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A Closer Look at the State of Mortgage Modifications

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By Kathleen Lynn

RISMEDIA, August 19, 2010—(MCT)—After her husband lost his tech job in 2008, Lisa Eidner of Mahwah, N.J., asked the family’s mortgage servicer to lower their monthly payments. The company agreed to a temporary cut, but sent the family on a frustrating, 15-month journey — and then turned them down for permanent help.

“We’re really in a hardship situation. We’ve been this way since 2008, trying to survive,” said Eidner, who works in marketing and is the mother of four children, three of them triplets.

The Eidners are among the thousands of American homeowners who have been frustrated by delays and poor communication in the federal loan modification program, which was established as a way to help overwhelmed borrowers devastated by the housing bust.

The $75 billion Home Affordable Modification Program, or HAMP, has resulted in the permanent modification of more than 389,000 loans, saving homeowners a median of more than $500 a month. But many observers say it hasn’t lived up to early hopes that it could help 3 million to 4 million distressed homeowners. About 520,000 homeowners who were in trial modifications have been unable to qualify for permanent loan workouts.

The kind of delays described by Lisa Eidner are “extremely widespread,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending

“Homeowners have had trouble getting a decision on their situations,” Gordon said. “Unfortunately, homeowners don’t have an easy way to make their loan servicers do their job.

“People have accused the servicing industry of deliberately slowing this down; others suggest that this is more a competence and capacity problem,” Gordon said. In either case, she said, the federal government has not been very effective in forcing servicers to act.

“It’s a huge problem that is preventing our economy from getting back on its feet,” she said. “We have to solve it.”

In defense of lenders and mortgage servicers, the Mortgage Bankers Association said that the nature of the foreclosure problem has shifted, making loan modifications more difficult.

“Where the original problem was based heavily in subprime loans, where borrowers could not afford upward-adjusting payments, the main problems that borrowers face today are related to the economy and the lack of jobs,” said MBA spokesman John Mechem. “It is much harder to find a sustainable, long-term solution for a borrower who has lost their job and has no income, or a significantly reduced income.”

The Eidners fall into that category. Richard Eidner, a technology professional, got another job after his job loss in 2008, but was recently laid off again. The first layoff cut the family’s income by more than half and pushed them into a “downward financial spiral,” Lisa Eidner said. Richard and Lisa are now without health insurance, though the children are covered through a state plan. At times, they have worried about having enough food.

“We were pushed to the edge, and still are on the edge,” Lisa Eidner said.

Trying to get their mortgage modified, Lisa Eidner said she called her servicer, Houston-based Litton Loan Servicing, at least 47 times over 15 months. She repeatedly faxed and mailed financial documents, such as pay stubs and bank statements. The company gave the family a temporary loan modification, then told the Eidners that they would be approved for a permanent workout plan developed by Litton.

But in February, Litton told the couple they were instead being considered under the federal HAMP program. Eidner followed up with about 10 calls; at that point, Litton told her to submit all the documents again. A few months later, the Eidners were told to submit paperwork yet again, which they did.

Through it all, Eidner said, the company rarely reached out to her to tell her where she stood.

That lack of communication is a common complaint, according to Andrew Jakabovics, associate director for housing and economics at the Center for American Progress, a think tank in Washington.

“You send your stuff in, and you have no idea where in the process you happen to be,” said Jakabovics. “There’s no understanding (by servicers) of borrowers’ mindset — their panic and fear.”

Finally, in June, six months after they were told they would be approved for a loan workout, the Eidners were told that they were being denied. The reason given: They hadn’t submitted the required paperwork on time. When Eidner protested that they had submitted everything that was requested, Litton then told her they were being denied because they had too much debt, Eidner said.

“They just kind of throw you deeper and deeper into this loop,” Eidner said. “Is there anyone out there who can help? Anyone who realizes what’s going on?”

Litton declined to comment on the Eidners’ case, citing privacy laws, but defended the company’s record.

“In the 12 months prior to the announcement of the Home Affordable Modification Program, Litton modified more than 44,000 loans, representing about 10 percent of our loan portfolio,” said spokeswoman Blair Matocha. “Since the announcement of HAMP in early 2009, Litton has offered more than 87,000 trial modifications.”

Donna Lubinsky of Ridgewood, N.J., is as frustrated as Lisa Eidner. When her marriage broke up in 2009, she knew she couldn’t carry the mortgage on her Cape Cod house by herself, so she asked her lender to modify the mortgage to make it more affordable.

Though the lender told her to expect a decision within 45 days, a year has gone by without a permanent answer.

Lubinsky, a preschool teacher, has gotten at least a dozen letters and phone calls from the lender, often asking for the same documents, such as tax returns and bank statements, over and over. Lubinsky said she has sent all the paperwork.

So far, all she’s gotten in return is a temporary modification that has sliced $100 off her monthly mortgage payment since last spring. But Lubinsky figures the lender would have to reduce the monthly payment by about $500 a month to bring it down to 31 percent of her income, the target set by the loan modification program.

“If I could knock $500 off my monthly mortgage, it gives me a little wriggle room,” Lubinsky said.

Lubinsky considered selling her house instead of seeking the loan modification. But she wants her 16-year-old daughter to finish high school in Ridgewood’s well-regarded school system. In addition, she said, her monthly housing payments would actually be higher if she had to rent a two-bedroom apartment in Ridgewood, which she figures would run around $2,000 a month.

But the loan modification process ended up lowering her credit score — a side effect she says no one warned her about.

The mortgage bankers group acknowledges that even a temporary loan modification can affect a borrower’s credit record.

“Any time a borrower does not make their full monthly payment under their mortgage contract, their credit is impacted,” said Mechem, the association’s spokesman.

Gordon, with the Center for Responsible Lending, has a few ideas to improve the HAMP program. For one thing, she said, homeowners should be able to see the financial tests that lenders run to decide between modifying or foreclosing on a mortgage. The tests could be placed on an Internet portal, to allow homeowners to plug in the numbers themselves to get an idea where they stand, she said.

In addition, Gordon said, there should be an independent appeals process for homeowners who are denied modifications.

Finally, Gordon thinks bankruptcy judges should be allowed to modify mortgages, as they can modify other debt.

Jakobovics, with the Center for American Progress, said floundering homeowners should be helped not only for their own sake, but because their problems seep into their neighborhoods.

“If your neighbor goes into foreclosure and his house sells at fire-sale prices, the value of your own house comes into question,” he said. “The spillover effect of foreclosure is quite significant and can last quite a long time.”

(c) 2010, North Jersey Media Group Inc.

Distributed by McClatchy-Tribune Information Services.

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