Getting a Mortgage Modified Today – A Real Life Case Study in Crazy

Most homeowners are well aware that the loan modification process, which began in 2009, with the introduction of the Obama Administration’s Home Affordable Modification Program (HAMP), has been a significant problem for homeowners, in some cases actually causing foreclosures instead of preventing them.

Well, it’s 2015, which by any measure would have to be considered quite some time since the foreclosure crisis and loan modification mess began… so it’s reasonable to wonder what it’s like to try to get a mortgage modified today as compared to what is was like in prior years. 

It would seem to me that it would have to be at least somewhat better than it was back in 2009 – 2010, you couldn’t do something this long and not improve to some degree, but I wanted to be able to report very specifically on how much better its become and what obstacles still remain.  And I also wanted to be able to write about the psychological aspects of today’s loan modification process, or in other words, what it feels like during the months spent awaiting the bank’s decision as the amounts owed are mounting and no payments can be made.

The case I chose to follow for this article came from one the hundreds of homeowners I get to speak with and follow through the process every year, and although I realize that different people react differently to stress and stimuli, I think this couple’s story is about as representative as it gets.

Not an easy decision to make…

First of all, let me tell you that I don’t have any special connections with the servicer in this example.  It’s not like it’s Bank of America or Ocwen, who are both servicers that I know well and work with all the time.  No, this story is about one of the worst of the bunch when it comes to modifying loans.  (It’s among those that were recently restricted by the OCC, as I wrote about here: OCC Clamps Down on 6 Banks for Noncompliance with 2011 Consent Orders.)

I’m sure everyone who has found themselves at the point of applying to have their loan modified knows the sinking feeling that comes with realizing that the bank won’t be accepting any more payments, so you’ll be falling further behind each month that you’re in the approval process… and should, in the end, you be denied… instead of being only a few months behind, you’ll need to come up with a year’s or more worth of payments to prevent your home from being lost to foreclosure.

The day you apply you might owe $25,000 to bring your loan current, but eight months later, you’ll need maybe $50,000 to save your home… after a year, that amount could have grown to $80,000, and it’s not unusual that people find themselves owing $150,000 or more at the point that they find out that they’ve been denied a modification… and by then its become impossible to save their homes. 

As a result, it’s scary to even apply for a loan modification. 

A month or two into the process, the sound of the clock ticking in your head in deafening as you fall further behind.  Four or five months later, it’s so loud that it’s difficult to sleep as you’re forced to face the reality that you won’t be able to catch up if you’re turned down, and therefore may very well lose your home.  Where will you go?  Will you be able to find a home to rent in your neighborhood, or will you have to move away from your friends and the life you’ve known for so many years?  At least that’s what you’ve heard and read about the loan modification process in past years. 

So, what’s it like to apply for a loan modification today?  Exactly how much better is it today?

Well, first of all, I can tell you that when it comes to modifications, all servicers are not created equal… some are better than others.  For example, ask anyone with significant experience with loan modifications and they’ll tell you that Wells Fargo is the worst.  They will also likely tell you that Bank of America or perhaps Ocwen have been the best, generally speaking.

That doesn’t mean, however, that any of the servicers have figured out how to remove the total uncertainty from the loan modification process, so as such, it still feels a bit like doing a high wire act without a net.  Countless homeowners who have gone through the process have told me that they agree… it’s the uncertainty that’s the killer when going through the loan modification process.

Basically, once you apply for a loan modification, you’ll submit your application and other documentation, and then spend months without knowing what the outcome will be, as the servicer continues to ask for whatever else they say they need.  And even when you’ve sent in everything requested, the servicer still won’t be able to tell you whether it’s likely that you’ll ultimately be approved or not.

Contrast that sort of experience with what it’s like to apply for a mortgage in order to refinance or purchase a home. 

In that case, you still have to apply by sending in your application and documentation, but then your banker or broker fairly quickly… like within a couple of weeks… can tell you whether you’ll be approved or not… exactly which documents you need to submit, and they almost never lose them… and even what you’re interest rate and monthly payment are going to be.

When you apply to have that same loan modified, however, after sending in your completed application…

• No one can tell you anything about what’s happening or likely to happen going forward;
• Many times you can’t even reach someone who can’t tell you anything about what’s happening or is likely to happen;
• No one will have any idea about what the modified interest rate or monthly payment might be until the day the modification is approved;
• And, in fact, no one will have any idea whether your going to be approved or not until that fateful day when you are or aren’t.

Approval will be like a bomb dropping without warning… one day… out of nowhere… you’ve been approved.  No one knows why, no one is sure of the terms of your permanent modification, you’re simply told to make trial payments and wait for whatever comes next to happen. 

Banks can make a decision to loan out $300,000 in a few weeks no problem, but to modify the terms under which that money is to be repaid is obviously quite a bit harder… and perhaps to some degree, understandably so.  After all, you are modifying a contract as opposed to initiating a new one.

There can be no reason, however, for a loan mod process that’s a lot like being forced to walk through a FUN HOUSE wearing a blindfold… while the floor buckles and rattles, the walls shake, sirens go off and lights flash… you’re bumping into walls when a huge red boxing glove bops you on the head. so you pull off the blindfold and get water shot in your face. 

