One aspect of the Treasury Department’s motivating tactics to get mortgage servicers to move more quickly on loan modifications is called “Name and Shame”, an exercise where lenders’ and servicers’ data on loan modifications are made public. Current estimates are that 2.7 million U.S. homeowners are at least two months behind on their mortgage payments but that only 230,000 had been offered trial modification under the guidelines of the administration’s Making Home Affordable plan through June.
In response to a recent article published in their newspapers, McClatchy's Washington Bureau received calls and e-mails from borrowers across the nation. Interviews with homeowners that contacted the paper resulted in the emergence of a common theme between them; that almost all said that they were told that to get their mortgages modified they would have to miss mortgage payments. After following those instructions the promised modifications were never granted. The ensuing hardships experienced by four of those borrowers were detailed in a recent story.
1) Helen Rudinsky bought property in Washington D.C in June 2004 as housing prices were reaching their peak. To get into a home she otherwise could not have afforded, she took out an interest only mortgage which was presented as a risk free option due to ever rising housing prices. The birth of an autistic child and an interest rate increase which raised her payment by $1,000 stretched her finances to the point where she would not be able to keep up. She called Wells Fargo to check on her mortgage options and was told that the only way to have her loan become eligible for a modification would to be to start missing payments. Having never missed a payment and carrying a credit score of 770. She followed those instructions and then, by her own account, “I got behind, and then it spiraled out of control." She was assigned a negotiator but would ultimately end up speaking to over fifty different people from Wells Fargo with no results. Despite being told in May that she had been approved for “…a program with interest payments potentially as low as 2 percent” and assured that she was in process, she found out that her home had been scheduled for sale at auction. She narrowly averted the sale by liquidating a retirement account but within days Wells was calling again to get her to make her account current. Her summation, “It’s so absurd. It feels like a Third World country. I can’t believe this is happening in the United States.”
2) Cynthia Steigner had a similar experience with IndyMac when she was told they couldn’t help her until she fell four months behind on payments. She did just that but after receiving no help from IndyMac, she filed for bankruptcy. After the bankruptcy proceeding was completed she was contacted by OneWest Bank, which had received IndyMac’s mortgage assets, to open a second discussion regarding the modification of her loan. On May 6th OneWest agreed to modify her loan, saving Cynthia about $500 per month. She sent two months of payments to OneWest but because the bank certified draft didn’t say “cashier’s check” she was ultimately told that the modification offer had expired. Her home was submitted for auction shortly afterward. Her attorney and an inquiry from McClatchy Newspapers got the auction submission postponed but it could still go to auction. "They gave me the loan modification, and then they reneged on it, and now my house is going to auction. And it puts me through the ringer," Steigner said. "It's the daily chase: What do I have to do to get them to hear me?"
3) Phil Stubblefield never intended on getting involved in a loan modification but ended up there anyway went his daughters inherited his ex-wife’s house after she died. With both girls in school with limited income, Stubblefield went directly to Bank of America to inquire about modifying the mortgage for his daughters. Bank of America told him that they would not be able to help until the loan went into default. After following the bank’s instructions, he followed up on the modification request but was told instead to sell the house. While there has been no movement from Bank of America, Stubblefield continues to hear that the lenders are doing everything they can to avoid foreclosure. "It comes off to me that it's just window dressing and speech that doesn't translate to anything," he said. "No action."
4) Frank X got the same advice from Wachovia after his monthly mortgage jumped from $1,800 to over $2,900. At the same time the income from the Wall Street jobs that he and his wife had was being cut by over 50% due to a slow economy and the birth of their son. Following the advice, the couple was eventually offered a modification which lowered payments for three months but would be followed by a balloon payment. They declined the offer and Wachovia keeps telling them that a new program is soon to arrive. The problem is that the new program keeps getting pushed back to the following month. "I've been promised and promised and promised. I've robbed Peter to pay Paul, and we're still in this situation," Frank said. "If what their own representative told me (last year) was true, they would have already done something for me."
One of the factors motivating the servicers to tell each of these homeowners to miss payments could be that the servicers make a lot more money on a mortgage once it goes delinquent due to the extra charges they can put on their borrowers. Another issue is that investors behind the mortgages are wary of assisting homeowners that are current on payments fearing that anyone seeking lower payments will apply for a loan modification. The other common factor in all these stories is that the homeowners tried to get their loans modified without assistance. Many of the issues experienced by these homeowners could have been avoided by retaining an attorney familiar with the laws and regulations surrounding loan modifications. If you are contemplating a loan modification, getting it right the first time around can save time, money, and possibly your home. With the stakes that high, why go it alone?
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