HousingWire - Modification rates picked up over December and January as servicers converted more trials into permanent modifications under the Home Affordable Modification Program (HAMP), according to a report from Barclays Capital.

The US Treasury Department launched HAMP in March 2009 to allocate capped incentives to servicers for the modification of loans on the verge of foreclosure. According to the latest HAMP progress report from the Treasury, servicers provided more than 66,000 permanent modifications through December. Participating servicers receive more than $35bn in total capped incentives, but the program could reach as high as $50bn.

Modification rates “turned a corner” in October 2009, according to BarCap analysts, congruent with the rise in HAMP permanent conversion rates. The Treasury recently changed document guidelines for the servicers that go into effect June 1, 2010. After that date, borrowers seeking help through the program must provide certain documentation to enter into a trial modification. At the start of the program, servicers collected the documents during the three-month trial plan, creating a lag time in the permanent conversion rate.

Out of the more than 1m borrowers in HAMP trials, 34% have been on private-label securitized loans – meaning the loans are not held by Fannie Mae (FNM: 0.97 0.00%), Freddie Mac (FRE: 1.16 0.00%) or Ginnie Mae. After assuming a similar conversion rate for non-agency loans, analysts found 22,600 non-agency permanent modifications under HAMP.

“This ties in closely with the 25,000 loans modified in past two months that we see using our custom logic on Loan Performance. A higher number based on our logic also makes sense to us as some servicers have non-HAMP modification programs,” according to the report.

Barclays confirmed the numbers by looking at the independent servicer Ocwen Financial Corp., which has a large portion of its portfolio in non-agency deals. Ocwen provided 5,332 permanent modifications through December, or 71.7% of the more than 7,000 loans in HAMP trials, according to the Treasury report.

Servicers are modifying more modifications for delinquent borrowers, according to the report. In the past, modifications went to more current borrowers. Under HAMP, current borrowers in imminent default are not eligible for the program, but servicers might be migrating toward those loans as pressure intensifies to reach the 3-to-4m borrowers targeted for HAMP, according to the report. Fannie Mae recently released new guidelines to servicers to begin gauging imminent default risk for HAMP.

“The rise in modification rates due to HAMP trial-to-permanent conversions has been restricted to a few smaller servicers so far. We expect mod rates to further increase in the coming months as the bigger servicers start converting the large chunk of loans in trial mods,” according to the report.

Pro Publica - Nathan Reynolds is something of an expert on the government’s foreclosure prevention program. A mortgage broker who’s worked in the Chicago area since 1998, he’s seen both his business and his home’s value plummet in the past few years. After receiving his own trial loan modification from JPMorgan Chase, he’s helped others apply for modifications through the program on his own time.

But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income.

That’s not a legitimate reason for a loan servicer to deny someone’s modification, according to the Treasury Department’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.

Housing advocates say they frequently see homeowners rejected or kept in a trial modification for questionable reasons. “There’s a real resistance on the servicers’ part to making permanent modifications,” said Diane Thompson of the National Consumer Law Center.

The administration set a goal of helping up to 4 million homeowners through the $75 billion mortgage modification program as a way to blunt the boom in foreclosures. Treasury has produced a growing number of mandatory guidelines for banks and other loan servicers to review applications and perform the modifications. In exchange for tailoring loan payments to 31 percent of the homeowner’s monthly income, both the servicer and the owner of the loan receive incentive payments.

Servicers representing 85 percent of the housing market have signed up to participate. Applicants must first go through a trial period before their mortgage payments can be permanently reduced. But servicers have been slow to convert hundreds of thousands of trials into permanent modifications — as of November, only about 31,000 had been made permanent. That spurred Treasury to publicly criticize the servicers’ performance and to put out new guidelines in recent months to speed up the process.

Treasury said recently that the effort has resulted in a “significant increase” in offers of permanent modifications, but numbers demonstrating how significant won’t be available until February.

