By Stephanie Armour, USA TODAY
The Obama administration’s $75 billion program to reduce foreclosures has been beset by backlogs and delays, leading many overstretched homeowners to complain about unreturned phone calls and inaccurate information from lenders, while others say they were denied help for reasons that weren’t clear.
Details of the plan were unveiled in early March. The goal is to prevent up to 4 million foreclosures by having banks modify loans into more affordable monthly payments.
Since its debut, the plan has led to offers of more than 190,000 mortgage modifications with lower monthly payments, according to the Treasury Department. During that time, lenders either have started or advanced foreclosure proceedings against more than 1 million homes, according to RealtyTrac. About 20% of those were foreclosed upon and repossessed. The Center for Responsible Lending says 2.4 million Americans are at risk of foreclosure in 2009, and 8.1 million could be over the next four years.
Homeowners who apply for mortgage modifications are finding that banks typically are taking 45 to 60 days to respond to inquiries, according to a report this month by NeighborWorks America, a provider of foreclosure-prevention counseling.
Some homeowners who applied for mortgage modifications five months ago still have no answer on whether they will be able to arrange smaller monthly payments, leaving them uncertain whether they’ll keep their homes or lose them shortly.
“Some lenders may not be turning (homeowners) down right away because it might be politically easier to push them off and delay,” says Joel Naroff at Naroff Economic Advisors. “No one will admit they’re doing this.”
Naroff also says banks today are dealing with even more demand for mortgages, including refinancings, than during the peak of the housing bubble in 2006, and the backlog is likely to get worse as more homeowners lose their jobs. Mortgage delinquencies have been growing in areas where unemployment has been rising fast, and even homeowners who successfully get modified mortgages could face trouble later if their incomes or home values fall.
Lenders say they’re doing the best they can with a tsunami of requests, but some industry officials say delays are hampering efforts to revive the housing market.
“The loan-modification program is suffering. What we’re doing right now isn’t working as expected,” says Richard A. Smith, CEO of Realogy, the parent company of Century 21, Coldwell Banker, Sotheby’s International Realty and ERA. “The delays are horrible. Banks, unfortunately, just weren’t geared up for this.”
This month, Sen. Jack Reed, D-R.I., and 14 other senators wrote a letter to Housing and Urban Development (HUD) Secretary Shaun Donovan and called for a new strategy to get lenders to respond to homeowners faster.
“Of particular concern are homeowners who have been instructed by HUD-approved counselors to contact their (loan) servicers only to be rebuffed or, worse, never even reach their servicer,” it said.
Robin and Craig Doyle of Woodland Hills, Calif., have been trying to get a loan modification through their lender, JPMorgan Chase, since February.
Robin, who does freelance writing from home, said she initially was told to send a letter describing her hardship, paycheck stubs, tax returns and other information.
She assembled a 200-page file and sent it along. A month later, she was told she had to redo the information because the file she’d sent had become outdated.
Another time, Robin says, she was told her file had been mistakenly closed altogether. On another occasion, she was told the request couldn’t be processed because she hadn’t included information about a homeowner association fee, even though her family doesn’t belong to such an association.
“I’ve had to resend it four times,” says Robin, 35. “It’s making me sick. It’s been five months. I’ve spent hours and hours on this and sleepless nights. It’s foremost on my mind. I look at my beautiful home and wonder if I’ll have it next month.”
The Doyles pay $5,031 a month on a mortgage of $947,000. They have an interest-only loan at a 6.3% rate that will reset in about seven years. On interest-only loans, borrowers pay only interest for a specific period to temporarily reduce the payments. After that, they pay interest and principal.
Craig, a writer in the television and movie industry, is still finding work but not as much as before. This is the first month the family has failed to make its mortgage payment.
“I feel like Obama’s plan has done absolutely nothing,” says Craig, 38.
Jennifer Zuccarelli, a Chase spokeswoman, says there were miscommunications in the Doyles’ case, and the bank is working to resolve the situation. It also has added about 950 loan counselors the past six months.
“We’re hiring hundreds more every month,” Zuccarelli says.
After USA TODAY contacted Chase for comment, the Doyles say the bank told them the next week to resubmit their application. They later were told they don’t qualify for the Obama plan because their loan amount is too high.
Bonuses for mortgage collectors
Other major lenders say they are beefing up staffing to process modification requests. Some say it has taken time because details of the Obama administration’s plan weren’t outlined until March.
Under the plan, if the borrower’s monthly payment is reduced by 6% or more but not below a 31% mortgage-debt-to-income ratio, the servicer can receive success payments of up to $1,000 for three years, provided the borrower stays current.
Once a three-month trial period is complete and loan documents are signed, the servicer is entitled to a one-time $1,000 incentive payment and the investor receives a $1,500 check.
The investor incentive is important because the program is targeted mainly at hard-to-modify loans in certain mortgage-backed securities.
Loan modifications can help borrowers by reducing mortgage principal, the interest rate or the term of the loan. The government also has set aside money to help up to 5 million families refinance into safer long-term mortgages from risky kinds of adjustable mortgages whose payments could soar to unaffordable levels.
Those who don’t qualify for either refinancing help or loan modifications under the government’s program are counseled on other alternatives to foreclosure, such as short sales where lenders agree to a home’s sale for less than the mortgage balance.
Bank of America reports that it modified about 232,000 mortgages last year. During the first four months of this year, it has completed about 157,000 modifications — all before the Obama housing rescue plan went into effect.
To settle claims brought by attorneys general in 11 states, Bank of America last year agreed to modify loans for homeowners holding riskier loans that often balloon into larger monthly payments later. The claims involved mortgages that originated with Countrywide Financial, which Bank of America took over in 2008.
Bank of America expects to begin processing applications from homeowners who are current with their mortgage within a few weeks.
Treasury Department officials say 16 mortgage servicers — the companies that collect homeowners’ monthly payments — have signed up to participate in the program. They say they are aware of servicer delays.
“Treasury continues to pursue strategies to help servicers reach more borrowers faster. Given the fragile state of housing markets, we will need to continue to do more to ensure loan modifications are occurring at scale under our program,” says Meg Reilly, a Treasury spokeswoman.
Lenders say they need to take time to review each application so that the modifications are meaningful. Some economists also warn that rushing approvals could result in modifications that only delay foreclosures rather than prevent them.
‘I don’t know who to trust’
Some applicants who were turned down say they don’t understand why.
Judy Lederman, 49, of Scarsdale, N.Y., a freelance writer after losing her full-time job in public relations a year ago, says she tried to get a modification with Chase about three months ago. She has an interest-only loan at 5.25% that resets in one year. How high it will rise depends on interest rates then.
She says Chase denied her request a few weeks ago because she has an adjustable-rate mortgage, but other borrowers with ARMs are getting modifications under the Obama plan.
“They kept me on hold and waiting for months. I bent over backwards to get them what they needed, but it was like no one was home,” Lederman says. “I really don’t know what else to do. I don’t know who to trust.”
The day after USA TODAY called Chase for comment, Lederman says the bank called her. She says the representative told her she was turned down because of missing information and that new forms to apply for a modification were being expedited to her home. “There was some miscommunication, but we have reconnected with the borrowers and are working on finding solutions for them,” Zuccarelli says regarding the complaints about Chase.
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