The Wall Street Journal on Loan Modification Aid – Worse Off?

May 18, 2010: The Wall Street Journal published the article.

The title: “Loan Aid Leaves Some Worse Off”

The subtitle: One in Four in Government’s Mortgage Program Is Dropped; Tales of Exhausted Savings

The article was lengthy and primarily about a woman in Phoenix, yet my picture loomed large on page three of the print edition. I kept reading the article to see when my situation would be addressed, only to find myself relegated to the last three paragraphs. The picture was larger than the area allocated to text. I turned the page in hopes of seeing more and was met with an almost full-page advertisement from Chase touting the ways Chase was helping struggling homeowners. Had the editors of the Wall Street Journal caved in the face of the almighty dollar? I hoped not, but how could one really know?

The article read as follows:

The government’s mortgage-modification program has left some struggling homeowners worse off than they were before.

The Treasury reported Monday that nearly one in four homeowners who were offered lower payments under the Obama administration’s 15-month-old effort have been weeded out of the program. Many people were removed from the trials because they failed to make payments, didn’t provide all the financial documents needed to qualify or were found to be ineligible.

Homeowners are first offered trial modifications under the program, which provides incentive payments to loan servicers, investors and the homeowners. If borrowers make the payments and satisfy other criteria, those trials are made permanent, ensuring a cut in payments for five years.

While awaiting answers, some borrowers keep making payments, exhausting their savings in what may be a futile effort to save their homes. They also incur fees from the banks and delay taking action that might give them a fresh start in a more affordable home.

Some borrowers had unrealistic expectations about loan-relief programs, which were never designed to prevent all foreclosures. Another big problem is that banks often take six to 12 months to determine whether applicants are eligible.

“I had to learn the hard way and deplete my savings doing it,” said Mia Parry, a manager at a mortgage brokerage in Scottsdale, Ariz., who has spent nearly two years seeking a loan modification. She now wishes she had put her home on the market.

Most struggling borrowers do benefit from seeking help, said Aaron Horvath, a senior vice president at Springboard Inc., a nonprofit counseling service based in Riverside, Calif.

Some win modifications, cutting monthly payments by hundreds of dollars. Others who ultimately can’t get modifications at least are allowed to stay in their homes for months, making either no payments or reduced payments.

But “if you’re draining your savings” in a vain effort to hang onto a home, he said, you may end up worse off.

Eager for quick results, the Obama administration last year prodded banks to start people on trials without first obtaining documents proving they were eligible. That has led to many crushed hopes. The Treasury earlier this year changed its rules and told banks to start trials only after getting documents that proved borrowers qualified.

The Treasury said in a monthly report on the government’s $50 billion Home Affordable Modification Program, or HAMP, that about 1.2 million trial modifications had been started under the plan, and about 281,000 borrowers had washed out by the end of April.

Only about 30% of borrowers who seek help from the main foreclosure-prevention counseling program at Neighborhood Housing Services of South Florida end up with modifications, said LeeAnn Robinson, chief operating officer of the Miami-based nonprofit. Many borrowers don’t have enough income to support even reduced loan payments; others give up before completing the paperwork.

On average, it takes seven months to resolve a borrower’s situation, up from four months a year ago, Ms. Robinson said. Banks and other loan servicers can’t keep up with the demand for help, she said.

Ms. Parry bought a home in Phoenix in 2005 for $535,000, but she believes it now would sell for around $250,000. She has been seeking a modification from a unit of Citigroup Inc., the servicer of her two mortgage loans, since June 2008.

Ms. Parry’s application was turned down in late 2008, but President Obama’s announcement of HAMP in February 2009 rekindled her hopes. Ms. Parry decided to keep making payments on her loans because she expected to qualify for this new program.

Citigroup started her on a HAMP trial in June 2009, and she made three payments. Then Citigroup told her there had been a mistake and she would need to go through another three-month trial.

