The Farce of Home Loan Modifications

Editor’s Note: The simple truth is this is a ruse. For most people they are under water at the beginning, in the middle and at the end. For most people they will not be able to maintain the payments and they will either fail or refuse to do so. Treasury is kidding itself if it thinks the American public will pay forever on artificially high debt that will take three generations to pay off. This program is merely an opportunity for good PR to servicing companies that don’t have the right to foreclose or modify in the first place. Of course the trials will eventually fail because in the end the lenders — i.e., the actual people or companies or investment funds that lent the money, will not accept the loss of a principal reduction without the middlemen contributing to cover that loss. Both the real lenders and the real homeowners were defrauded and deceived in the same way — they both purchased a financial product that was a security but unregulated as such and both were told lies about the quality and value of that security. It is time for the real lenders and the real homeowners to get together and reclaim the property and money that these middlemen have continued to siphon off from the American economy through improper use of the foreclosure process.
October 9, 2009

Treasury Hails Milestone in Home Loan Modifications

For months, troubled homeowners seeking to lower their mortgage payments under a federal plan have complained about bureaucratic bungling, ceaseless frustration and confusion. On Thursday, the Obama administration declared that the $75 billion program is finally providing broad relief after it pressured mortgage companies to move faster to modify more loans.

Five hundred thousand troubled homeowners have had their loan payments lowered on a trial basis under the Making Home Affordable Program, said Treasury Secretary Timothy F. Geithner in a morning telephone briefing with reporters. Mortgage payments are now being lowered faster than homes are being sold in foreclosure proceedings, he added, and roughly 40 percent of the 1.2 million homeowners deemed eligible have been helped.

“That’s an important shift,” Mr. Geithner said. “Half a million families are participating in loan modifications that are substantially decreasing their housing costs.”

But economists said the program was still not big enough to prevent many millions of Americans from losing their homes before the books are closed on the Great Recession and its painful aftermath.

“It’s a help on the margin,” said Mark Zandi, chief economist at Moody’s “But it’s not going to end the foreclosure crisis.”

By Mr. Zandi’s reckoning, from this year to next, more than four million households will surrender homes to foreclosure or through so-called short sales, where the property is sold for less than the bank is owed.

The half-million mortgages that have been adjusted to create lower payments for borrowers have been modified only on a trial basis.

After three months of successfully making new payments — no sure thing — borrowers must then submit additional paperwork to turn the trial terms into a permanent modification, creating more room for bureaucratic stumbles.

Administration officials shed no light on what experts say is a crucial determinant of the ultimate success of the program: They said they did not know how many of the mortgage modifications had actually lowered the loan principal, as opposed to merely stretching out the life of the loan through lower payments.

Experts say homeowners whose principal balances are reduced are much less likely to fall back into delinquency. Reducing the principal is particularly important for those who are underwater, meaning they owe more than their home is worth.

“When people are underwater, they have a much higher re-default rate,” said Diane Thompson, a lawyer for the National Consumer Law Center. “If some subsequent life event happens, if there’s a storm and they need money for repairs, if they lose their job, or they have to move and they need to sell the house, they are absolutely stuck.”

Even as the Obama administration reports progress, many homeowners continue to express deep frustration with the program.

In Hampton, Ga., Maxine Yancy and Michael A. Blaino say they were already approved for a loan modification from their mortgage company, GMAC, only to be informed that their agreement was mysteriously canceled, with the lender still threatening to foreclose on their home.

Far from the free-spending, exuberant borrowers commonly associated with the foreclosure crisis, Ms. Yancy and Mr. Blaino, her son, typify the fastest-growing source of trouble: Those who have fallen into danger because of a lost job.

Ms. Yancy, 73, is a retired schoolteacher whose income is about $2,200 a month — roughly half from Social Security, the rest from a part-time job teaching at a community college. She and her son together bought a three-bedroom ranch six years ago, paying just under $123,000. They have a 30-year fixed-rate mortgage at an interest rate of a little more than 8 percent, requiring payments of $1,089 a month.

The payments were manageable until June 2008, when Mr. Blaino lost his job in the reservations office of a local hotel. When the mother and son heard about the Obama administration’s plan for loan modifications in February, they contacted their lender right away.

When they sent in the paperwork, they were twice told that their file was incomplete. After sending in their paperwork a third time, GMAC responded with a “temporary workout plan” and invited them to pay $785 for the next three months.

Ms. Yancy says she promptly mailed in a check only to have it returned with a letter saying they were delinquent. When she called customer service for an explanation, GMAC explained that a certified check was required, though this condition had not been disclosed.

She sent in a money order for her July payment, then more for August and September. But when Ms. Yancy called GMAC last month to see about the status of their application for a permanent loan modification, she was told that the workout plan had been canceled and their house would soon be sold in foreclosure, she recalled.

Horrified and confused, she pressed for an explanation, and was told that they had failed to pay the agreed-upon lower payment of $1,088.

“That totally doesn’t make sense, because that was our original loan payment,” Ms. Yancy said. “It’s crazy.”

In the last two weeks, she and her son say they have left repeated messages with GMAC seeking a supervisor who can get to the bottom of the matter. “This morning I woke up with hard pain in my chest right where my heart is,” Ms. Yancy said. “I know that this is probably from the stress of dealing with GMAC.”

