -- if the program's one-size-fits-all conditions are met -- become permanent. The problem for Treasury is that more than two-thirds of homeowners in the program never make it into permanent modifications. Treasury initially promised that HAMP would "reach up to 3 to 4 million at-risk homeowners" and reduce their monthly payments to "sustainable" levels. But the most recent progress report, released last week, shows only 170,207 permanent modifications. At best, that's six percent of Treasury's goal.
By anyone's standard, a six percent success rate is a pathetic result, and only underscores that the reality of HAMP is far from the promise.
But instead of fixing its program, Treasury is trying to move the goal posts -- by counting the program's 1.3 million offers of temporary modifications as an indicator of success. At last month's hearing before our Committee, the head of Treasury's Homeownership Preservation Office, Phyllis Caldwell told skeptical members of Congress that "the program was designed to offer three to four [million] homeowners an opportunity for a mortgage modification - not a permanent modification, an opportunity."
Treasury's revisionism makes little sense, except as cover for another massively expensive, failing government program. It's clear that the initial promise of 3 to 4 million "sustainable" mortgage modifications was referring to permanent, not temporary, fixes -- to suggest otherwise is an assault on common sense and insults every American facing foreclosure and seeking permanent relief through this program. To pretend that temporary modifications count toward HAMP's target number glosses over the costly toll exacted on those who find false hope in the promise of HAMP.
These cash-strapped homeowners are sending mortgage payments to banks in a desperate effort to avoid foreclosure -- believing that temporary assistance will lead to permanent mortgage modifications to keep them in their homes. The sad fact is that the HAMP mortgage modification plan, in most cases, won't ultimately grant them the permanent modification enrollees believe they're on track to receive. This only delays foreclosure -- but doesn't prevent it -- and these homeowners wind up wasting their mortgage payments. It's cynical for Treasury to log progress toward its goal of preventing "3 to 4 million" foreclosures by counting homeowners who might actually be worse off, thanks to HAMP.
As a program, HAMP has chronically underperformed in almost every metric. The facts are clear, even if Treasury's report is not. The Obama administration needs to focus on helping families find ways to weather troubled times and stay in homes they can afford instead of finding ways to mask the program's failure.
The government’s foreclosure relief program just isn’t working.
That was the assessment Thursday of two reports from government watchdogs and a panel of witnesses at a congressional hearing trying to find out why the Obama administration is falling far short of its goal of preventing millions of Americans from losing their homes.
Treasury officials at the hearing acknowledged problems in the year-old mortgage-modification program and announced changes designed to address issues that have limited its effectiveness. Only 170,000 homeowners have completed the process to get their monthly payments reduced out of 1.1 million who began it over the past year.
A failure of the government's latest effort to stem the tide of foreclosures would threaten more than the roughly 8 million homeowners at risk of losing their homes in the next two years, according to John Taylor, president of the National Community Reinvestment Coalition.
"If we have another 8 million homes to go into foreclosure it will have a devastating effect on our economy, and job losses will continue to rise," Taylor told the House Committee of Government Oversight and Reform.
Three years after the housing bubble burst, the number of homeowners falling behind on their mortgages continues to rise. A separate report Thursday from U.S. banking regulators showed that the number of seriously delinquent mortgages jumped in the fourth quarter, led by a sharp increase among the most creditworthy borrowers. Some 13.6 percent of all homeowners with mortgages — more than one in seven — are behind in their payments, according to the Office of the Comptroller of the Currency. It was the seventh consecutive quarterly rise.
A Treasury official at Thursday's hearing acknowledged that the government's Home Affordable Modification Program had encountered a series of unforeseen roadblocks. But he also announced changes designed to speed the modification of loans to more affordable terms.
“We've been learning as we went along,” said Assistant Treasury Secretary Herbert Allison Jr. “We want to continue to improve this program."
The HAMP program is designed to head off foreclosures by lowering borrowers' monthly payments through a series of voluntary concessions from lenders. Guidelines call for cutting mortgage rates to as little as 2 percent for five years, with the difference subsidized by the government, and extending the loan’s term to 40 years. More than 100 lenders have agreed to follow the guidelines, but the decision to modify an individual loan is entirely up to the lender or investors holding the mortgage.
The program has been riddled with problems from the beginning, drawing fire from homeowners, housing counselors, consumer advocates and attorneys working with borrowers. Many report long wait times getting through to lenders, multiple requests for paperwork, lost documents and little or no explanation when applications are denied.
The Treasury also said it will make changes in response to one of the most frustrating complaints. In many cases, lenders are moving to foreclose on a property — even after homeowners get approved for loan modification.
"The new guidelines will make clear that if the homeowner enters into a fully verified modification plan, all pending foreclosure actions must be stopped," Allison told the congressional panel.
