February 19, 2012

Foreclosure Filed: Should I Hire An Attorney?

I live, breathe, eat, drink and occasionally sleep in what is considered by experts to be the heart of our Nation’s foreclosure crisis.  I am a Florida licensed real estate agent whose practice consists solely of representing sellers in Florida on short sale transactions.  Frequently, I am asked the following question by Florida homeowners: “A foreclosure has been filed against me, should I hire an attorney?”  My answer is always: “You can, that’s up to you.”

I deal with Florida foreclosure defense lawyers every day.  They represent the Florida homeowner in defending the foreclosure action through the courts and then refer their clients to me to handle the short sale.  I deal with the bank on behalf of the homeowner, get the approval of the shorting lender typically as a full release of liability with $3,000 paid to the seller by the bank for relocation costs and we close the file.  As a result of the successful HAFA short sale of the property, the lis pendens is discharged, the foreclosure case is dismissed, and the seller/borrower is forever free of this monstrous mortgage debt.  The Florida attorney in that scenario filed a notice of appearance and an answer to the foreclosure complaint and that’s it – case closed – full settlement.

I received a call after 8 PM on Friday night from a Florida foreclosure defense lawyer working late.  I didn’t get the message until Saturday morning.  It looked like he was playing catch up on his files and was asking about a specific file that we were working on together – he was handling the foreclosure defense for a client in Clearwater, Florida and I was handling the short sale for the same clients.  He wanted to know the status of the short sale.  Below is the email that I sent to his paralegal in reply:

Hey *paralegal name and attorney name redacted*,

*attorney name redacted* left a message for me at 8:17 pm last night asking for the status of *seller name redacted*.  *seller name redcated* was a HAFA short sale that closed on 12-30-2011 in your office.  The HUD1 is attached and there was a $900 attorney fee included for *attorney name redacted* on line # 1304.


Bear in mind that he was asking about the status of this file on 2-17-2012 and he was unaware that the file closed on 12-30-2011.  Some law offices are able to handle real estate closings so I sent the title work back to the law office and also had the shorting lender pick up an extra $900 tab for attorney fees for him.  I had sent him the HAFA short sale approval earlier that month and we had the closing in his office so it was a surprise that he was unaware that the closing took place.

But I’m getting a little sidetracked away from my point.  My point is that there has to be an end game for Florida homeowners in all of this.  Florida homes mortgaged prior to 2009 are in large part underwater and many that I deal with are severely underwater by $50,000 to $100,000 or more.  What is the goal in all of this?  To lengthen the amount of time that the foreclosure will take to complete?  And then what?  Be left with a Florida deficiency judgment and/or continued collection on the mortgage deficiency for up to 20 more years?  Is the goal to modify the loan?  When lenders modify mortgage loans they typically make them temporary and do not modify the principal.  This means that the lender can recall the loan and send you a past due bill at any time whether months or years later.  I have repeatedly encountered Florida homeowners who have been told –by no fault of their own – that the lender decided that they did not qualify for the loan mod over a year after having being given the mod and now the lender demanded all of the past due amounts at once.

The fact is that we are in the throes of a housing crisis and it is going to be a slow crawl out of all of this mess.  The foreclosure programs such as HAFA (the Home Affordable Foreclosure Alternatives) which allow a home to be short sold and require the bank to provide a full release of liability and give $3,000 to the home seller at closing are set to expire at the end of this year.  Also, there are some dire tax consequences written in the IRS code for those who wait until after 2012 to complete a short sale.  This means the time to settle the debt and get out of it without having to repay the deficiency or taxes on the debt forgiveness to the IRS is now, this year.  Those who wait it out may find that these programs no longer exist come 2013.

This article is not to say that hiring an attorney won’t help the homeowner.  Other than the cost, it certainly won’t hurt.  And I don’t know your situation – maybe you have equity?  Maybe you made all of your payments on time and were never late?  Or maybe you came home one night and there was a creepy process server sitting in your driveway who handed you a Florida foreclosure complaint and the first thing that came to mind was: I should hire an attorney.  So, I get asked that question a lot – a foreclosure has been filed against you and you want to know if you should hire an attorney?  My answer: You can, that’s up to you.  I will help you with the short sale.

Do you like what you read, then contact me for help with your Florida Short Sale

August 20, 2011

BofA Files Foreclosure On Lady Who Paid A Week Earlier Than Due Date

NEW PORT RICHEY – Seventy-year-old Sharon Bullington may lose her home because she paid her mortgage a week early.