ProPublica has reported since last June on homeowners’ frustrations in receiving a prompt answer from servicers, particularly the program’s largest servicers — Bank of America, JPMorgan Chase, Wells Fargo and CitiMortgage. In response to widespread complaints, those servicers have dramatically increased staffing and touted other improvements, such as new document management systems.

But when homeowners do get an answer, the reasons don’t always jibe with how the program is supposed to work. Housing advocates say this is a direct result of a lack of effective oversight of servicers in the program, something ProPublica has focused on before.

‘An Excuse to Deny Someone’

Reynolds was a prime candidate for a loan adjustment and was among the earliest homeowners to receive a trial modification.

His mortgage brokerage business had followed the market downward, and as a result, he’d fallen three months behind on his interest-only mortgage. Area real estate cratered. His own home, bought in 2001 for just over $400,000, had rocketed up to about $1.2 million in value in 2006, and then down again to about $350,000. With a refinancing in 2005 and a home equity line of credit with Countrywide, his mortgage debt exceeded his home’s value by more than 70 percent.

Soon after the loan program was announced last February, Reynolds applied. He received an application in late April and was accepted, making his first payment of about $2,400 (down from $3,300) in May. He made six more payments. Like many borrowers in the program, he says he was asked over and over to send the same documents and later, updated versions of those documents. Finally, in late November, he received an answer: He was denied a permanent loan modification.

The reason? A Chase employee explained to Reynolds that they’d determined his financial difficulties weren’t permanent. In his application, he’d written that he believed that the government’s rescue efforts would “save the U.S. housing market” and that his business “will once again be profitable.” The Chase employee told him that statement indicated his hardship was only temporary.

“That’s just nonsense,” said Thompson of the consumer center. “To me, that sounds like an excuse to deny someone.”

Chase spokeswoman Christine Holevas told ProPublica that Reynolds had been denied “because the skill and ability is still there to earn the income.” Since he’d “stated in his letter that business would be picking up,” it was “not considered a permanent hardship,” Holevas said.

Such a determination contradicts Treasury’s guidance to servicers for the program. A FAQ issued to servicers says the program does not “distinguish between short-term and long-term hardships for eligibility purposes.”

When ProPublica asked about this guideline, Holevas did not directly respond. She did offer another reason for denying Reynolds: Chase’s review of financial information showed his income had not decreased.

Reynolds, who has a wife and two small children, says no Chase employee had made such a claim to him and that the documents he provided show that his mortgage business dropped more than 50 percent in 2009. He submitted a new hardship statement in December, in which he tried to make clear that his troubles are real and lasting. Holevas said those documents would be reviewed.

Now, Reynolds says his finances are at the breaking point and bankruptcy appears unavoidable if Chase denies him again. “I did everything that was asked of me, but Chase has me backed into a corner that I cannot get out of.”

The Nine-Month Trial

Six months into a trial modification, Gary Fitz of California still doesn’t know whether or when his mortgage will be permanently modified, and he’s been told he’ll have to wait for a few more months.

Under the program’s design, the trial period was supposed to last three months, giving time for the servicers to collect and evaluate the homeowner’s financial information. At the end of the trial, if the homeowner fit the program’s criteria and had made all three modified payments, the servicer was supposed to promptly make the modification permanent.

Instead, trial modifications routinely last more than six months, homeowners and housing advocates say.

There are a number of adverse consequences of a trial period’s dragging on, said the consumer law center’s Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most importantly, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. “Keeping someone in a trial modification really does not do them a favor,” she said.

Fitz’s case shows why some homeowners have remained in limbo so long.

He sought a loan modification in the spring of 2009 because his wife’s salary had been cut. Like millions of others, he applied soon after the administration announced the program last February. He was accepted for a trial modification and made his first payment in July.

Fitz was prepared for an uphill struggle. A Wells Fargo customer service representative told him early in the application process that he should make seven copies of his financial information — because Wells Fargo would likely lose it more than once. He says he’s sent the same paperwork in five times.