But such changes have been a major source of "confusion and delay," according to a report from Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who testified Thursday. He criticized the Treasury for not setting clear targets for how many homeowners are expected to get help under the $75 billion program.
"We believe it is unacceptable that one year into the program Treasury has yet to identify its goals," he said.
The program also has yet to tackle the issue of millions of homeowners who have second mortgages that must also be modified to make their first mortgage affordable. A year into the program, those guidelines still have not been established, according to Gene Dodaro, acting comptroller general of the Government Accountability Office, which issued a report Thursday critical of HAMP.
"A lot of program details aren’t very clear yet,” Dodaro told the panel. “Until the details are established (mortgage) servicers are going to be reluctant, understandably, to sign up for the program.”
Housing counselors and attorneys say those servicers — companies that handle mortgage payments on behalf of lenders — have been slow to add enough staff to cope with the flood of calls and mail from distressed homeowners. Allison acknowledged the bottleneck.
“I’m not cutting them any slack but they’ve had to get up to speed and they’ve had teething problems along the way,” he said. “All of us know we have more to do, and they have more to do.”
Members of the panel told of constituents who have faced numerous hurdles trying to get their mortgages modified. Reps. William Lacy Clay, D-Mo., and Diane Watson, D-Calif., expressed concerns about what they said was a disproportionately higher foreclosure rate for African-Americans than for whites.
“We have a dual system of mortgage finance in this country — one for whites and one for blacks,” Taylor said. “Black and brown communities were targeted by subprime lenders after banks had closed their branches in those.”
Allison said the current disparity in foreclosure rates between blacks and whites is a reflection of “widespread predatory lending practices during the the mid-part of the decade.”
“The damage already exists," he said. "And we want to make sure that in our program there is no discrimination as people are considered for modifications."
Pressed for details about what measures are being taken, Allison said the Treasury is collecting data on the modification program and will “confront servicers" if they are discriminating against homeowners.
Despite the changes, Dodaro told the panel Congress should “explore some other alternatives.” But it will also have to consider how to continue to work with families who have already signed up with the HAMP program.
“You have 800,000 people in trial modifications that have to be dealt with equitably," Dodaro said.
But members of the the panel also noted the risk of continuing to promote a program that is falling short of its goals.
“We are ourselves setting up for failure,” said Rep. Jackie Speier, D-Calif. “The program doesn’t work.”
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”
Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.
“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”
The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.
But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.
In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.
Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”
Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.
In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.
“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”
Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.
Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”
From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.
Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.
“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”
Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.
“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”
As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.
The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.
“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”
But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.
In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.
In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.
Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.
Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)
“I cried,” she said. “I was hysterical. I bawled my eyes out.”
Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”
When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.
She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.
Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.
“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”
A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.
“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”
Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.
In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.
The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.
“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”
Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.
“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”
A good question, Mr. Geithner conceded.
“What to do about it,” he said. “That’s a hard thing.”
They milled about the hallways of the cavernous State Supreme Court building in Jamaica, Queens — 42 homeowners whispering, studying old bills, waiting for a court officer to call their names and wave them, one by one, through a door.
There, in a dusty, high-ceilinged room with a steam radiator that never stopped wheezing, they took a seat across a table from a lawyer for a mortgage company. Then their work began: trying to persuade a stranger not to foreclose on their home.
The Obama administration’s plan to rescue Americans from foreclosure plays out day after day in rooms like this. On this day, as on most, nothing happened. One lawyer, visibly bored, put in a brief, token appearance. A few others seemed barely familiar with their cases. Another asked for more records, hinting that maybe next month the lender might talk about a settlement.
Ismail Ali, a silver-haired immigrant from Guyana, hoped to save his home in Ozone Park. “If it takes you another three months to evaluate me, and I keep paying, will I get a new mortgage?” he asked, almost pleading.
The lawyer shrugged, not unsympathetically. “I can’t answer that for you,” he said.
Ten months ago President Obama announced a $75 billion program to keep as many as four million Americans in their homes by persuading banks to renegotiate their mortgages. Lenders have accepted more than one million applications and cut three-month trial deals with 759,000 homeowners. But they have converted just 31,000 of those to the permanent new mortgages that are the plan’s goal.
In New York City, where 20,000 homeowners faced foreclosure this year, a recent study by the Center for NYC Neighborhoods found that lenders have offered new or trial mortgages to just 3 percent of the homeowners who have sought help.
Big mortgage companies — servicers, in the parlance of the industry — stand at the heart of this program. Many of the servicers that have agreed to participate are subsidiaries of the nation’s largest banks — Wells Fargo, Bank of America and JPMorgan Chase.
They say their performance is improving. “We ourselves stated that we fell short of our customer service goals,” said Mary Coffin, executive vice president for loan servicing at Wells Fargo. “Now we are doing three modifications for every foreclosure.”