That may not make much sense to the thousands of homeowners who are behind on their mortgages in Florida. But it seems it does to Bank of America, which has filed to foreclose on Bullington and her husband, James, 78, who is terminally ill.

“It’s like death to me,” Sharon Bullington said, her voice quivering on the phone Friday. “My husband is bedridden. It’s almost more than I can bear.”

The couple moved to Florida 15 years ago after James Bullington retired from General Motors in Flint, Mich., and moved into the 1,591-square-foot New Port Richey home, which is now valued at $133,464, though they owe about $177,000.

When James became ill, the couple encountered financial difficulties because of high medical bills. The couple asked Bank of America to modify the loan.

There was a catch. The couple would have to first officially default on their $1,400-a-month payment. The couple did that and entered into the modification plan, which reduced their payment to $916.

Sharon Bullington made the January payment on Dec. 23, and the bank accepted the money, according to court records.

The next month, she made the February payment over the phone. Weeks later, the money had not been withdrawn from her bank account. After Bullington asked the bank about it, a representative told her she had punched in the wrong routing number. In March, the bank kicked the couple out of the modification plan. (more…)

April 12, 2010

HAFA is a lot of press about nothing…

HousingWire – There is a fundamental flaw to the Making Home Affordable Foreclosure Alternatives (HAFA) program that will keep the program from reaching its full potential, panelists told the audience today in Dallas at the Source Media Mortgage Servicing Conference.

That flaw is that the program requires the borrower exhaust the Making Home Affordable Modification Program (HAMP) before proceeding to a HAFA short sale. That strategy takes borrowers who are committed to staying in their homes and transfers the loss mitigation strategies from a workout plan to vacancy, said Robert Hunter, a vice president of Amherst Securities.

“I think HAFA is a lot of press about nothing at the end of the day,” he said.

Average borrowers trying to save their homes aren’t going to call a real estate agent the day after they’re told no. They’re going to try to wait it out, especially if they’re unemployed and trying to get a new job, said Bryan Bolton, senior vice president of loss mitigation at the mortgage division of Citigroup (C [1]: 4.62 +1.54%).

HAMP is seeing some success in helping borrowers, Bolton told the audience, adding it’s made the public more aware of alternatives to foreclosure.

“HAMP gets a bad rap,” Bolton said, adding at a high level, the program works because it puts some standardization on modifications for the industry.

The panel session, titled “How to Stop the Bleeding — Or What to do About Defaults” also covered the topic of principle forgiveness. Barbara Peterson, assistant vice president and assistant manager of default servicing at M&I Corp. (MI [2]: 9.06 +1.68%), is vehemently opposed to principle forgiveness, especially for borrowers who are underwater on their mortgages, but can still afford their monthly payments.

“Loss of equity is not a hardship. It’s unfortunate, but it’s not a hardship,” Peterson said. “You’re just going to have to ride it out. You can afford the payment.”

M&I does not participate in HAMP, and as such, will not participate in HAFA. The bank instead uses its own in-house modification program for borrowers with true, documented hardships. So far, the program’s resulted in a recidivism rate that’s less than 20%. That rate includes not just owner-occupied properties, but also rental homes and pieces of undeveloped land, as long as the borrower has a hardship the bank can verify.

For those looking for a modification with the threat of strategic default, Peterson has no sympathy.

“If you want to default and ruin your credit, there’s nothing I can do to stop you, but if you don’t have a hardship, I can’t help you,” she said.

A change in the modification environment is the source of borrower hardship. Previously, borrowers with exotic mortgage products were the first wave to default, now lenders are seeing more borrowers that are unemployed looking for mortgage assistance.

That said, the panel’s moderator, Diane Pendley, a Fitch Ratings managing director, presented data that showed prime mortgage defaults seem to have capped at 10%. In addition, the most recent data shows that subprime defaults are also down 0.5%.

It could be simply the modifications are starting to happening, or income tax returns showing up and being used for payments, she said. “It’s definitely a good sign and we’ll take it.”

March 24, 2010

Short Sale Prior To Default?

Hello Paul, I just approved for mortgage modification. However, it is not the Obama plan. I am paying about 48% of my income toward mortgage. It is not realistic number. My new trial period starts April 2010. I have gave a lot of thought. I thinking about just leaving the property by using short sale. Can I request a short sale whiling I am in new trial modification? Or do I need to default again and request Short Sale? Any advice would be help.