When the trial stage lasts so long, servicers commonly ask homeowners for updated financial information months into the trial period. Fitz, for example, submitted his paperwork for the first time last spring. But when Wells Fargo requested an updated package in December, it showed that he’d received a pay raise last June of about $80 per month.

Because of that, Wells Fargo started him over on a new trial period – even though his trial payments climbed just $27, from $1,733 to $1,760. His first payment on the new trial period is due Feb. 1, meaning that by the time he completes it, he will have been making trial payments for nine months.

Wells Fargo spokesman Kevin Waetke said the company does not comment on individual borrower’s cases. He did say, however, that “the federal guidelines require a final review of updated financial documents before moving any Home Affordable Modification from trial status to complete.”

That’s not true. In a Treasury guidance to servicers issued in October, meant to streamline the review process, it says there is “no requirement” to “refresh” the homeowner’s documentation as long as it was up-to-date when it was originally received.

Wells Fargo also appears to have begun Fitz’s second trial period contrary to Treasury guidelines. A Treasury guidance last April said that a servicer should not begin a new trial period if a homeowner has only a minor income change (defined as exceeding the “initial income information by 25 percent or less”). Guidelines issued later are even more restrictive about starting a new trial period. The reason is clear: The purpose of the trial period for the homeowner is to demonstrate the ability to pay, and such a small change in income is unlikely to affect that.

Asked to respond, Waetke said that “given the complexity of the program, the volume of calls we receive and the number of modifications currently in process, there is the potential for a mistake to be made.” He added that Wells Fargo would continue to review the case.

Buying Time

Sometimes there seems to be no reason at all for a trial period to drag on.

Cynthia Mason of Texas, another homeowner with a Wells Fargo mortgage, also recently restarted her trial period after several months.

Last spring, she sought a loan modification because medical and other expenses had made it impossible for her to afford her mortgage payment on a fixed alimony income. She’d planned to supplement that income with a job, but has been unable to find anything. Like Fitz, she began the program in July.

In October, good news came with a phone call: She’d been accepted for a permanent modification. She waited for the final paperwork to arrive, but it never did. Instead, while speaking to a Wells Fargo employee about an unrelated issue six weeks later, she found out that she’d in fact been denied. When Mason inquired why, she says she was told some documentation was missing, but the employee could not tell her what it was. She also learned she owed late fees because she’d paid the modified payment, not the original, full payment, in November and December.

When she complained about the late fees (which were eventually canceled), she was passed to a different employee who told her she was being put back into a trial period. She didn’t understand why. Another representative finally told her that she’d been denied because of a negative “Net Present Value” test. The test is the calculation at the center of the Treasury Department’s program: It determines whether the loan’s owner (sometimes the lender, sometimes a mortgage-backed security’s investors) is likely to make more money modifying the loan or not. A negative result means the servicer has no obligation under the program to modify the loan and is a common reason for denial.

But in Mason’s case, a Wells Fargo employee told her she’d nevertheless been put back into the trial period in order to “buy time.”

Wells Fargo spokesman Waetke declined to speak about Mason’s case but did say that the bank sometimes extends the trial period “to allow customers time to get the documents so we can complete the review.” Mason says she doesn’t know of any documents that might be missing, and she’s not optimistic about receiving a permanent modification. By extending the trial, Mason told ProPublica, Wells Fargo is “just prolonging the inevitable” – denial.

Hi Paul,

My soon to be Ex-Husband and I bought a home in December of 2008.  We are currently going through a divorce.  I chose to stay in the home with our children, after our seperation.  Now, several months later, I am unable to make the $2,200.00 Mortgage Payment on my own.  We have only owned the home for 1 year and our principal has only decreased by about $6,000 since we purchased it.  This leaves no room to pay a realator’s comission and the closing costs, even if we could get it to sell for the original purchase price.  To make matters worse, our neighborhood builder went bankrupt.  We now have a new builder.  The new homes that are being built are smaller, but also much cheaper.

