I lost my Florida home to foreclosure 2/5/10.  On 3/8/10, I received a letter from “Real Time Resolutions” indicating they now have servicing rights to our mortgage loan with a payoff amount of $153,443.21.  Do I have any recourse?

Milinda (more…)

LATimes - Nineteen months ago, the recession took Bob Walker’s job. Then, creditors lined up to take the three-bedroom hilltop home that the computer consultant shared with his wife, Stephanie, a playwright still looking for her first break.

Avoiding the stigma and financial fallout of foreclosure became an obsession for the Walkers. They talked to the banks, found multiple jobs, put their Silver Lake house on the market and tried to stitch together a plan to repay their debts. Finally, they turned to a short sale, chronicled in a popular blog: Love in the Time of Foreclosure.

“We really thought that, worst-case scenario, we will sell the house and break even,” Stephanie Walker said. “But it didn’t work. We went into great losses.”

In a short sale the lender lets a homeowner unload a house for less than what is owed on the mortgage. The transaction recognizes that the home isn’t worth what the owner paid for it after more than two years of falling real estate values.

Such deals are appealing to struggling homeowners because they escape weighty house debts — but they don’t get away unscathed. Their credit scores will be damaged, perhaps less severely than in foreclosure, but still badly enough to limit for years their ability to borrow money. There may be tax consequences. And any money invested through down payments and renovations will be lost.

Lenders, which can withhold approval of a short sale if they don’t like the price, have resisted such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. And short sales lock in losses that might be reduced if the sale is delayed until the market improves.

But that resistance is softening. With more Americans losing jobs and missing mortgage payments, banks and investors increasingly are agreeing to short sales as a less costly alternative to foreclosure.

Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation’s largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Short sales are still few compared with foreclosures, but policymakers are looking at such sales to shrink the number of bank-owned homes on the market.

Late last year, the Obama administration added incentives to get short sales done if a borrower is unable to qualify for a modified mortgage as part of the government’s $75-billion effort to help troubled homeowners. Starting in April, the government will pay incentives to lenders and borrowers when a sale is completed.

Many economists view short sales as a way to address a problem that mortgage relief hasn’t fixed: properties that are “under water,” carrying more debt than the home is worth.

“Making short sales easier would go a long way to freeing up the market,” said Richard Green, director of the Lusk Center for Real Estate. “Right now, if people are under water on their house, they are really stuck.”

Short sales remain difficult. Uncertainty over home prices makes properties hard to value, lenders are understaffed and multiple loans on a home can trip up negotiations among creditors.

The Walkers faced some of these challenges. The couple paid $799,000 for their home in 2006, taking out loans from Countrywide Financial Corp. and National City Corp.

They spent most of their savings and ran up big credit card balances to redo their kitchen and landscaping. Even with her husband’s $240,000 yearly salary, they were stretched thin making combined mortgage payments of $5,000 a month, Stephanie Walker said.

When Bob Walker’s consulting contract was canceled, the couple fell behind on their house payments. They found jobs but their income suffered.

They listed the home for $875,000 but found no buyers. A foreclosure notice arrived. They were offered a three-month payment reduction from Bank of America but couldn’t afford it. A short sale looked attractive.

One factor motivating banks to go along with short sales is that foreclosures typically cost more. Foreclosed properties often sit vacant, susceptible to damage from neglect or vandals. A study by Amherst Securities Group found that prime loans took an average loss of 45% in a foreclosure as opposed to 35% in a short sale.

“The bank or the investor is going to lose money on a short sale or a foreclosure,” said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. “You don’t lose as much if you sell the property when it is occupied.”

Representatives of Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. said their companies had assigned more employees to handle short sales. But the sheer volume of requests has made it difficult to keep up.

“I wouldn’t call it overwhelmed,” said Matt Vernon, the executive in charge of short sales and bank-owned properties for Bank of America Home Loans. “But the volume has certainly stressed our current process.”

Then there’s the problem of second mortgages, which have proved to be a thorny impediment to the housing recovery. The loans were widespread during the boom years as people tapped rising equity or financed a down payment.

Of the 1.2 million U.S. properties in foreclosure, about 34%, or 403,670, have a second loan, according to RealtyTrac. In California, with 280,023 properties in foreclosure, about 46%, or 128,800, have a second loan.

“Those junior liens make short sales much more difficult and they make modification much more difficult,” said Michael LaCour-Little, a finance professor at Cal State Fullerton who has studied the issue. The different banks “often have no incentive to cooperate.”