At the end of that second trial, Ms. Parry said, Citigroup told her the investor that owned her first mortgage wasn’t participating in HAMP, so she couldn’t get a modification under that plan. During her trial period, Citigroup charged her more than $1,300 of “late charges” and “delinquency expenses,” she said.

Ms. Parry said Citigroup should have been able to determine that the investor wasn’t participating before she went through the trial. Citigroup recently offered her another type of modification that she said fell short of the HAMP formula and wouldn’t lower her costs enough to make keeping the home worthwhile. Unless Citigroup improves the offer, she will try to sell the home.

A Citigroup spokesman said: “We have worked diligently with the borrower and the investor in an effort to find a solution that meets both the borrower’s needs and the investor’s requirements.”

The Treasury said in a monthly report on the government’s $50 billion Home Affordable Modification Program, or HAMP, that about 1.2 million trial modifications had been started under the plan, and about 281,000 borrowers had washed out by the end of April.

Only about 30% of borrowers who seek help from the main foreclosure-prevention counseling program at Neighborhood Housing Services of South Florida end up with modifications, said LeeAnn Robinson, chief operating officer of the Miami-based nonprofit. Many borrowers don’t have enough income to support even reduced loan payments; others give up before completing the paperwork.

On average, it takes seven months to resolve a borrower’s situation, up from four months a year ago, Ms. Robinson said. Banks and other loan servicers can’t keep up with the demand for help, she said.

Ms. Parry bought a home in Phoenix in 2005 for $535,000, but she believes it now would sell for around $250,000. She has been seeking a modification from a unit of Citigroup Inc., the servicer of her two mortgage loans, since June 2008.

Ms. Parry’s application was turned down in late 2008, but President Obama’s announcement of HAMP in February 2009 rekindled her hopes. Ms. Parry decided to keep making payments on her loans because she expected to qualify for this new program.

Citigroup started her on a HAMP trial in June 2009, and she made three payments. Then Citigroup told her there had been a mistake and she would need to go through another three-month trial.

At the end of that second trial, Ms. Parry said, Citigroup told her the investor that owned her first mortgage wasn’t participating in HAMP, so she couldn’t get a modification under that plan. During her trial period, Citigroup charged her more than $1,300 of “late charges” and “delinquency expenses,” she said.

Ms. Parry said Citigroup should have been able to determine that the investor wasn’t participating before she went through the trial. Citigroup recently offered her another type of modification that she said fell short of the HAMP formula and wouldn’t lower her costs enough to make keeping the home worthwhile. Unless Citigroup improves the offer, she will try to sell the home.

A Citigroup spokesman said: “We have worked diligently with the borrower and the investor in an effort to find a solution that meets both the borrower’s needs and the investor’s requirements.”

Martha Wright stands on her back deck Thursday, May 13, 2010 in Avalon, New Jersey.(Stephen Chernin for The Wall Street Journal)

Martha Wright stands on her back deck Thursday, May 13, 2010 in Avalon, New Jersey.(Stephen Chernin for The Wall Street Journal)

Martha Wright, a marketing executive whose income has dropped in recent years, has been trying since February 2009 to work out a deal with J.P. Morgan Chase & Co., the bank that services the $1.1 million mortgage on her Avalon, N.J. home.

The bank denied her request last summer, but Ms. Wright said she kept trying because the responses from the bank were unclear and inconsistent, and she believed she still might qualify. Meanwhile, she said, by continuing to make payments, she cut her nonretirement savings to about $500 from $63,000 in early 2009.

A spokesman for J.P. Morgan said the bank told Ms. Wright on three occasions that she didn’t qualify for a modification. “Modifying the loan would produce less value to the loan’s owner than foreclosing,” he said.

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The Wall Street Journal seeks clarification on Chase Loan Modification Answers

May 14, 2020: Two days elapsed before Chase came back to the Wall Street Journal reporter with a revised comment on my situation. In the face of the evidence I provided, Chase had little choice but to modify their intentionally misleading answer.

Per the reporter:

“Below is Chase’s latest statement re your loan. Please let me know your thoughts. Thanks. 

