FreeDIYkits Loan Modification Blog

The Obama administration is facing increasing pressure from lawmakers and housing advocates to retool its troubled mortgage relief program a year after its debut as the housing crisis continues to deepen and spreads to more creditworthy borrowers.

The $75 billion program pays lenders to modify the mortgages of troubled borrowers, typically lowering their payments by about $500 a month.

But so far, fewer than 200,000 borrowers have received a permanent change to their loans, according to Treasury Department data released Wednesday, a small fraction of the 3 to 4 million borrowers who government regulators initially said the program could help before it expires in 2012. That may not bode well for efforts to stabilize the housing market. Credit Suisse has estimated that 3.2 million foreclosures would have to be prevented this year for home prices to rise modestly.

“Clearly the numbers that were discussed by the administration set up an expectation that just don’t deal with the reality we’re in,” said John Courson, president of the Mortgage Bankers Association.

Administration officials have acknowledged that the program, known as Making Home Affordable, got off to a slow start and has yet to reach its full potential. Many lenders didn’t begin enrolling borrowers until last summer, months after the program was launched. By then, the primary cause of foreclosures had shifted from the risky mortgages that helped spur the financial crisis to rising unemployment. The latter is tougher to address because jobless borrowers often have little money with which to pay any type of home loan.

Through January, nearly a million borrowers had gotten at least some reduction in their mortgage payments as part of the program, but more than three-quarters have yet to win a permanent modification and must still prove they qualify, according to Treasury data. The program “is doing the job it was designed to do, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said in a statement. “Struggling families are receiving payment relief and the housing market is showing signs of stabilization.”

The Mortgage Bankers Association proposed a forbearance program Wednesday aimed at helping the unemployed pay their mortgages for up to nine months.

Under the proposal, loan servicers would reduce eligible borrowers’ monthly payments to no more than 31% of their household income for up to nine months. Unlike a modification, however, the arrears would be tacked onto the end of the mortgage.

As part of the proposal, the association has asked the Treasury Department to provide loans to some servicers to cover payments to the mortgages’ investors. Treasury officials, who met with the group last week, have not made yet a determination, a spokeswoman said.

The trade group’s goal is to address the growing number of people who are falling behind on their mortgages because they’ve lost their jobs.

“Borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job,” said John Courson, the association’s chief executive.

Once borrowers find new employment, they will be considered for a long-term modification under the Obama administration’s foreclosure prevention program.

Most consumer advocates, however, do not think forbearance plans are an answer to the foreclosure crisis. Most delinquent borrowers need more help than just a temporary reduction of their payments.

Also, it’s unlikely that borrowers will find new jobs in nine months in this tough economy, said Kathleen Engel, a law professor at Suffolk University in Boston who specializes in foreclosures. She said the program would need to last at least two to three years to be effective.

Many homeowners are finding themselves with an underwater mortgage and are having trouble meeting their mortgage payments on a home with a value less than what the homeowner owes. This obviously causes frustration for homeowners seeing as how no one wants to owe more on a home than it’s worth.

However, despite homeowners who are walking away from their underwater mortgage, many are just looking for help in their monthly mortgage payment. Homeowners feel that the value of their home is bound to rise again, so if they could just make their home mortgage payment more affordable at the present time the underwater status of their home wouldn’t be so bad.

The trouble with having an underwater mortgage is there are few refinancing options as banks are unwilling to refinance a home whose value is less than what is owed in the original mortgage. Refinancing may be an option for a select few homeowners with an underwater mortgage in certain circumstances, but most homeowners will need to look into a home loan modification.

Under new law banks compelled to work with homeowners in trouble and create California loan nodification Agreements. The California Foreclosure Prevention Act states that banks have to try and modifiy loan before foreclosure.

“Finally there is good news for California homeowners and help them avoid foreclosure. The new
The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90-days between the time a homeowner defaults on a loan and when banks can initiate foreclosure proceedings,” states Art Franklin, V.P. AboutCaliforniaLoanModification.com.

AboutCaliforniaLoanModification.com attorneys help homeowner obtain loan modification agreements. These agreements make monthly mortgage payments more affordable.

Assemblyman Ted Lieu, D-Torrance, who wrote the bill states “The goal is to compel banks to do systematic California loan modifications that will reduce the foreclosure rate. California has the highest foreclosure rate in the nation. Until we slow that down, the state’s economy cannot recover.”

They gathered to say goodbye at the bucolic Redwood City retreat Mrs. Bagnarol had created — a compound of three homes cascading down a steep hillside where she raised chickens. Some of her children and grandchildren live on the grounds.

But that night an unwanted visitor arrived: a process server delivered papers that ordered Mrs. Bagnarol and her family to get out. The bank had foreclosed on their property, and they were all being evicted.

Emotions exploded. Not now, the family cursed. A sheriff’s deputy was called to keep the peace. Mrs. Bagnarol died a day later.

But the unfortunate timing of the official visit was not the only source of the anger. More troubling were the financial deals that led to the visit — and the decision by lenders to sign Mrs. Bagnarol up for one exotic mortgage after another.

“It’s definitely elder abuse,” said Carolina Bagnarol, her daughter. “There’s predatory lending here.”

Ms. Bagnarol has filed a lawsuit against a lengthy list of lenders she said took advantage of her mother. The loans plunged her mother deeper into debt with each mortgage payment, to the point of financial ruin. The lawsuit contends that Mrs. Bagnarol was pursued and persuaded — twice over — to take out ultimately disastrous loans on the family’s property.