I have almost maxed out my credit card, taken a loan out against my 401K and borrowed money from my parents, just to pay the mortgage by the end of each month.  I have not yet fallen behind by 30 days, but I am creaping much closer. 

My real estate agent suggested a short sale.  My credit is not super and I am very concerned that by doing a short sale, it will drop my score considerably.  I have three children to support and need to be able to find somewhere else to live.  I want to make sure that my decision is a sound one. 

My lender (Citi Mortgage)offered to lower my payments to $1,450 for twelve months and submit a loan modification request to FHA (I have a FHA Loan - 30 yrs fixed @ 6.25%).  However, Citi Mortgage would expect a baloon payment of $10,000 at the end of the 12 months.  I can’t afford to pay that kind of money.  If I was to request the Loan Modification, would I be allowed to put my home on the market? 

I am having a very hard time figuring out what to do.  I can’t afford to pay the Mortgage and am starting to drown in debt because of it.  Which of these options would you suggest, given my circumstances?  Loan Modification or a Short Sale?  Any advice that you can offer would be great!!

Thanks,
Renee (more…)

SFGate.com - This was supposed to be the year of loan modifications.

With great fanfare early in the year, the Obama administration unrolled a plan to spur banks to help troubled homeowners avert foreclosure by reducing their monthly payments.

But at year end, the plan is widely considered a bust.

Borrowers complain of months of begging and endless phone-tree loops. Banks complain of borrowers who don’t submit documentation and don’t return calls.

The net results have been paltry: Just 31,382 borrowers nationwide had received permanent loan mods as of Nov. 30 under the Home Affordable Modification Program (HAMP), the Treasury Department reported. Meanwhile, First American CoreLogic says that 1.7 million homes are likely to be lost to foreclosure next year.

“HAMP is turning out to be something of a disaster,” said Lisa Sitkin, an attorney at Housing & Economic Rights Advocates in Oakland, who works with many struggling borrowers. “There are delays and lost steps at every turn. The bureaucratic requirements are endlessly frustrating.”

Richard Leong of Daly City is a case in point. He and wife Rachel Lim have owned their Daly City home since 2000. But after he lost his biotech job, they fell behind on payments. He contacted the loan servicer, JPMorgan Chase, a year ago to request a loan modification, and says he calls the bank at least once a week.

“I’ve been calling them so many times; each person gave me different answers,” he said. “All my savings and 401(k) are gone; right now I’m totally drained of money.”

Chase confirmed that Leong has been trying to get a loan modification since November 2008, but said it was stymied because there was no household income.

“Under HAMP, there needs to be some type of income to qualify for a modification,” said Chase spokesman Gary Kishner. “If there is no income, there is no way to sustain anything.”

Lim eventually got a job in Sacramento, but Kishner said Chase still hasn’t received proof of the income.

Stalemates common

That kind of stalemate appears to be typical - along with the increasing prevalence of mortgage problems due to unemployment.

So what’s the answer? Here are some ideas that various stakeholders and observers have suggested.

– Options for unemployed borrowers. Foreclosures aren’t just about subprime loans anymore. This year, many borrowers with prime loans fell behind because of job loss.

“The second wave of foreclosures is related to the terrible unemployment figures,” said the Rev. Lucy Kolin, a pastor at Oakland’s Resurrection Lutheran Church. She’s part of an interfaith coalition called the PICO National Network that went to Washington this month to urge legislators to address this group. “There is no program set up to deal with homeowners who are unemployed.”

PICO suggests expanding HAMP with an approach to specifically address unemployed homeowners, modeled on a Pennsylvania plan called Homeowners Emergency Mortgage Assistance.