But a drove of critics, including homeowners, nonprofit loan counselors, legal services lawyers and court officials, say these companies are also at the heart of the problem. Servicers, they say, pile delay upon delay, and too often steer homeowners into new mortgages with onerous terms. Some companies have insisted that homeowners waive their right to sue before getting a new mortgage, even though the Obama plan prohibits such demands.
Administration officials have vowed to shame servicers into action. And New York State lawmakers, like their counterparts in a few other states and cities, have tried to slow the headlong hurtle toward foreclosure by requiring lenders to negotiate with troubled borrowers in court.
Leonard N. Florio, a court-appointed referee, oversees such sessions in that dusty room in Queens. He is a chatty man and punctilious about not taking sides. But as he watched Mr. Ali, the Ozone Park homeowner, load his piles of bills and receipts back into his shopping bags, he could not help noting a pattern.
“I have yet to see an attorney for a servicer cut a deal,” he said. “Update this, update that. I mean, what’s the holdup?”
Loan servicers argue that homeowners are as often to blame: Many cannot show proof of income, and fail to make payments even on modified mortgages. And millions are in bigger trouble than the public realizes, burdened with monthly payments so exorbitant that even a reduced mortgage payment will not save their home.
The servicing companies make money either way. The Obama program pays them $1,000 for each loan modified, and another $1,000 per year for three more years if the borrower avoids foreclosure. On the other hand, the companies make large sums charging late and legal fees on overdue mortgage payments, and sometimes it is cheaper to foreclose than to cut the mortgage payment.
These same companies turned billions of dollars in profits during the fat years of the bubble. Four years ago, lenders strung banners from storefronts in Jamaica and Cypress Hills and Bedford-Stuyvesant, promising “You will not be turned down!” A no-documents-needed mortgage was easily obtained, often accompanied by the flimsiest of appraisals.
Now the lenders toss up daunting hurdles. Homeowners say they send and resend thick piles of documentation, only to be told that their papers have been misplaced, or that their pay stubs are out of date. Housing counselors dial a dozen times just to get a servicer on the phone.
“It’s a constant Catch-22: They never give you their name,” said Gerald Carter, a counselor with the Parodneck Foundation in New York City, which receives city and state money to advise homeowners. “You call back and say, ‘No, I was talking to Bob last time,’ but Bob wouldn’t give his last name — not even an employee ID number. So you start over.”
Last month, the Legal Aid Society of New York sued the federal government and a mortgage servicer, Aurora Loan Services, on behalf of four Queens homeowners. Aurora, which has a $116 billion loan portfolio, was a subsidiary of Lehman Brothers before that firm went bankrupt; it offered loans with interest rates just a bit lower than subprime rates, which are typically a few percentage points higher than rates on conventional mortgages.
The lawsuit charges that Aurora, and by implication many other servicers, systematically denied homeowners access to the federal rescue program. And, the lawsuit asserts, the Obama plan provides far too few safeguards for homeowners.
“The servicers ignore their obligations, and are throwing unaffordable agreements at people and setting them up for another default,” said Oda Friedheim, a staff lawyer with the Legal Aid Society.
Asked to respond, an Aurora spokeswoman e-mailed a statement saying the company tries to prevent foreclosure for its customers.
Tom Vellucci, 54, is one of the four plaintiffs in the lawsuit, and a soldier in this army of the potentially dispossessed. Once a maintenance man for an insurance company, with a modest home in Floral Park, Queens, he lost his health and then his job. When a tenant stopped paying rent, he fell behind on his mortgage. A so-called rescue firm offered to negotiate better terms and wheedled Mr. Vellucci and his wife, Maria, out of $8,000 in fees.
When the inevitable foreclosure notice arrived in March, the Velluccis called Aurora Loan Services and asked for a break. The company, he said, responded by piling on legal fees and giving them a four-month trial agreement that did not reduce their monthly payment.
The Velluccis say they drained their savings making payments. Then the couple asked Aurora if they could revise their mortgage terms under the Obama rescue plan. They say the company refused, saying their mortgage was not eligible because it was owned by investors.
Aurora makes a similar statement about investor-owned mortgages on its Web site. These claims are not true. The Obama program requires companies to make an effort to modify such mortgages.
Sitting on a bench in the Queens courthouse, where he has become a regular, Mr. Vellucci ran his fingers through thick black hair and shook his head. “We kept trying to pay on faith, all faith, so we could prove we were honest people,” he said. “Now all we look like is stupid.”
Phyllis Caldwell, chief of the Treasury Department’s Home Ownership Preservation Office, is not inclined toward tough talk about servicers, perhaps because the Obama plan, which she oversees, lacks enforcement teeth. Asked about Aurora’s refusal to consider modifying investor-owned mortgages, she suggested a reporter call the program’s compliance unit.
