WASHINGTON — In the nearly four months since Treasury Secretary Henry Paulson challenged mortgage lenders to modify distressed home loans voluntarily to ease record numbers of foreclosures, it remains difficult to gauge the program's success.
McClatchy followed several homeowners as they worked with — and sometimes battled — lenders and loan collectors during the mortgage modification process, called Hope Now.
These homeowners got their loan problems fixed, either temporarily or permanently, but the process was arduous and varied. Some got stays from foreclosure, while others merely saw the threat pushed into the future. For many, the total values of their loans didn't drop and remained larger than the current values of their homes.
"You have to fight for your house. If you are in my situation, you have to be persistent and do everything you can imagine," said Chris Jennings, a homeowner in Shasta Lake, Calif., a sleepy town not far from the Oregon border.
An antiques dealer without a fixed income, Jennings had refinanced his home two years ago with an adjustable-rate loan that was about to tick up on Feb. 15, adding $440 to his monthly payment. He'd assumed, like many other Americans, that he'd be able to refinance again when the time came for rates to change. His house was appraised at $225,000 in 2005, but nearby foreclosed properties now sell for $191,000 or less.
Jennings reached out in December to Litton Loan Servicing, a Houston company that collects his mortgage payments for holders of mortgage bonds. Banks rarely keep home loans on their books, instead selling them into a secondary market where they're pooled and sold as mortgage bonds. Loan servicers collect mortgage payments, which then serve as the return on investment in mortgage bonds.
Litton told Jennings he didn't qualify for a modification, even though he mentioned the Hope Now effort that had been launched Dec. 6, just days before his call.
Less than two weeks later, he tried again and was told that he'd be considered. He then waited for weeks as his Feb. 15 deadline moved closer. Already struggling to make his regular mortgage payments, he pulled cash from his credit cards and borrowed from friends to stay current on his loan.
Litton alternately told him that a modification looked probable, then improbable. The turning point came, Jennings said, when he threatened to hand over the keys to his home. Soon afterward, Litton gave him a 30-year, fixed-rate mortgage at 7.1 percent. The new loan knocked $200 off his monthly payment.
"It certainly wasn't for my benefit. They researched it well enough to know that if they'd foreclosed it, it would sit for a year or two with no income coming in," Jennings said.
He agreed to allow McClatchy to follow his negotiations, and Litton was told that a reporter was covering his case.
Donna Marie Jendritza, Litton's public relations manager, said that the industry initially struggled "to turn a big ship" because of the massive increase in requests for help from borrowers.
To cope, Litton increased its staffing for loss mitigation, the industry term for loan modification, by 150 percent last year, she said. The company services more than 340,000 home loans and now is modifying about 3,000 loans a month, she added, most of them involving permanent changes to the loans.
Those permanent modifications are important, but hard to verify.
Among the chief complaints about Hope Now is a lack of transparent data. Even Federal Reserve Chairman Ben Bernanke has said that he can't get reliable data on loan modifications.
At the time of its creation, Hope Now sought to modify up to 1.2 million adjustable-rate mortgages issued to sub-prime borrowers, those with the weakest credit. In a statement March 3 on its Web site, operated by mortgage-industry players, Hope Now said that more than 1 million homeowners had received loan workouts since last July.
That just muddied the waters. It included a period well before Hope Now began, and didn't distinguish among one-month payment deferrals, temporary freezes on adjustable rates and modifications into fixed-rate loans.
"The big question is how many real loan modifications are happening, and I don't think they know," said Kurt Eggert, a professor at the Chapman University School of Law in Orange, Calif., and a member of a Federal Reserve consumer advisory board. "How can you say you are on top of the problem if you don't know how broadly the 'best solution' is being applied?"
McClatchy also closely followed another borrower, in this case without revealing to the lender that a reporter was watching.
Julie Mickley and her husband bought their home 12 years ago in Tracy, Calif., and refinanced two years ago at the urging of a mortgage broker, who they wrongly assumed had a duty to serve them and not the lender.
Interest-only loans have low initial rates, and during that period the payments go toward interest, not principal. In Mickley's case, a higher rate kicked in after 24 months, along with a first payment of principal. Together that added $1,200 to her payments.
Mickley, 48, said the broker never fully explained that the loan's rate would adjust, and she acknowledged that she didn't read the complicated contract closely enough. New federal proposals expected to pass later this year would force clearer disclosure of payment increases at the time that a loan is agreed to.
Interest-only loans usually are for borrowers who don't plan on living in areas long and can count on home prices to keep appreciating.
Unfortunately for Mickley, she was planning to stay and home prices plunged. She was upside down on her loan, owing about $120,000 more than her house was worth.
To make matters worse, the required uptick in her monthly payments was substantial. When she paid only the interest on the loan, her monthly payment was $2,800. After the first adjustment, when the rate rose from 6.5 percent to 8.5 percent and principal was included, her payment jumped to $4,011. In March, the loan terms were to change again and her monthly payment would have been $4,354.
"It's a double whammy. Not only can you not refinance and get yourself straight . . . but you're stuck with an adjustable-rate mortgage," said Mickley, a manager for a telecommunications firm.
For months, she battled loan servicer EMC Mortgage, owned by investment bank Bear Stearns. When she began calling about a loan modification last fall, unable to refinance, she was treated rudely, she said, sometimes left on hold for hours at a time.
Mickley was asked to document all her expenses, then was told that she could afford her mortgage because she still had $250 left every month after all expenses.
"When you take into consideration where we live, $250, anything from a vet visit to a birthday party (would eat that up) . . . it would basically make us a prisoner in our home," she said.
Mickley grew so angry that she sent a certified letter of complaint to the chief financial officer of Bear Stearns. Around Christmastime, just after Hope Now began, she got a call back and was told that her loan rate would be frozen at the starter rate of 6.5 percent for five years.
Even then, she was instructed to skip her January payment, which technically made her a delinquent borrower. She could never talk to the same person twice, and constantly had to start conversations from scratch.
"It actually put us into a spot where we looked at the house and said, 'Is it worth it,' because of what they were putting us through," Mickley said. She added that it took until late January before her temporary fix was finalized. "They handled all of the paperwork poorly, but by the time we got to the official documents, I was too beat up to argue."
EMC Mortgage declined to discuss her case, citing privacy restrictions.
In a statement, Renu Aldrich, a spokesman for parent company Bear Stearns, said, "Modifications can take as little as a few weeks to process, but more often it takes additional time to work through the issues and the legal constraints. We are pleased that we have helped this borrower reach a realistic resolution satisfactory to all involved."
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