Sally Quinn’s second mortgage has complicated her short-sale attempts.

She is facing foreclosure on a Glendora town house that she bought as an investment property. Quinn said she has tried to arrange a short sale four times through her lenders, Bank of America and JPMorgan. Buyers, tired of waiting months for an answer from the banks, walked away on three occasions, and the banks rejected an offer from a fourth as too low, she said. She lined up a fifth buyer, she said, but BofA balked.

“It all came crashing down,” she said.

The Walkers also found the short-sale process to be emotionally wrenching. Weighed down with debt and fearful they would be pursued by the bank that held their second mortgage, they filed for bankruptcy protection last summer.

In her blog, Stephanie Walker wrote that the struggle helped them focus on what was important: their love for each other.

As the blog grew in popularity, Walker hosted online question-and-answer sessions and the couple were featured in media reports. The attention helped the Walkers secure a plan for the future. A reader hired them as caretakers of a home in Washington state’s San Juan Islands.

Last month, Walker retired the blog to focus on her next project, a baby due in July, posting: “I don’t want my life to be forever tied to our foreclosure story. It’s just time for me to move on.”

HousingWire - A new rule adopted by the Florida Supreme Court would require lenders to explain “last minute” cancellations of foreclosure sales and request a rescheduling by the court.

Before the New Year, the Florida Supreme Court adopted a foreclosure mediation program to reach out to borrowers facing foreclosure and possibly clear up the backlog of foreclosure cases in the court system. The Task Force on Residential Mortgage Foreclosure Cases launched in March 2009 in response to the nation’s third highest delinquency rate and its worst foreclosure inventory at the time.

Florida has the fourth highest foreclosure rate in the country through January 2010, according to RealtyTrac. There, one in every 187 homes received a foreclosure notice.

The Task Force proposed the motion and recommended the adoption of the forms. In its proposal, the Task Force stated that many foreclosures set by the final judgment and handled by the clerks of court are “vague last minute” motions to reschedule sales without an explanation.

“It is important to know why sales are being reset so as to determine when they can properly be reset, or whether the sales process is being abused,” according to the Task Force proposal.

The new rule aims to clear up and accelerate a foreclosure process clogged with government incentive programs and civil cases. The Task Force wrote in an August report that the foreclosure pipeline resembled a traffic-jammed highway out of a town under hurricane evaluation.

“Again, this is designed at promoting effective case management and keeping properties out of extended limbo between final judgment and sale,” according to the Task Force proposal of the new rule.

NYTimes - In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”

Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighborhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust.

The United States Treasury falls into the skeptical camp.

“The overwhelming bulk of people who have negative equity stay in their homes and keep paying,” said Michael S. Barr, assistant Treasury secretary for financial institutions.

It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy.

“It’s not an easy area,” he said.

Walking away — also called “jingle mail,” because of the notion that homeowners just mail their keys to the bank, setting off foreclosure proceedings — began in the Southwest during the 1980s oil collapse, though it has never been clear how widespread it was.

In the current bust, lenders first noticed something strange after real estate prices had fallen about 10 percent.

An executive with Wachovia, one of the country’s biggest and most aggressive lenders, said during a conference call in January 2008 that the bank was bewildered by customers who had “the capacity to pay, but have basically just decided not to.” (Wachovia failed nine months later and was bought by Wells Fargo. )

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.

It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.

Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial.

Not quite four years later, apartments in the building are selling in foreclosure for $90,000.

“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.

Walking away, he knows, is not without peril. At minimum, it would ruin his credit score. Mr. Koellmann would like to attend graduate school. If an admission dean sees a dismal credit record, would that count against him? How about a new employer?

Most of all, though, he struggles with the ethical question.

“I took a loan on an asset that I didn’t see was overvalued,” he said. “As much as I would like my bank to pay for that mistake, why should it?”

That is an attitude Wall Street would like to encourage. David Rosenberg, the chief economist of the investment firm Gluskin Sheff, wrote recently that borrowers were not victims. They “signed contracts, and as adults should also be held accountable,” he wrote.

Of course, this is not necessarily how Wall Street itself behaves, as demonstrated by the case of Stuyvesant Town and Peter Cooper Village. An investment group led by the real estate giant Tishman Speyer recently defaulted on $4.4 billion in debt that it had used to buy the two apartment developments in Manhattan, handing the properties back to the lenders.