Jonah (more…)

March 19, 2010

HAMP Audit

Filed under: Loan Modification

HousingWire – Neil Barofsky, special inspector general to the Troubled Asset Relief Program (TARP), initiated an audit of the Home Affordable Modification Program (HAMP), according to a letter from Barofsky’s office to Sen. Jeff Merkley (D-Ore.).

The US Treasury Department allocated $75bn from TARP to fund HAMP when the program launched in March 2009. Through February, those 113 servicers provided more than 170,000 permanent modifications. Critics of the program point out that the numbers are far short of the 3-to-4m target set by the Obama Administration last year and claim the program doesn’t address key difficulties for troubled loans.

The move for Barofsky to conduct the audit came after he received a letter from Merkley, addressing concerns over the program’s formula for the Net Present Value of a troubled loan. The NPV refers to the value-to-date of a cash-generating investment, such as a mortgage. When a borrower falls behind on the payments, the investor or servicer generates an NPV for the loan “as-is” or if it is modified. If the NPV of modified loan is higher, the modification is said to be “NPV positive.”

Under HAMP guidelines, if the loan is “NPV postive” after modification, the servicer must provide the workout if it is to receive the incentive payment.

Barofsky’s audit will investigate whether or not the servicers are correctly applying the NPV test under the program and how much the Treasury is doing to ensure cooperation. Barofsky will also look at how servicers are communicating to borrowers when their NPV test fails and how they identify any other options for borrowers.

The House Committee on Oversight and Government Reform, also began an investigation of HAMP in February on concerns of the “effectiveness and efficiency” of the program.

February 25, 2010

Loan Mod Limbo

Filed under: Loan Modification

ProPublica – About 97,000 homeowners in the government’s mortgage modification program have been stuck in a trial period for over six months. Most of them, about 60,000, have their mortgages with a single mortgage servicer, JPMorgan Chase.

Trial periods are designed to last only three months, after which mortgage servicers are supposed to either give homeowners a permanent modification or drop them from the program. According to a ProPublica analysis, about 475,000 homeowners have been in a trial modification for longer than three months.

While the Treasury Department has so far allowed servicers to stretch the trials without repercussions, the government issued little-noticed guidelines in late December, warning that lenience will end at the end of this month. Servicers will have to clear out their backlogs, and those that don’t abide by the guidelines could face “financial penalties,” said a Treasury spokeswoman. But Treasury has been vague on how big those penalties will be.

Although homeowners in the trial modifications have had the benefit of seeing their monthly payments drop (by an average of $522), there are adverse consequences when a trial drags on. A homeowner’s credit score can take a hit. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period, putting someone who was behind when the trial began even further behind if it fails. The homeowner can be in worse shape if the modification fails since she’s been making the trial payments instead of saving for the possibility of foreclosure. And last but certainly not least, those homeowners suffer the stress and fear of not knowing whether they’ll be able to keep their homes.

Some homeowners have been in limbo for as long as 10 months – since the launch of the program. Recently, we at ProPublica asked readers to help us find who’d been in a trial period for the longest time. We heard from hundreds of frustrated homeowners, many who’d begun trials last summer. Among them were two — Marlene Colon of Tinton Falls, N.J., and Deb Franklin of Airville, Pa. – who had begun trials last May and were still waiting. Chase Home Finance, a subsidiary of JPMorgan Chase, serviced both their mortgages.

Since the first servicers signed up last April, about 1 million homeowners have been put into trial loan mods. Only 116,297 have emerged with a lasting modification. That number will undoubtedly go up next month, though given the scale of the foreclosure crisis, it will remain disappointingly low. However, if the servicers succeed in reducing their backlogs, an even larger number of homeowners might find themselves dropped from the program and facing the possibility of foreclosure.

Colon, the New Jersey homeowner, and her fiancé sought a modification from Chase last spring after she lost her job and ongoing health issues prevented her from working elsewhere. Although she was glad to see her payment drop from about $1,600 per month to $965, she said it has been a struggle to get any answers since then. “I think they do it to wear us down so we throw our hands up in the air and say we give up,” she said.

She and her fiancé were current on their payments when the trial began and had a high credit score, she said, but they’ve since seen their credit card limits cut. Treasury instructed servicers to report the trial payments as a reduced payment plan to the credit reporting agencies, which can result in a significant lowering of credit scores.