Chase: We modified the homeowners’ mortgage in 2008, reducing the interest rate to 6% and locking in until 2013.  The homeowner applied for another modification in 2009.  

In the summer of 2009, in March of 2010, and in May of 2010, we notified the homeowner that she did not qualify for a second modification.  We determined that modifying the loan would produce less value to the loan’s owner than foreclosing, using analysis based on the Treasury’s model.  There also a question about whether it was her primary residence.”

My hair was on fire over this misleading representation of how I’d been strung along and flat-out lied to for over thirteen months. I wanted to run screaming to the reporter but I composed myself. The Wall Street Journal was a conservative publication and the reporter had an obligation to be objective and hear all sides. I was absolutely livid but I composed a measured response:

Thank you for giving me the opportunity to respond. Regarding the statement: We modified the homeowners’ mortgage in 2008, reducing the interest rate to 6% and locking in until 2013. The Loan originated as a sub-prime pick & pay with Washington Mutual on 2/26/06. Over the next eighteen months I received countless marketing solicitations offering to “modify” my loan to a fixed rate; they all seemed to focus on me paying WaMu some lump sum in order to “fix” my interest rate.

By mid to late 2007 I actually understood my loan and the concept of “negative amortization”. I started paying the full mortgage amount each month (the principal and interest) and even made some headway on reducing the negative amortization. Once I focused on the mortgage it was evident that when the loan adjusted, the interest rate was going to jump and the full amount would increase exponentially.

The Washington Mutual solicitations continued and with each “offer” the lump sum amount to “fix” the interest rate kept dropping. By January 2008 I could see that interest rates were going up and I feared the interest rate reset. In February 2008 I folded and paid Washington Mutual $995.00 for the privilege of locking into a 5/1 LIBOR Interest Only ARM at 6.62%.

To call this streamline refinance which I paid for the privilege of getting a “modification” is disingenuous at best; my “mortgage modification” consisted of nothing more than a five-year fixed rate interest only loan with a new higher (not lower) payment. The interest rate was not reduced, indeed, it increased.

Regarding the statement: The homeowner applied for another modification in 2009. This is correct; I initiated a modification request on 2/24/09 and was denied on 8/25/09 because: “Your property equity exceeds our program guidelines.”

Regarding the statement: In the summer of 2009, in March of 2010, and in May of 2010, we notified the homeowner that she did not qualify for a second modification. We determined that modifying the loan would produce less value to the loan’s owner than foreclosing, using analysis based on the Treasury’s model. I stand by my original comments: That is not correct. I have two written letters from Chase, which I have shared with you.

To reiterate: The first denial, dated August 25, 2009, states in one sentence: “Your property equity exceeds our program guidelines.” There is no reference to the Treasury’s model as a reason for denial; nor is there reference to a residency issue. The way Chase has worded this new response is disingenuous at best.  

The second written communication dated March 5, 2010 states “We are unable to offer you a Home Affordable Modification because we are unable to verify that you do live in the property as your primary residence”. There is no reference to the Treasury’s model as a reason for denial; regarding the residency issue, Chase has three years of Federal Income tax returns at the address (I can provide five years worth) & five years of voting records. Chase confirmed my residency was not an issue and reopened the case (which is why they kept working on it and allegedly generated another denial in May 2010).

Regarding: the May 2010 denial Chase references. As previously noted, I have received no written communication of this and know only from a call I placed yesterday (5/13/10) that, per Rafael in Loss Mitigation at Chase, the modification was denied on 5/4/10. It is again disingenuous at best to state Chase notified the homeowner, as, without your intercession, I would STILL have no knowledge of this denial; I waited again for the mailman today before responding and there is nothing from Chase.

Regarding the statement: We determined that modifying the loan would produce less value to the loan’s owner than foreclosing, using analysis based on the Treasury’s model. This has not been communicated to the homeowner in writing at any time. I am aware of this ONLY through your email asking for a comment on Chase’s initial response and subsequently through the above referenced Springboard conference call of 5/13/10. Also, I am not certain but I believe the Treasury’s model applies to HAMP modifications, and was we know, I have never qualified for a HAMP modification.  

