Loan modification programs not cutting it - East Valley Tribune: News

Loan modification programs not cutting it

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Posted: Saturday, February 13, 2010 6:26 pm | Updated: 3:57 am, Sat Oct 8, 2011.

Justin and Krystle Albrant have watched helplessly as their monthly mortgage payment climbed steadily toward being unaffordable.

Mortgage too much? Join the crowd, walk away

Justin and Krystle Albrant have watched helplessly as their monthly mortgage payment climbed steadily toward being unaffordable.

Mortgage too much? Join the crowd, walk away

When purchasing their east Mesa home nearly four years ago, Justin Albrant said he rushed into signing a loan agreement that ended up allowing both the monthly payment and balance to escalate over time, and the monthly payment already has increased from about $1,100 to $1,450. The original lender is now out of the picture and the loan servicer is Wachovia, a Wells Fargo company.

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Loan modifications

“When the mortgage reaches $1,600, I have no choice,” he said. “It could be next month or it could be in six months. This is my dream home and I don’t want to walk away. It’s not something I can do and just shrug it off. It would make me very upset.”

Wells Fargo’s executive office plans to review the Albrants’ mortgage, said Jason Menke, Wells Fargo Home & Consumer Finance Group spokesman.

A year ago this week, President Barack Obama was at Dobson High School in Mesa to announce federal initiatives to help distressed homeowners and reduce foreclosures, including the Home Affordable Modification Program (HAMP). Albrant hoped the program would help him but was told he isn’t qualified for a modification.

“I don’t qualify under their specifications, which means I haven’t had a hardship like losing my job or stuff like that,” he said. “The hardship I have, and it is a hardship, is my monthly payment gets bigger ... it’s an unsustainable loan and I’m going to lose my home if they don’t do anything.”

The modification program Obama announced has been widely criticized for not helping enough homeowners avoid foreclosure. The program did pick up steam in the fourth quarter as the number of servicers agreeing to modify loans under it rose sharply, as did the volume of active trial and permanent modifications, according to the U.S. Department of the Treasury’s loan servicer performance report.

“Treasury is committed to working with servicers and borrowers to sustain this improved pace,” Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office, said in a statement.

“I think there’s been progress,” said Dan Huss, president-elect of the Arizona Association of Mortgage Brokers. “I think you’d probably say the government statistics maybe don’t bear that out, but I think that’s more of a bearing of there was just so many loans done for people who absolutely could not afford it in the first place and so you can’t even get them qualified (for a Home Affordable Modification) versus banks just not wanting to keep people from foreclosure.”

Kevin Hardin, director of the Mortgage Mediation Group at Valley-based law firm Thomson Conant, said the modification program is simply a failure.

“There isn’t anything working,” he said. “Out of several million eligible homeowners ... they only finalized 66,465 modifications,” Hardin said, adding the growth rate of foreclosures in 2009 continued to far exceed modifications.

Of that 66,000-odd permanent modifications, 3,453 were in the Valley. About 41,000 single-family homes were foreclosed on in 2009 in Maricopa County, beating 2008’s previous high of 34,960, according to the W.P. Carey School of Business at Arizona State University.


Gradual progress

Treasury Department statistics for 2009 show permanent modifications under the federal program — 66,465 with another 46,056 pending — are far outnumbered by the more than 3.35 million homeowners who are estimated to be eligible and are at least 60 days delinquent on their mortgage.

However, individual lenders are claiming success in helping thousands of distressed homeowners obtain workable modifications.

Wells Fargo Home Mortgage reported 8,424 permanent modifications and 110,284 active trials, or pending, modifications that have not been finalized.

In addition, Wells Fargo reported about 350,000 modifications outside of the federal program.

Wells Fargo Home Mortgage did not have statistics for Arizona.

The goal of the federal program is to make the homeowner’s monthly mortgage payment more affordable by reducing it to no more than 31 percent of their monthly income, said Tom Goyda, Wells Fargo Home Mortgage vice president of communications.

“You start with reducing the interest rate and you can reduce the interest rate to as low as 2 percent,” he said. “You can take a 30-year loan and make it into an up to 40-year loan so that the payments are spread out over a longer period of time, and then there is a principal set-aside ... that happens in about 25 percent of the modifications.”

In a principal set-aside, a portion of the principal doesn’t accrue any interest, and therefore the monthly payment is not calculated using that amount, Goyda said. That amount then comes due either when the loan is paid off or the home is sold, he said.

“The federal program is a complicated process and obviously it’s daunting for a customer who is struggling to make their mortgage payments to get into the program and meet the requirements,” Goyda said.

Most of Wells Fargo’s modifications are through its own programs because many homeowners aren’t eligible for the federal program, he said.

“There are customers whose mortgage payment may already be 30 percent of their monthly income and they don’t qualify for HAMP, but we help them with their overall affordability by lowering their mortgage payment,” he said.

Genworth Financial reported 3,629 mortgage “workouts” last year, including 905 in Arizona. Of the 905, only 153, or 17 percent, were part of the federal program. There rest were other modifications, short-sales, repayment plans and deed-in-lieu, in which the homeowner turns over the deed to the servicer instead of letting the home go to foreclosure.

“We’re working across the industry to implement programs ... that will help struggling homeowners in the Pacific region to make it through these difficult financial times,” said Alan Goldberg, director of strategic loss initiatives for Genworth’s U.S. mortgage insurance business.

Principal problem

Hardin, the mortgage mediation expert, represents distressed homeowners who either are unable to continue paying their mortgages or they have mortgages that are more than their homes are worth. Rarely are any clients able to get a loan modification, he said.

“They’ve tried to get one and all the government programs have failed them,” he said. “A reasonable person starts to say ‘obviously the government is talking, but really doesn’t want to help homeowners. They’re just trying to squeeze every payment out of the homeowner they can before default occurs.’”

The real solution to the foreclosure crisis is home equity fractional interest, which basically involves reducing the principal of the mortgage, Hardin said. This would keep people from walking away because they would continue to have a vested interest and a future in the home, he said.

“The homeowner can trade out that principal with their lender for a share of the home’s appreciation over time,” he said. “You could say ‘Mr. Lender, if you will restructure my mortgage based on what my home is worth today, I’ll make the payments and in exchange for doing that ... I will share the appreciation of my home from now and into the future until I either pay it off, refinance the house or sell it.’”

Few lenders have been willing to consider a principal reduction, and it’s an area where the government could help, Hardin said.

Huss, of the mortgage brokers association, said principal reduction may help more homeowners stay in their homes, but it could be a hard sell.

“Four years ago when you owed $300,000 and the house was supposedly worth $600,000, had the bank come to you and said ‘OK, let’s split this equity, let’s make your note now $450,000 and we get some of that equity’, people would have said, of course, ‘no way,’” he said. “And in the future when properties appreciate, these same people who are saying they want banks to write down the principal balances are going to be saying ‘look at all this equity I have in the house’, and if the bank came and said, ‘let us have a piece of that equity’, they never would.” 

Loan modifications

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