It’s unclear when she’ll get a final answer. Recently, Chase asked for updated copies of her fiancé’s pay stubs, she said, which she says she promptly sent in.

Christine Holevas, a spokeswoman with Chase, said in a statement that Colon’s case was “under review,” but did not give more detail.

As for the tens of thousands of other homeowners in limbo, Holevas said that Chase is “working through its inventory according to U.S. Treasury Department guidelines” and “trying to help struggling borrowers stay in their homes whenever we can.”

She emphasized that “we need the homeowners to get us all the required documents.” As ProPublica has reported, servicers (not just Chase) have a poor track record of handling documents. Homeowners in the program routinely complain about servicers losing paperwork and asking again and again for the same documents.

Colon says her problem has always been getting information from Chase, not the other way around. “I can’t imagine that someone who’s in a bind wouldn’t comply,” she said. “We’ve done everything that they’ve asked of us.”

No other servicer has near as many homeowners in limbo as Chase. A smaller servicer, Saxon Mortgage Services, a subsidiary of Morgan Stanley, has a similar proportion of lingering trial mods – about one-third of its homeowners in trials have been in one for more than six months. But it services relatively few mortgages over all, and has only about 13,000 mortgages in trial modifications. A spokeswoman said that Saxon had “launched a number of proactive programs to work with borrowers to collect all of the documentation required.” Bank of America, by far the largest servicer, has about 12,000 homeowners in a similar position. A spokesman said that the bank was gaining “momentum” in providing permanent modifications. (You can see how all the servicers match up in our interactive chart.)

A Surge in Denials?

Banks and servicers have not only been slow to approve homeowners for permanent modifications, there have also been surprisingly few homeowners dropped from the program – only about 61,481 as of January. Borrowers can be dropped for missing payments, failing to send in documents or simply proving ineligible.

Part of the reason for the trial backlog are the Treasury guidelines. In late December, Treasury initiated a “review period” during which servicers were prohibited from dropping homeowners from the program if they were still in the home. Servicers were supposed to take the opportunity to let homeowners know this was their last chance to send in missing documents or payments. The grace period extended through January.

That means the number of denials should surge this month, which is why many observers, like the blog Calculated Risk, think February’s numbers will be particularly revealing of the modification program’s success.

About two-thirds of homeowners in trials are current on their payments, according to Treasury. That means that roughly 275,000 homeowners are not. However, that doesn’t necessarily mean they will all be dropped from the program – homeowners who stopped making the trial payments after the expiration of the three-month trial period are still eligible for a permanent modification.

Treasury is also pressuring the servicers to make final decisions about homeowners in cases where no documents or payments are said to be missing. About the same time that Treasury launched the review period, it also instructed servicers that they must make a determination about such homeowners by the end of February.

“We have been working very closely with servicers and are confident that they will meet the February deadline for making determinations on borrowers in the trial phase,” said a Treasury spokeswoman.

February 22, 2010

Bank of America Loan Modifications

Filed under: Loan Modification

TampaBay.com – In 2008, Southwest Airlines flight attendant Kevin Parker slammed his shoulder so hard during severe turbulence that he was out of work for months.

His lender, Bank of America, allowed him to skip payments on his St. Petersburg home for 90 days. But when Parker sought a permanent loan modification, he began a journey as bumpy as anything he had encountered in the air.

“I sent the first e-mail probably last February and didn’t get a response, so I started e-mailing every other day trying to talk to someone,” Parker says. “Then it seemed like every time I called them, I was turned over to another caseworker who didn’t have the information I had sent.”

Five months and some 40 e-mails and phone calls later, Parker got the bank to reduce his payments by about $126 a month. But there was a big tradeoff: His late payments were tacked onto the balance, increasing the amount he owes to $157,805 — $10,300 more than he originally borrowed.

“I’m back to work but I’m paying more for the house than it’s worth now and they (Bank of America) weren’t willing to just pick back on the principal.”

Parker’s laments are not unusual among customers of Bank of America, the nation’s biggest bank.

A year ago, the Treasury Department announced the Home Affordable Modification Program, aimed at helping up to 4 million at-risk homeowners avoid foreclosure by reducing their monthly payments. Banks receive $1,000 for each modification and up to $1,000 a year, for as many as three years, as long as the borrower remains current on payments.