A GMAC spokeswoman declined to discuss the case, citing its privacy policy, but said generally that the lender has been eagerly processing loan modifications. The office that handles loan modifications has expanded its staff by 30 percent since January, and servicing teams have been working extra hours and on weekends, she said.

According to a report released by Treasury on Thursday, GMAC had modified 26 percent of eligible loans that were at least two months’ delinquent in September, making it one of the better performers. Bank of America, by contrast, had modified only 11 percent of such loans, according to the report.

Some mortgage companies tell customers they cannot modify loans because they merely send out the monthly bills, while the mortgages are actually owned by investors. Yet industry insiders say many mortgage companies can profit by delaying the process and keeping homeowners in long-term delinquency, extracting myriad fees.

Administration officials said they would continue to press mortgage companies for improvements in their handling of applications. On Thursday afternoon, Treasury and the Department of Housing and Urban Development summoned representatives from major mortgage companies to Washington for further discussions.

“We’ve put significant pressure on the servicers to ramp up production,” said Shaun Donovan, secretary of the Department of Housing and Urban Development, in Thursday’s briefing. “We are keeping that pressure on.”

Treasury first announced its foreclosure relief program in February. Under the plan, the government pays mortgage companies $1,000 for each loan they modify, and $1,000 a year for up to three years. The plan was advanced with the promise that it would eventually spare up to four million households from foreclosure. At the end of June, only 143,000 trial modifications had been begun, the Treasury Department now estimates.

In July, frustrated by the slow pace and irritated by homeowner complaints, the Treasury Department summoned major mortgage companies to Washington for what was subsequently described by officials as a dressing down. The mortgage companies promised to improve their staffing and training. The administration soon set a target of 500,000 trial loan modifications by the end of this month, reaching that goal three weeks early.

Still, officials said much work remained. “Unacceptably large numbers of families across the country are still at risk of losing homes,” said Mr. Geithner.

8 Responses

  1. Just been denied a loan mod by Chase because my husband is laid off. Why else would we have applied for one? They encouraged us to do so when he was laid off, and now after all of the paperwork and bull, they denied us. Obama mortgages are a lie and the game was created only to make him appear to be more Super Obama. He didn’t get my vote last time, and he will not get it next time. His PR game is only hurting people who are already hurting.

  2. Here’s a little ditty from “Law 360” Securities Law newsletter:

    “J.P. Morgan Agrees to $480M ARS Buyback

    JPMorgan Chase & Co. has reached a settlement that ends a multi-state investigation of claims that the bank concealed the liquidity risks of investing in the doomed auction rate securities market, agreeing to offer full ARS buybacks to the tune of $480 million.”

    I want to know when Wells Fargo, Citigroup Global Markets, Barclays, Bank of America, and the rest of these crooks will follow suit. It’s coming, folks. It’s coming.

  3. That’s all I want you to do. THINK DIFFERENTLY! Thanks, Deontos

  4. usedkarguy,

    You know I don’t always agree with your posts.
    But you make me THINK DIFFERENT
    sometime. Thank you.

  5. “The Treasury Hails a Milestone???” Little Timmy Geithner, the guy with the unpaid income tax? The Goldman Sachs guy? And how about brother Ben Bernanke? Another Goldman Sachs Alum…These guys should be headed to JAIL! And then the Europeans give OBAMA the Nobel Peace Prize? How did he earn the Peace Prize after 11 days in office (that’s when the balloting closed)?? Did they award it based on his campaign speeches? Certainly not because of any accomplishments–THERE AREN’T ANY ACCOMPLISHMENTS!!!!! I’m telling you, folks, they won’t be happy until we are all standing in unemployment and bread lines!! When the Jokers at Wells Fargo sent me my modification agreement (fix the rate at 8.5% and tack the balance onto a FORTY YEAR MORTGAGE) I just laughed. Then they had the balls to call and said “We’re waiting to get your modification agreement back, did you send it?” I said “Why, no. Why would I? I’m 52 years old. Why would I sign a 40 year mortgage? At 8.5%? Are YOU F_____G GOOFY? ” That’s when the QWR and Demand letters started flying. I’m telling you what I think. Anybody who reads this should STOP PAYING if they have any proof of fraud regarding their mortgage or origination. Now, this is easy for me to say. I have no equity in the house. At the current time, with the underwater amount ($30,000), the plaintiff’s legal bill ($24,000) and the past due payments ($32,000), I am single-handedly trying to send Wells Fargo into receivership!!!! I just can’t figure out why their stock price keeps going up? Just wait until after January 1, 2010. If the banks don’t stop the accounting changes from taking place, BLAMMO! They’re DONE! Yes, the modification is a RUSE! Don’t fall for it! By the way, do not construe this as legal advice.

  6. Andy,

    If you haven’t had a chance yet; Google and read up on what April Charney has done in Florida.

    That might give you some more “points to ponder”.

  7. Buy them off (with a mod, that is).

  8. Mr. Garfield,
    I get the fact that it’s a ruse. To the servicing company, it represents the difference between saving money they think they have on paper, or admitting they have nothing. They will go down fighting, if they don’t win. But I’m in court with a judge who doesn’t think, who doesn’t question the corporate statements, and can’t see through the emperor’s clothes. If I sacrfifice my case against the lender, my house won’t be sold. At what point will it be worthwhile to buy them off? They certainly aren’t going away, even when they know they’re wrong.

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