Moreover, during the boom, it was the banks that helped drive prices to unrealistic levels by lowering credit standards and unleashing a wave of speculative housing demand.

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.

“That may have been the last straw,” Mr. Koellmann said.

Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.

“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”

Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.

“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

Bloomberg - When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.

In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.

“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

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.

DSNews.com - Although the Obama administration has worked to suppress foreclosures, it appears these efforts may not be enough, according to Bank Foreclosures Sale, a foreclosure listing service.

High unemployment continues to plague the real estate market, and according to a recent article in the New York Times, an estimated 2.4 million foreclosed homes will be added to the list of 2010 foreclosures. As a result, Bank Foreclosures Sale predicts prices will decrease another 10 percent.

Simon Campbell, a real estate analyst for the company, said it appears the real estate market may see a surge of shadow inventory properties appear on the market. These are properties that have not been calculated into official inventory numbers and include homes repossessed by lenders through foreclosures and similar actions and homes where owners are 90 days or more delinquent on payments.

Unemployment remains at a record high, and congressional leaders continue to look for ways that millions of people who have lost their jobs will be able to stay in their homes. While current statistics show lenders may finally be closer to finding a solution for the home mortgage crisis, Campbell said the question now is about how fast these lenders can work to stem potential foreclosures.

“Until we see a reduction in the number of foreclosures, we cannot get too hopeful about restoring housing industry stability,” Campbell said.

F.S. 718.116(1)(b)  The liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due prior to the mortgagee’s acquisition of title is limited to the lesser of:

1.  The unit’s unpaid common expenses and regular periodic assessments which accrued or came due during the 6 months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or

2.  One percent of the original mortgage debt. The provisions of this paragraph apply only if the first mortgagee joined the association as a defendant in the foreclosure action. Joinder of the association is not required if, on the date the complaint is filed, the association was dissolved or did not maintain an office or agent for service of process at a location which was known to or reasonably discoverable by the mortgagee.

LasVegasSun - As Las Vegas limps into a new decade, let us return to the now-hazy origins of our current sickness: 2005.

It would seem the entire Las Vegas Valley had been slipped a drink laced with a financial hallucinogen — a powerful narcotic that combined Ecstasy’s feelings of well-being with methamphetamine’s urge to be busy.

Even the city’s most accomplished business and political elites could not resist its influence. They were spaced out, convinced that the laws of the economic universe had been suspended, that housing prices could expand into space, that borrowing money was as holy as prayer.

“We thought we had a recession-proof economy, we thought we would grow forever,” says Elliott Parker, a UNR economist.

Parker describes an “illusion, that we could create wealth from nothing, that we could keep consuming beyond our income, that housing prices would keep rising, that investments could yield high returns without risk, since we were all so clever …”

If they weren’t addicted to the drug themselves, Las Vegas denizens acted as street corner touts — marketing the magical drug for a living — and were always shouting its wonders.

We were, in Parker’s words, “selling high roller fantasies to gamblers and expensive houses to people who sold their homes elsewhere for even more insane amounts of money. We thought it would continue forever, and we made no contingency plans for the alternative.”

Illusion. Fantasy.

When skeptics pointed out that perhaps a dangerous real estate bubble was forming, the crowd responded with mockery:

“The only bubble you’ll see in this market is in a Champagne glass,” a well-known real estate player said in our now fated year of 2005.

But in fact, here’s what was happening in the Las Vegas real estate market: After years of slow and steady growth, a mania took hold. Home values had increased more than 35 percent in 2004 alone.

It was a classic bubble by 2005, right up there with phony Silicon Valley technology companies 10 years ago, and phony Amsterdam tulip futures 375 years ago.

For a while, Americans could borrow unlimited sums of money against their rising home values to come to Las Vegas to spend money. So we built new resorts.

We needed construction workers to build those resorts. We needed other construction workers to build homes for the first construction workers.

Simple logic

This wouldn’t — couldn’t — go on forever. At some point, Americans would hit their limits and the growth of tourism would slow, and we wouldn’t need so many construction workers to build resorts, and then we wouldn’t need so many construction workers to build those houses for the first construction workers.

Once we didn’t need those construction workers, they would be laid off and stop making mortgage payments on their homes. And the sell-off would begin. Throw in all the subprime loans that borrowers couldn’t pay to begin with and you’d get a fire sale. Welcome to 2007.