And then, without notice… SHAZAM! You’re approved!   (Or, perhaps you’re denied.)

What’s going on here?  Is this some secret process like the one used to elect a new Pope?  You just stand in St. Peter’s Square and wait to see white smoke, if approved… or black smoke if denied.  No one knows what went on during the approval process, those involved must be sworn to secrecy.  It’s as if the final decisions are guarded by a representative from accounting firm, PricewaterhouseCoopers, like the identities of Oscar winners during the Academy Awards.

The loan modification process is so obviously and seriously screwed up that it’s embarrassing for our nation as a whole.  It almost never works the same way twice.  Ask yourself: What other government programs work anything like today’s loan modification process?

• This is a government program, as you might recall… it’s called HAMP. 
• The federal government designed it and oversees it. 
• It has a $37 billion budget, of which only a small percentage has been spent.
• It’s delivered by some of the largest financial institutions on the planet.
• It’s regulated by the U.S. Treasury.
• And yet, even after investigations by federal regulators and the attorneys general from almost 50 states… and multi-billion dollar settlements for misconduct during the loan modification process…
• … after six years… this is how it works.

It’s the Mt. Everest of bureaucratic convolution and incompetence… and its positively awe-inspiring to contemplate.

The Department of Motor Vehicles, that bastion of customer service… where inefficiency and understaffing meet… can test and license a 16 year-old to drive a car on the highway in roughly an hour or two, and keep accurate track of when you need a smog certificate to go along with your registration. 

And I can get drunk while flying across the country, and then, without even talking to another human being, pick up the keys to a $50,000 car full of gas, and drive it wherever I want.  All I need to have is a credit card with a $500 limit.

I don’t hear about people stealing rental cars, or totaling them without insurance.  In fact, I don’t hear anything negative from the car rental industry… ever.  Nor do I hear consumers complain about renting cars. 

That whole process appears to work just fine, even though it would seem that there’s a lot on the line when handing someone you don’t know and have never met, the keys to a Mustang convertible with a five liter V8 that puts out 340 HP, secured by a Visa card on which you couldn’t even charge a set of new tires.  And yet, the whole thing just keeps on ticking 365 days a year.

Of course, admittedly those aren’t government programs… like Social Security, a government agency that manages to keep accurate track to the penny of how much every American should receive in a variety of situations and at specific ages… and then distributes tens of millions of checks on time and for the correct amount every month. 

All they need to handle that incredibly complex process is a nine-digit number.  And remarkably, just your knowing the number is enough… everyone trusts you when you verbally give them the number.

Then there’s Medicare… where they manage to provide funding to cover a huge percentage of medical care costs for almost every American over 65, and contract with almost every doctor in the country, setting what are “reasonable and customary” charges for every procedure under the sun.  And yet, I rarely if ever hear consumers complaining about Medicare.

How does the federal government do it all so well?  And then, with a track record that includes Social Security and Medicare, to say nothing about the capability of the U.S Armed Forces, or even the success of the FHA… to turn the corner and bring the country HAMP and its infamous loan modification process.  Why it’s something to behold, I will say that.

So, how did it go, you ask?  Well, I’ll just provide the highlights and state the facts.  So, you can see exactly what it’s often like when trying to get a loan modified today.

The homeowner’s package was submitted to the servicer in the latter part of September last year.  And predictably, for several months… nothing… with the exception of a few courtesy calls from the servicer’s representative. 

He could never tell the homeowner much of anything, except that the application was moving from stage one to stage two and then to stage three, or something equally as uninformative and meaningless.  What good does it do to tell someone what stage they’re in without telling them how many stages might remain or what’s involved in the various stages.  I don’t know about anyone else, but absent that sort of information, I’d rather simply not know about the stage on any given day.

The servicer’s representative was a lot like a head waiter who seats you at an upscale restaurant.  Always even-toned when he speaks, always flawlessly faking sincerity, never in a hurry, but never on the phone too long.  He was perfect at what he was obviously being paid to do… make the homeowner think that something is going on… that everything looks fine as far as he knows… all without actually committing to anything. 

He called fairly regularly, but never said anything that was actually helpful or specifically knowledgable. 

He asked for another piece of paper here and another one there, no big deal.  And the months passed.  By Christmas, the homeowner wouldn’t have been able to tell you whether anything had been done or not, or whether any significant progress had been made.  There was no clear indication of anything.  And January and February weren’t much different than the prior months. 

Here they had applied in September and five months later it felt the same way it did on day one. 

The homeowners, however, had changed. 

While in the beginning of the loan modification process they reported that they were so stressed about the whole thing that it was difficult to sleep, by Spring of this year, however, they had stopped thinking about it because they had realized something… not making a mortgage payment was cool.  It made life a lot easier.  And it occurred to them that they could probably prolong not having to pay for quite some time if they wanted to do so.