“It would get the homeowners payment down to 31 percent of the monthly income for two or three years or until they regain employment,” she said. “It would not be a grant, but a loan. Treasury would pay the servicer at the end of 24 or 36 months for the lost payments; that amount would become a loan to the homeowners.” For people with no income, payments would be suspended.

– Principal write-downs. More than a quarter of mortgage holders owe more than their home is worth. Even if those people get loan modifications, they’re stuck paying off homes that could be underwater for years. That’s why many consumer advocates think banks should be compelled to reduce the amount of debt owed on underwater homes. A provision to let Bankruptcy Court judges do just that seems unlikely to pass Congress, after several failures.

“You want homeowners to be in a position where they can start to build equity and wealth,” said Paul Leonard, director of the California office at the Center for Responsible Lending in Oakland. “The problem with affordability-only modification is that it essentially makes homeowners renters for the foreseeable future and locks them into their homes so they can’t move elsewhere for better jobs.”

He suggests working out a way to make principal reductions part of the existing program, triggered only for properties that have experienced a certain level of price decline.

– Rent back foreclosed homes. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, suggest giving former homeowners the right to rent their home after foreclosure. This year, Fannie Mae started offering the rent-back option to people who sign over their homes as a deed in lieu of foreclosure, which is less harmful to a borrower’s credit.

Incentive to deal

Baker sees the approach as a big stick to motivate lenders to play let’s make a deal.

“If you give people the right to rent, it changes the logic from the lender’s standpoint and makes foreclosure less attractive,” he said. “Many lenders of their own volition will decide to work on loan modifications - otherwise they could be stuck with a renter for five to 10 years. It would shift the balance of power hugely in favor of the homeowner.”

– More government pressure. Loan mods are voluntary. Banks get incentive payments for completing them, but it’s ultimately up to them whether a foreclosure will be cheaper. Starting this month, the Treasury Department is sending three-person “SWAT teams” to the eight largest loan servicers to keep tabs on how they’re handling loan mods. The banks will have to submit progress reports two times a day. And Treasury will publish lists of lenders that are falling short.

– More industry involvement. Christopher George, president of CMG Mortgage in San Ramon, says that trade groups, such as the California Mortgage Bankers Association, where he is the secretary, could get together to pitch in.

“My recommendation is to harness the power of members in those organizations, ask them to participate on a pro bono basis to help consumers navigate the process,” he said. “You know how confusing and complicated the whole process can be.”

He suggests the trade groups collaborate on a guide for troubled homeowner and perhaps hold regional modification fairs, with lenders, lawyers and financial advisers.

– Do nothing. There’s plenty of grassroots support for an idea that could be expressed as “you made your bed, now lie in it.” Patrick Killelea, a Menlo Park programmer who maintains the popular Patrick.net blog, explains the rationale.

“These were all grown-ups getting themselves voluntarily into debt with the false expectation that prices would rise forever,” he said. “They did a lot of harm, because prices were driven up, so people, especially families with young children … would have to take on unreasonable debt because of bad decisions that other people made.”

Letting homes go into foreclosure would allow the market to recover much more quickly, he said. “It would drive prices down and it would be quicker,” Killelea said. “It’s like peeling a Band-Aid slowly versus ripping it off.”

Rather than prolong the agony, “Just yank the whole thing off.”

Housing Wire - The Making Home Affordable Modification Program (HAMP) adds another layer of uncertainty for private label securitization investors, making it more difficult to predict cash flows, according to a report by analysts at Amherst Securities Group, who added they expect relatively few HAMP workouts to be successful.

Additionally, it’s taking longer for bad mortgages to move from last payment to liquidation, and the pace varies by servicer: “The trial modification period essentially holds the loan in a suspended state for 90 days, making it difficult to assess what is happening with modifications,” the report said, resulting in relatively little cash reaching investors.

Contributing to the delay in liquidation is the growth of re-performing loans — those that were 60 or more days delinquent that now aren’t because the borrower receives a modification or other loss mitigation action is taken — in mortgage backed securitization (MBS) pools.