It’s simple logic, really. Any college freshman who got suckered into a pyramid scheme could explain the illogical underpinnings of it all. It was an economic house built without a foundation on a sandy desert hillside. And there it goes, into the wash.

Sure, we had the resorts, and the wealth they created was real, but the Strip was living on borrowed time, larded with debt, a bad recession away from near collapse and in some cases, bankruptcy.

“A growth-addicted economy produced phony prosperity,” says Hugh Jackson, proprietor of the Las Vegas Gleaner blog and a policy consultant to the Progressive Leadership Alliance of Nevada, a liberal advocacy group.

Phony. Like the happiness of a drug.

This isn’t to say that the decade didn’t begin with hopeful signals — low unemployment and rising wages, and the tax revenue needed to improve schools, health care and social services. The Strip kept attracting more customers and building more hotel rooms to house them.

But the 9/11 terrorist attacks should have provided a clear warning that a dip in tourism could pummel the city. When tourism quickly resumed, however, that warning went unheeded.

Plus, debt was accumulating, in households here and among potential customers around the world, and on corporate balance sheets.

It should have been a portentous time, a ripe time for Cassandras.

“The decade began with a facade,” Jackson says of those go-go years.

A facade. Soon it was a Potemkin village of steel and stucco, massage parlors and pawn shops.

So wrong

In the reality-based world, many people knew the intensifying speculative bubble in real estate wasn’t sustainable and tried to warn others. Bill Robinson, a UNLV economist, sold his house in 2005, patiently explaining to neighbors the laws of economic reality and the coming crash.

“Everybody who was independent of all this saw it coming,” Robinson says. Meaning everybody sophisticated enough to understand economic data and not a paid representative of the resort or development industries.

(And, in fairness, some people from those industries tried to pull the fire alarm early on.)

What is striking about our real estate player, the one who sneered about there being no bubbles except those in Champagne, isn’t that he turned out to be so wrong. After all, people are wrong all the time. The sun revolved around the Earth for centuries after Ptolemy, and many smart and well-meaning people, even the high priest of laissez faire capitalism Alan Greenspan, were wrong about the housing bubble.

No, what’s striking is the tone of triumph and arrogance, like he’s pulled one over on the stupid herd.

It turns out, our addiction’s true power was so much like that of other drugs: It gave the user great powers to deceive.

We were good at deceiving others.

“Hardly anything we did this decade was upfront,” Robinson says.

Illusion has always been part of Las Vegas’ appeal — that we would not succumb to mathematical certainty at a card table; that we could come here and remake ourselves into glamour gods; that buildings that look like the New York City skyline can approximate the feeling one would get from actually being in New York City.

Illusion is one thing.

Deception, done with malice and for the most selfish ends, is something else.

Deception in Las Vegas took many different forms this decade.

Easy to con

On the Clark County Commission, four members would eventually be convicted of what amounted to dishonest service for taking bribes. Erin Kenny told us she was acting on the community’s behalf when she pushed approval of a CVS drugstore at Desert Inn Road and Buffalo Drive. Really, it was for a $200,000 bribe.

From the sensational to the prosaic: The real estate loan officers who extended money to people knowing they couldn’t repay, demanding no documentation, employing no safeguards or due diligence.

So, waddya make last year?

Oh, that’s good enough.

“Stated income,” we called these loans, employing our bottomless ability for euphemism.

Or, our lenders weren’t straight with borrowers — many who didn’t speak English — about what would happen to their monthly payment in a year or two after a “reset.”

On the other side of the ledger, there were speculators and plenty of average people who took out loans they had no intention of repaying.

“The easiest con for a con artist is another con artist,” says Mike Green, the Nevada historian. “If you want to believe you’ll always be living on the Big Rock Candy Mountain, then it’s easy for someone to sell you another piece of worthless land.”

Once things started to collapse, a whole new set of scam artists — “loan modification specialists” — preyed on vulnerable homeowners, promising to keep them in their homes but running off with cash instead.

For so many — and at great expense to the rest of us — the decade was a giant con, a bamboozlement, a flimflam.

“We have a history of benefiting from all that flimflamming,” Robinson notes.

“It’s kind of our culture. So at some point it was inevitable that if there was an easy-money climate, we would fall prey to it,” he says.

Which brings us back to another kind of deception, perhaps most damaging of all — self-deception.

“It’s easy to delude yourself into believing something you want to be true. And here we are,” says Mike Sloan, a gaming consultant and former state senator.

We were deceived, we were narcotized, because we wanted to be deceived.

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.”