They realized that they could always appeal the decision, should they be turned down for a modification… they could file a provisional bankruptcy, if needed, to stop a sale date… and they supposed that they could also always get a lawyer to file some sort of lawsuit, which would delay having to pay or move out even longer.  And they were saving over $3,000 a month, so the savings were stacking up as the months went by.

Now, in the spirit of full disclosure, this couple owns another home nearby, so they’d have somewhere else to live were they to sell their current home, and their current home is not underwater, so if they were to sell it, there’d be money left over after paying off the existing mortgage.  So, unlike so many others, they had choices beyond just renting if they were to either sell or walk away from their home.

And so, the longer the servicer was taking to reach a decision, the more disconnected they felt from their home and the less stress they were feeling over the whole thing.  In fact, they reported increasingly feeling like they were on equal footing with their servicer, as opposed to in the beginning of the process when they felt like their servicer held all the cards while they held none.

Then, the end came… out of nowhere, they were approved for a HAMP 2 loan modification.  So, yay!  They felt so relieved.  It wasn’t going to end badly after all.  Their payments would be reduced by about $800 a month and they would have a fresh start.

Then a week later everything changed, that is to say, their servicer changed its mind.  Just as suddenly as they had announced the approval of their modification, they now were saying that it was being denied due to some small state tax liens that had been there the entire time. 

Had the bank told then that this would be the case, they could have pushed to remove the liens, but now it was tax season and neither CPAs, nor the state would be likely to move quickly enough to remove the liens in time to satisfy the servicer’s last minute demands.

The servicer had taken eight months to process their loan modification application, and in all that time, had never looked at the title to the property to see if there were any liens that would prevent the modification from being granted.  What in the world could they have been doing all those months that they didn’t have time to check for liens on the title? 

They explained to their servicer that the liens did not impact the bank’s position because…

• Of their small size… because there’s more than enough equity to protect their interests.
• They are not tied to the property as would be the case were the liens for delinquent property taxes.
• The returns were now filed so they were just waiting for the liens to be removed.
• Had they told the couple sooner that this would be a barrier to the loan modification being approved, they could have done something sooner about the liens, but now it would be impossible.
• By starting over it would be another year before they could be approved and by then the arrearages would have increased and approval that much harder.

All told, based on those factors, they requested that the bank approve their trial modification and simply make the permanent modification contingent on the liens being removed, but the bank said that they couldn’t do that… nor could they accept a “subordination of lien,” which would have kept the bank in first position regardless… but that the couple was certainly invited to reapply for the modification.

So, now… here we were, one year after the couple applied for a modification… and they’re back at the beginning… waiting to hear what the people behind the curtain at the bank decide to do about their loan modification.

But now, truth be told, it’s reached the point where they say that they almost don’t care what the bank says.

Don’t get me wrong… I think the bank in question will end up modifying their loan.  They certainly sound like they will.  The bank even called a week ago and suggested they get their re-filed modification application in now, in anticipation of the liens being removed.  And they’ve been quite nice about everything throughout the process.

But, in the end, the couple says that if the bank wants to play around with trivial matters that only exist because of the dreadful inadequacies of the loan modification process, then as far as they’re concerned, they’ll just keep living there free until they decide to sell their home… and thank you for playing. 

All the bank had to do was help fix the problem last year when we were only talking about a few months’ delinquency.  After all, they’ve been living in the home for some 25 years.

So, who knows what will happen… but the question should be, who is making the loan modification process into such a inexplicable mess that’s it’s creating as many problems as it’s solving?

Well, there are only two possible answers to this question: the banks or the government… those are the only two entities involved.  Because clearly, it shouldn’t still be the way it still is.  I don’t think anyone who is informed or knowledgeable could disagree with that.  And meanwhile…

June 17, 2015, by Mortgage Daily staff

HAMP Volume Surges

Total modification volume up 3% in April

Monthly loan modification volume climbed to the highest level in more than a year. Behind the up tick was a surge in the government’s loan modification program.

During the month of April, mortgage servicers successfully completed loan modifications on 44,457 residential loans. Among the total were government-supported and proprietary modifications.

It was the most loan modifications that have been completed by servicers and their service providers since March 2014, when 45,321 loans were modified.

That’s right… it’s not getting better, as many in the media would have you believe… it’s getting worse, again… as its done so many times over the last six years.

It should be clear that it’s not going away any time soon.  The HAMP program sunset date was just extended once again, this time until the end of 2016, which not coincidentally (in my opinion) is right about when we’ll have a new president entering the Oval Office.

Of course, this is a long, long way from the first time I’ve written about the loan modification process, or been at least peripherally involved in helping someone get a loan modified, and it’s not like theirs is a different story in any meaningful way.  More often than not, when homeowners apply for loan modifications the story is frighteningly similar. 

And I guess all I can say is that I would think that in this country, by now, someone in power would realize the impact it’s continuing to have on our economy, and our society… and want to see it change.

 

Mandelman out. 

~~~

P.S. If you’re stuck on the loan-modification-go-round, or need help figuring things out… especially if your dealing with Bank of America or Ocwen… you can email me at mandelman@mac.com.  If I can help… and I often can… I will.