Of the $1,583bn in private label securitizations, $991bn are always performing, $474.8bn are non-performing (60+ days delinquent), and $117.5bn are re-performing. While the re-performing bucket is growing, it is also unstable, Amherst said. In September, $13.6bn (11.3%) of the re-performing loans transitioned to non-performing, and a roughly equal amount of the non-performers $11.5bn (2.5%) became re-performers.

The cycle between the non-performing and re-performing loans includes both subprime and prime loans, Amherst said. “The behavior of re-performers is weak, no matter from which bucket they are taken.”

In addition the overall size of the re-performing bucket may be understated because it does not include loans in modification limbo during the HAMP-mandated three-month trial period. The research warns the pool of modified loans is also expected to increase, as recent and proposed changes to HAMP regulations are making the program more widespread to include ever growing numbers of distressed borrowers.

One such change is the proposed Senate Bill 1731, the Foreclosure Prevention and Assistance Act of 2009, which would require loan servicers to determine if a distressed borrower is eligible for a modification before beginning the foreclosure process.

But in order for the servicer to make that determination, the servicer must make contact with the borrower to verify employment and income information. If the servicer can’t contact the borrower, the foreclosure can’t proceed. This differs from HAMP, a voluntary program that lets a servicer continue the foreclosure process if contact can’t be met.

“At the minimum, the consequence of S. 1731 is that there will be a longer time between last payment and foreclosure. At worst, S. 1731 may suspend the foreclosure process indefinitely for many borrowers,” the report said.

While HAMP workouts are keeping the pools of real estate owned (REO) property relatively small, Amherst predicts a low percentage of eventual success of HAMP modifications is inevitable.

“When HAMP is less successful than hoped, and the reality of the housing overhand hit the market – we would expect to see further governmental action,” the report said, noting the most likely course of action is a plan that contains principal forgiveness.

Denver Business Journal - Last week, Treasury Secretary Timothy Geithner announced that about 500,000 American families were participating in the home loan modification program initiated by the Obama administration. But the complexity of the paperwork required to modify a loan, coupled with rising unemployment and depressed home prices, may conspire to find many more losing their homes in the months to come, the head of the Mortgage Bankers Association said Tuesday.

“You can’t modify someone if they don’t have income or a job,” said John Courson, president and CEO of the MBA, during a news conference. “We have to be realistic going forward. If we are going to play a numbers game, we are going to see a smaller percentage of borrowers in default able to be modified. It’s an unfortunate and difficult fact we are going to have to face.”

The MBA, which is holding its annual convention this week in San Diego, is looking to create a think tank of people whose mission will be to find new and creative ways to overcome the challenges that the next wave of foreclosures will present.

One of the biggest challenges faced by those attempting to modify loans is the massive amount of paperwork borrowers must complete. In about 99 percent of the cases, the packages come back missing documentation or with some kind of error, noted Michael Berman, vice chairman of the board of MBA and president and CEO of CW Capital, a real estate finance and investment management company.

He said servicers are learning that they have to spend more time upfront with borrowers and lenders.

“When a loan is originally obtained, in most instances, there was a loan officer,” Berman said. “The one thing we are coming to a conclusion about is to build that into the process in order to successfully modify the loan.”

Even more disturbing, Courson noted, is that nearly 50 percent of borrowers facing foreclosure have not had contact with or talked to their loan servicer.

“Some because of abandoned properties, others because borrowers are shamed and embarrassed,” he said.

And, the problem is expected to get worse before it gets better. The MBA expects unemployment to keep going up until the middle of next summer, with delinquencies to follow and foreclosures going up through the latter part of the year.

Hi Paul. 

My ex-husband and I purchased a 2 acre lot and and new manufactured house about 6 years ago.  We are both on the mortgage.  We filed bankruptcy and got divorced a couple years ago. 

When we got divorced, he stayed in the home.  the mortgage was not reaffirmed in the bankruptcy.  Since then, I have gotten remarried. 