In recent years, 70 percent of the elderly have been solicited to take out new mortgages, according to a survey by AARP.

“Older people seem to be targeted in part because they own their houses and have owned them for a long time and have equity in their houses,” said Jean Constantine-Davis, senior lawyer for the AARP Foundation.

Mrs. Bagnarol was in her late 70s and suffered from the onset of dementia when she signed the loans, family members said.

“This is one of the most egregious cases I’ve ever seen,” said Michael Rooney, the San Francisco lawyer representing the family in the lawsuit. “The terms were so horrible — negative amortization and adjustable rate — no one would believe this loan was good for her.”

Do borrowers taking part in the Obama administration’s mortgage modification program deserve a black mark on their credit records?

Lenders use special codes to let credit bureaus know what customers are borrowing and whether they’re paying on time. When the loan modification program, which lowers mortgage payments for homeowners who are behind in their payments or in danger of imminent default, was announced in February, lenders used an existing code, called AC, to signal that borrowers were participating in the program.

The problem for those borrowers, however, was the fact that the AC code signals that a consumer has made only a partial payment. That often had a significant impact on the scores of borrowers with good credit who had made all of their payments on time. A Treasury Department spokeswoman estimated that their scores could fall from 30 to 100 points, depending on other information in their credit file .

Why use an old code? The AC code was the closest fit, so the Consumer Data Industry Association recommended using it until it could develop a new one.

One Bank of America executive, for instance, confirmed in this recent New York Times article, that it reported borrowers who made timely payments before and after agreeing to loan modifications as making only partial payments. Presumably, the bank used the AC code, which damaged the credit of many borrowers.

TAMPA – Attorneys and others are scrambling to become mediators following Monday’s Supreme Court order requiring foreclosure mediation for some troubled homeowners.

“There’s a lot of interest in this program,” said Rod Petrey, president of the Tallahassee-based Collins Center for Public Policy, a nonprofit group that trains mediators and assigns them to cases. “We have a roster of hundreds of mediators, and they’re all hungry for more work.”

Chief Justice Peggy Quince issued the order to help handle Florida’s glut of foreclosures. With an estimated 465,000 cases clogging the court system, mediation may help resolve some cases early in the process.

The order applies to new foreclosure lawsuits and requires that homeowners of primary residences be given the opportunity to have their case go to mediation with a third-party. The goal is to work something out between the homeowner and the lender in order to avoid foreclosure.

Choosing a mediator will be up to a judge, although the borrower and lender can request one. Judges typically work with nonprofits, such as the Collins Center, to assign mediators to cases.

Losing one’s home to foreclosure can be one of the worst experiences anyone can go through.

Emotions run high, including anger. In some cases, that anger can lead troubled homeowners to do drastic things.

In the case of one home recently foreclosed by a bank, it appeared “debtor rage” took over the homeowner, one North Texas realtor said. The home, which the realtor has since listed, was “trashed.” Large gaping holes in the wall can be seen throughout the house.

“They’re mad at the bank so they take it out on the house,” said George Roddy, of the Addison based Foreclosure Listing Service.
From the outside, the house looks attractive, but inside it’s another story. Most of the walls have gaping holes, as though someone took a sledgehammer or kicked in the walls. Roddy said interior damage can be a common sight after foreclosures.
“There is a lot of pent up emotion in this process,” he said. “It’s a terrible, terrible process to go through to have your home taken away.”

Americans’ mortgage woes continued to get worse in the third quarter. Just 87.2% of U.S. mortgages were current in the third quarter, a decrease of 1.5% from the previous quarter, according to the OCC and OTS Mortgage Metrics Report released Monday. The Office of the Comptroller of the Currency and the Office of Thrift Supervision report covers 34 million loans totaling $6 trillion in principal balances, about 65% of the U.S. mortgage market.

Serious delinquencies jumped to 6.2% of mortgage-servicing portfolios, an increase of 16.7% from the previous quarter. The number of prime borrowers in trouble continues to mount as 3.6% of prime mortgages were more than two months behind on payments, more than double the number in default a year ago.

Foreclosures in process reached 3.2%, an increase of 9.4%, with more than 1 million foreclosures in process.

Loan Modification Efforts Improving

Yet on the bright side, more people are getting help with home loan modifications. National banks and thrifts implemented more than 680,000 home loan modifications and payment plans in the third quarter of 2009. That’s up 67% from the second quarter, so it appears lenders have finally gotten their act together to help people in trouble with their mortgages.

HOPE NOW announced Thursday the initial launch of its HOPE LoanPort, a new web portal that will give HUD-approved housing counseling agencies the ability to submit completed Home Affordable Modification Program (HAMP) applications for borrowers facing foreclosure. The nationwide launch of the HOPE LoanPort is expected in early 2010.

“This is the highway system that will help more people get HAMP modifications, more quickly. It is a neutral and accessible site that will provide real-time aggregate reporting and status updates,” said Faith Schwartz, HOPE NOW executive director. “While we will initially roll it out with certified housing counselors, our goal in the upcoming year is take it directly to consumers.”

The intention of the new HOPE LoanPort is to streamline the HAMP application process by leveraging HUD counseling agencies that provide free services to at-risk borrowers. Housing counselors in nine key markets will assist troubled homeowners in collecting all required documents for a loan modification under the Making Home Affordable program.