“If it is reported in The New York Times and someone chooses to audit it, that’s important,” she said.
She sees a brighter day coming. “We are holding the servicers accountable to report to us,” she said. “They are being much more transparent.”
For now, however, the Velluccis and thousands like them dangle perilously close to calamity.
Born in Italy, Mr. Vellucci and his wife migrated here as teenagers. They raised children, bought a house, lived their dream in Technicolor. Then his kidney gave out and their economic slide began. After court on this day, he would go for dialysis. The couple hope the lawsuit might give them one more shot at the Obama plan.
“I don’t sleep at night, I don’t sleep at all,” he said, rising slowly. “I tell Maria, ‘If we lose the house, I want to stop my dialysis.’ I want to die, honestly.”
Despite Millions of struggling American Homeowners seeking Gov't assistance to remain in their residences via Loan Modifications/ Loan Restructures from Pres. Obama's Making Homes Affordable (HAMP) or NACA's "Save the Dream" Tour, only about 4% (31,000 homeowners) applicants were approved.
This is absolutely unreal and totally unacceptable!
Something is most definitely wrong with this picture!
So Pres. Obama and NACA's programs are basically ineffective?
I've included NACA in this blog post because NACA employees use Pres. Obama's HAMP program Debt Ratio formula when assisting homeowners during "Save the Dream" tours.
4%?? Only 31,000 people??
According to several news reports (listed below) Banks are blaming the low number of approved Loan Modification/ Loan Restructure applications on lost paperwork.
What kind of lame excuse is that?
Where are the billions of dollars Pres. Obama and Congress allocated for Foreclosure Prevention earlier this year?
Better yet why won't NACA CEO Bruce Marks open his books to show real numbers of long term, proven success rates from his program to Congressional members?
Why is it ACORN CEO Bertha Lewis was the ONLY Federally Funded Housing program official required to open her organization's books to Congress?
Could it possibly be that Obama's HAMP program was perhaps intentionally set up to only approve a very small number of Loan Modifications in order to help banks stay profitable?
Doesn't this sound like something Tim Geithner might do?
No offense but for some reason I don't trust Tim Geithner. (Sorry Tim)
Could it be that participating Banks and NACA's CEO Bruce Marks are being paid by H.U.D. and Congress for each Submitted Application versus each APPROVED Loan Modification/ Loan Restructure application? (Permanent Loan Mods)
OMG! Isn't that considered a Scam??
When assisting Homeowners do NACA employees ensure all required, up to date paperwork is included with each Loan Modification/ Loan Restructure application?
So in essence it really doesn't matter to NACA or Pres. Obama's HAMP Program Administrators if Loan Mod applicants are approved for Long Term results or not, because Banks and NACA will be paid regardless.
Seems as if NACA's CEO Bruce Marks may have secret ties to Wall Street despite his claims of being a radical "Bank Terrorist".
Thus I'll ask this question again:
Why is it Congress jumped so quickly to deny funds for ACORN's Housing program unless CEO Bertha Lewis could prove her program was successful (by opening her books) but NACA's Bruce Marks can still receive Federal & State Funds without doing so?
Something is definitely wrong with this picture don't you think?
Also due to the Recession millions of Homeowners are now living in "Underwater Homes", which means Property Tax values on those homes have dropped significantly.
When banks are processing Loan Modification applications, do they take that factor into consideration?
If so the Escrow on those loans should be reduced as well correct?
However in regions like Charlotte-Mecklenburg City & County officials have chosen to INCREASE Property Tax values on thousands of Underwater Homes.
Of course most of the residents living in those Underwater Homes are Middle Class & Low Income Minority Citizens.
What's the purpose of approving Homeowners for a Loan Modification/ Loan Restructure without including the decreased Tax Value on residential properties?
Considering the current Economic Recession our country is experiencing, why are City and County Officials Nationwide choosing NOT to lower Property Tax Values on homes, especially homes located in Middle and Low Income Communities as a best practice for their struggling Constituents?
Hmmm. This is certainly something to think about and inquiring minds want to know.
I propose that Congress should call Tim Geithner and Bruce Marks to Capitol Hill for inquiries about the operations of these two weak Foreclosure Prevention programs.
Immediately afterward Congress needs to than launch thorough investigations into Pres. Obama's HAMP and NACA's so-called "Mortgage Relief" programs.
Investigate as in requesting Pres. Obama's HAMP program officials & NACA CEO Bruce Marks to provide clear evidence and proof each program (since inception) has successfully helped at least close to 1 Million (combined) Homeowners versus just a paltry 31,000.
Don't you agree?
After all both programs are being funded with Taxpayer money just like ACORN was.
Only 4% (31,000 people) approved for Long Term results Indeed!
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
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.
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.''
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."
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
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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