My ex is now 3 months behind on the mortgage and is in the process of moving out.  Since i am on the loan, wells-fargo is working with me and has offered a loan modification. 

My ex has decided that he doesnt want us to move in to the house and I suspect he is going to try to short sale it behind my back.  The property is in a very distressed condition (his doing) and now is worth way less than the loan amount.  Can he do that if I dont agree to it? 

If I am willing and able to make the payments (which I am), can he prevent me from doing so?  I really dont want to lose the house and we are willing to rehab the property.  We would like to live there long term. 

Any advice would be a blessing.  Thanks!!!

Patti (more…)

Journal Star - Denise and Kevin Barret thought they had found a solution earlier this year after they fell behind on their mortgage.

One night in February, they saw a television ad for the Federal Loan Modification Law Center, a very official-sounding entity that promised it could reduce homeowners’ payments while saving their homes from foreclosure.

So the Barrets called the number and were told that for an initial payment of $995 the company could renegotiate the couple’s delinquent mortgage and get them a better interest rate and more affordable payments.

It sounded like a good deal, and the company at the time had a reasonable rating with the Better Business Bureau, Denise Barret said.

So the Barrets signed up.

Denise said she was in contact with the company weekly as representatives told her they were negotiating with Liberty First Credit Union, the Barrets’ lender.

Every time the Barrets got a letter or phone call from Liberty First, Federal Loan Modification Law Center representatives told them to ignore it, saying it was just a scare tactic, Denise said.

“They kept telling us, ‘Don’t call the bank, it will just slow down the process. Don’t offer them any money,’” said Kevin Barret.

That’s exactly the opposite of what credible experts advise for homeowners who fall behind on their mortgages.

The result: Around the first of May, the Barrets received a letter from Liberty First, informing them their home was scheduled to be sold at auction.

Frantic, Denise said she called the credit union.

“Liberty First said they had never heard from them,” she said.

The Barrets bought a century-old house near 120th and Nebraska 2 in 2004. They paid $165,000.

The couple had moved back to Nebraska in 1999 after Kevin served in the Marine Corps. They initially settled in Eagle.

Denise said they fell in love with the converted bunkhouse on seven acres, which is not far from Otoe County, where the Barrets both grew up - she in Nebraska City, he in Syracuse.

At first they had a rent-to-own arrangement with the previous homeowners, and things went pretty well for a couple of years.

But then came 2006.

In February of that year, Kevin, who was 46 at the time, had a heart attack. He underwent quadruple bypass surgery the next month.

He had barely recovered when Denise was struck by a brain aneurysm in August of that year.

To help pay for their medical bills, the couple refinanced their mortgage and cashed out some of the equity in their home, which Kevin said at one time was as much as $60,000.

Things seemed as though they couldn’t get any worse for the couple, but then Kevin lost his job right before Thanksgiving.

The bad news continued just a few months later, when Denise, too, lost her job.

The Barrets again refinanced their mortgage in November 2007, increasing the mortgage debt from $148,000 to nearly $178,000 between a first and second mortgage, according to county real estate records.

Denise said their mortgage payment jumped from around $1,300 a month to more than $1,800.

In August 2008, the couple filed bankruptcy, just after they started falling behind on their mortgage payments.

County real estate records show Liberty First issued a default notice at the end of June 2008.

Kevin said they’d fall behind on payments, catch up, only to fall behind again.

While purporting to be helping the Barrets, the Federal Loan Modification Law Center was racking up complaints all over the country.

In April, the Federal Trade Commission filed a federal lawsuit against the company, alleging it misrepresented that it could obtain a loan modification or stop foreclosure in all cases.

The complaint also alleged that the company falsely claimed in radio and TV ads to be affiliated with the federal government.

Nabile “Bill” Anz, managing attorney for Federal Loan Modification and one of the people named in the FTC’s complaint, told the Orange County Register in April that the company may have been aggressive, but it had obeyed the law.

