Loan Mod Program Delays Even Worse for Those Struggling Not to Fall
Behind
by
Paul
Kiel, ProPublica - December 21, 2009
Since last spring, when President Barack Obama announced his
administration’s plan to prevent foreclosures, there’s been a crush of
homeowners seeking help from mortgage servicers. Confusion and delays
have plagued
the entire program [1], but the
problems have been particularly acute for homeowners seeking a
modification before they begin falling behind on their mortgage
payments. Some homeowners, like Regan Sciesinski of Florida, have
been waiting as long as nine months with no relief. The Sciesinskis
seem to be a prime candidate for a modification through the program. His
wife, Stacy, was found to have breast cancer in late 2007, and in the
past year, a combination of medical costs and reduced income have made
their mortgage payments unaffordable for the couple, who have three
children. Their home, in a suburb of Tampa, has also dropped about 25
percent in value since they bought it in 2006. Like millions
of other homeowners [2],
they’re underwater, stuck with mortgages worth more than the property.
Sciesinski says he first submitted his information to his servicer, Chase
Home Finance [4], in March. He’s
still waiting. Sciesinski says he and his wife have drained their
retirement savings and accepted help from other family members to stay
current. “We take our obligation seriously,” he says, but now they’re
facing default and need the modification “because having to move would
completely devastate us.”
The program was designed to help such
homeowners: Borrowers who because of a hardship (a drop in income or
jump in expenses) can no longer pay their mortgages. Homeowners who are
still current on their payments are eligible, but the Treasury
Department requires that servicers screen such borrowers more
thoroughly, to prevent homeowners who don’t really need a modification
from receiving one.
But those higher standards have contributed
to the problems borrowers frequently
experience [5] with the servicers.
As a result, many deserving homeowners aren’t getting help. Diane
Thompson of the National Consumer Law Center said Treasury could help
alleviate the problems by providing clear guidance to servicers on how
they should screen out ineligible homeowners.
The overall
mortgage mod program involves special incentives to encourage servicers
and lenders to modify mortgages before homeowners default. It works by
giving incentive payments to both the servicer and the owner of the loan
(the lender or investors) to modify the mortgage; they can both receive
bonus payments for modifying a loan that is current.
Yet since
the beginning of the program, the servicers have been slow to modify
on-time loans. In the early months, most of the major servicers,
overwhelmed by homeowner requests, gave priority
to the modification applications of delinquent borrowers [6]. Not only were those more urgent cases,
but they were easier for the servicers to modify: Under Treasury
guidelines, servicers can skip verifying income and can instead
immediately start trial modifications for borrowers who are more than 60
days behind on their mortgages.
In the past few months, most
servicers have been having serious
problems [7] converting those trial
modifications to permanent ones, primarily because of difficulty
obtaining or processing the necessary documents. (As
we’ve written [5], the servicers’
claims that borrowers are largely to blame for the trouble should be
viewed skeptically.). But borrowers who are current on their loans but
seeking a modification run into that document burden up front, and it
has frequently prevented them from getting even to the three-month trial
stage.
To screen such homeowners, servicers are required to
evaluate the borrower’s total financial condition (income, costs, liquid
assets, etc.). As a result, servicers have been requesting
documentation from homeowners that can run into the hundreds of pages.
Still, despite the additional hurdles, some borrowers who
are not behind on their loans have won modifications. For those and
others among the 750,000
borrowers [7] who’ve received trial
modifications, the help has been meaningful. Borrowers have been saving
an average of $550 per month through the modifications, according
to Treasury [8].
Putting a
precise number on how many trial modifications have gone to borrowers
who are still current on their loans is impossible, because the Treasury
Department has not released statistics showing what sort of borrowers
are winning modifications. Tom Kelly, a spokesman for JPMorgan Chase,
said the bank could not offer such a breakdown. The Treasury did not
respond to our requests for comment.
Getting servicers to help
homeowners who have not fallen behind remains a major problem, housing
advocates say, though there have been slight improvements. It was common
during
the summer [9] for servicers to
incorrectly tell homeowners that on-time borrowers weren’t eligible for
the program. Thompson of the National Consumer Law Center said she hears
fewer such complaints now, but says homeowners are still often told
they’d have an easier time winning a modification if they defaulted.
Liz Caton, director of counseling services at Northwest Side Housing
Center in Chicago, said she has represented homeowners who have
received attention from servicers only after defaulting. “It’s
unfortunate for homeowners who are in good faith trying to do the right
thing, that servicers cannot act in the same good faith and verify
hardship when there’s real hardship going on,” she said.
It’s not
just struggling homeowners who suffer when they can’t get a mod before
falling far behind. The financial institution or investors that own the
loan lose out, too. “The evidence is clear that modifications given to
on-time borrowers perform much better than those given to delinquent
borrowers,” said Alan White, a professor at Valparaiso University School
of Law.
Regan Sciesinski’s frustrations in trying to obtain a
modification are typical. He says Chase has bounced him around from
representative to representative, given him contradictory information,
and told him his case was being “escalated” three times. He says he has
called just about every week, sometimes daily. At the request of Chase,
he’s submitted the same set of documents several times — and was asked
last week to do so again, then told to ignore that request.
Kelly,
the Chase spokesman, said last week the company had not moved “as fast
as we wish” in processing Sciesinski’s application. But he also said
Chase wasn’t entirely blame, as Sciesinski had changed from being
self-employed to working for another company, a change that had required
extra documents. Chase didn’t receive the “final documents with the new
income” until October, he said, and the company expected to make a
final decision “in the next two weeks.”
Sciesinski says that’s
not the case. He’s had the same job, as an auditor, for a couple of
years, he says, and he submitted his complete paperwork back in August
and even received a compliment from a Chase employee on the completeness
of his submission.
Sciesinski says that if he’d known the
process would drag on for so long, “we would have taken our chances and
let the house go,” salvaging the extra money to help with his wife’s
health costs. Now with no financial cushion, he says the stress, and
uncertainty of the last nine months “has already permanently damaged our
family.”