Even with those incentives, Bank of America has ranked near the bottom when it comes to modifying loans for homeowners delinquent at least 60 days. Through January, 22 percent of the bank’s eligible borrowers had received permanent or three-month trial modifications, compared to 38 percent for J.P. Morgan Chase and 50 percent for GMAC and CitiMortgage.

The Florida Attorney General’s Office says it has fielded 486 complains about Bank of America and a company it took over, Countrywide — more than it has about any other lender. Many of the gripes are from homeowners who have been unable to get modifications despite repeated contact with customer service reps who lose paperwork, give conflicting information or ignore them altogether.

But even those like Parker who get help could be worse off in the long run because the amount they owe has grown while property values continue to fall. With no equity in their homes, many people may just walk away, critics warn.

“Modifications that work are a permanent reduction in principal and interest, and some lenders are doing those but Bank of America is not,” says Alan M. White, a professor at Valparaiso University School of Law and an expert on housing issues.

“It’s pretty clear that Bank of America and Countrywide, now one entity, are just unwilling to do modifications on the scale that’s needed. Somehow they’re hoping against hope that property values will suddenly come back.”

Bank of America, which had a $6.3 billion profit last year, says it has found that reducing interest and extending the life of the loan are the most effective ways to make payments affordable.

It also says that the volume of Florida complaints is misleading because many probably came from homeowners whose loans originated with Countrywide, once a leader in particularly risky forms of loans.

“When you hear Bank of America complaints, it’s really hard to decipher if it’s against a Bank of America-originated loan or a Countrywide loan,” says Jumana Bauwens, a bank spokesperson.

• • •

During the real estate mania, Bank of America itself was a major lender in Florida, including the Tampa Bay area. Thousands of those loans have gone into default, though very few bay area homeowners have obtained relief through modifications, court records show.

From 2005 to 2008, the bank issued 62,000 mortgage loans in Pinellas and Hillsborough counties. Since then, it has started foreclosing on more than 4,000 loans.

Last year, though, the bank recorded modifications on only about 50 home mortgages in the two counties.

Not every delinquent homeowner was eligible for a modification. But for those who were, patience and perseverance often proved essential.

In 2006, Martha Kramer borrowed $116,000 from the bank to buy a Largo condo. After losing her property manager’s job and missing three payments, she asked for a modification.

“Every time I called, I talked to four or five people. I was on the phone two hours at a time, getting transferred to another department, repeating the whole story again. People were very nice but they were clueless. The right hand didn’t know what the left was doing.”

Kramer says it was” easily a year later” — April 2009 — before she got a modification that reduced the interest rate and almost halved her base payment to $525 a month. “I can deal with it,” says Kramer, who is still unemployed.

But the new terms will make it even harder for her to build equity. The bank tacked part of the late fees onto the principal, meaning she now owes $116,880 on a condo worth about $100,000. And to keep the payments relatively low, the loan is for 40 years, not the once-typical 30 years.

“If they stretch it out further, that’s sort of helping you in that it reduces the monthly burden,” says Arnold Heggestad, a University of Florida finance professor. “But unless housing prices start coming back, it’s not going to do much good in the long run.”

Through January, lenders reported that 28 percent of eligible homeowners nationwide had received permanent or trial modifications in which interest rates were lowered, terms extended or — more rarely — the principal reduced. Bank of America and other lenders have been criticized for stinginess in reducing loan balances, a move that could give homeowners instant equity and more incentive to keep making payments.

By some estimates, 20 percent of American homeowners now owe more than their property is worth.

Bank of America says it is considering “principal forgiveness” for certain types of loans, especially those inherited from Countrywide in which payments rose even as housing prices plunged.

Under an agreement with the Florida Attorney General’s Office, the bank has modified more than 12,700 of the Countrywide loans in Florida. It has also increased the number of customer service representatives in the state.

Given his hassles getting a modification, Parker, the fight attendant, says he probably would have let Bank of America foreclose if he hadn’t put so much time and money into restoring his 1920 Mediterranean-style bungalow. Though his payments dropped, he owes the bank more than he used to. And the interest rate, while lower than before, will climb from the current 4.5 percent to 5.625 percent next year.

“Basically, they were happy with me foreclosing, but it was more a pride thing for me. I took a debt and took responsibility for the mortgage and I don’t think I could walk away from that. That’s what I tried to let them know.”

February 8, 2010

HAMP Permanent Modifications Picking Up

Filed under: Loan Modification

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.

January 14, 2010


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.

January 11, 2010

Mortgage Tetrameter

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!!

Renee (more…)

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