Since then, Anz seems to have changed his tune. On Aug. 4 he voluntarily resigned from the California State Bar Association, with charges pending against him.

According to a news release, the bar filed an application in July to have Anz declared “involuntarily inactive,” alleging he failed to perform for clients of the Federal Loan Modification Law Center and failed to refund fees to clients of the business.

The news release said Anz admitted the misconduct that was alleged in the application.

Some states have also taken action against Anz and his company.

In July, Wisconsin regulators banned the company from doing business there and ordered it to provide refunds to all its customers in the state.

That action likely is a moot point, as it appears the company is no longer doing business. Its Web site is no longer operational and its phone has been disconnected.

Mike Cameron, an attorney with the Nebraska Department of Banking and Finance, said the department has fielded a couple of complaints about the Federal Loan Modification Law Center.

“I’m thinking two or three at most,” he said.

Cameron said that because the company is already the subject of an FTC investigation, he refers complaints to the federal government.

Michael Snodgrass, executive director of NeighborWorks Lincoln, said two red flags with any foreclosure rescue offer are the requirement that you pay for it and a promise of a renegotiated interest rate or lower payments.

“If you have to pay something to save your house,” there is something wrong,” Snodgrass said.

He said NeighborWorks, which offers free foreclosure counseling among its many housing education services, never promises results.

Snodgrass said he has seen clients at NeighborWorks who have used or considered using foreclosure rescue companies.

“If you’re losing your home, you’re grasping at straws,” he said. “If you see an ad from a company, it’s awful tempting to look at.”

Denise and Kevin Barret will lose their home - there is no doubt about that now.

Earlier this month, they stood in a Lancaster County courtroom and agreed to be out of their house by the end of the month, which is Monday.

As they talked with a reporter Friday, a steady stream of people drove up their driveway and into their front yard to take advantage of their need to sell off possessions that won’t fit in their new home, a rented townhome near 61st and Vine streets.

In a way, their lives are coming full circle - the town home is in the same development they lived in shortly after they got married, Denise said.

She alternates between tears and anger.

She cries when she thinks about losing her home, the place she and her husband fought so hard to keep.

The tears turn to anger, though, when she thinks about all the help the government is handing out to banks and to people to buy houses and new cars.

“They’re giving these brand-new homeowners $8,000 bonuses,” she said. “Why aren’t they helping the people who are losing their homes?”

There are programs to help people facing foreclosure, but the Barrets say they found out about them too late.

Kevin says he’s talked to the Veterans Administration and a lawyer, but the response has been, “You should have brought this to us earlier.”

“If I had a nickel for every time I heard that, I’d be able to pay off our house,” he said.

Denise said she and her husband aren’t telling their story to get pity.

“We’re not doing it to make people feel sorry for us,” she said. “We just don’t want it to happen to them.”

va loan on a disabled veteran handicap constructed home! I applied thru chase for a modification since refi is a no with the home value gone down in michigan! I’ve waited since april till tomorrow> sept 1 to find out I have a ginnie mae and they work not with the obama modifcation government plan.SOOO turned down ! Recent kidney war related transplant has lowered income with added expenses along with wife becoming disabled which when working was part of the loan finacials soo with her change in income also I could benefit greatly with a moification! WHATS UP with the ginnie mae not being on board?? Dave (more…)

I currently have two loans with National City (now PNC) my 1st mortgage is $600k and the 2nd is $150k. 

I am technically in foreclosure with the first but working with the loan modification department on a workout package. 

My 2nd is due to charge off at the end of the month.  I have asked them repeatedly to work with me on a modification but they have only come back with a reduced payment for two years. 

I would like to stay in my home but given that I am down $300k don’t feel the 2nd is reasonable and am waiting on the first to determine what I should do next. 

Should I let them charge off the 2nd mortgage? 

Please advise?

Dewey (more…)