Finally, I stand by my statement submitted 5/14/10: The opaque banking procedures practiced by Chase do not help the homeowner, they help only the investors. 

If I knew back in February 2009, or even August 2009, what I know today — that the investors behind my loan find it more profitable to foreclose (negative net present value) than to work with me on a modification — I could have made an informed decision. I would have taken the hit and drained my IRA to bring the loan down to a smaller amount and refinanced while my credit record was excellent. At this point, my savings are depleted and my credit record is distressed; even if I reduce the loan amount, no lender will refinance.

 

Can the Wall Street Journal get Chase loan modification answers?

May 10, 2010: A reporter from the Wall Street Journal responded to a copy of my letter to Mr. David Lowman, CEO Chase Home Lending. He wanted to know if I’d heard back from Mr. Lowman and I told him I had not. It had been thirteen business days since confirmed USPS Certified Mail delivery (April 21, 2010) of my letter to Mr. David Lowman regarding his testimony before the House Committee on Financial Services and I’d planned to place a follow-up call later in the day.

With that we spoke about a story the Wall Street Journal was developing about people who were worse off after having applied for a loan modification. I knew that simply applying for a modification resulted in a ding on your credit record and as we spoke it became clear I was much worse off having waited for almost 15 months with no definitive and actionable response from Chase on a loan modification.

I had drained my savings, damaged my credit rating and spent countless hours chasing answers about how I might work something out with Chase to revise the terms of the mortgage. I knew I did not qualify for a HAMP modification but I also knew Chase had an in-house modification program; everything in life is negotiable if you can meet face to face with a decision-maker. I wondered if the Wall Street Journal might be able to get answers when I could not, and decided I had little to lose by participating in the article.

Chase loan modification denial?!

April 30, 2010, 10:00 am: Olga Danilova called from the Chase Home Lending Executive Office. She’d been out of the office for two days and was calling to tell me I’d been denied for a loan modification. According to Olga, I could afford the monthly mortgage payment and I “did not qualify”. I asked her to repeat herself as this just could not be true. She said that based on the documents I’d submitted, I could afford this mortgage.

I said what she was telling me simply could not be right; there was some kind of mistake. I went on to say that the documents I’d submitted clearly showed my W-2 take home pay was a thousand dollars a month less than my mortgage payment plus insurance and taxes. What on earth was she talking about?

Olga paused, re-read the file and blithely said, “Oh yes, I see that. I meant to say you’ve been denied because you can’t afford to pay this loan.” No kidding! I said of course I couldn’t afford to pay the loan as structured, that’s why I’d sought a modification. Olga replied, “Well you don’t meet our requirements for any program.” I said I knew I didn’t qualify for any HAMP government program; I was pursuing the Chase in-house program. Olga reiterated that I did not meet the criteria so I asked her what exactly the criterion was. Olga said, “It has to be 31%”. I was so darn mad I forgot to ask 31% of what, or to point out that if Chase reduced the interest rate to 2%, it would be 31% of my gross pay and I could pay the loan. My hair was on fire and I couldn’t see straight.

I said if you knew that, why didn’t you just tell me back in February 2009 or in December 2009? Olga retorted by pointing out I’d also been denied on 3/5/10 and I rebutted. I told her Chase had alleged they were unable to prove residency; that had been resolved and on 3/8/10 the case had been reopened. Olga’s reply: “Oh yes, I see that. Well, you were denied two days ago because you can’t afford the loan. You need to sell your house.”

I could see that Olga really didn’t know what she was talking about and apparently didn’t know how to read the file, so how valid was this communication? I asked her if I would get a denial letter, something in writing explaining exactly why I’d been denied. She said she wasn’t sure, “probably”. I asked how long it would take to get a letter and she said “a couple of weeks”. I got the feeling she was just making up the answers and said that a “couple of weeks” was not acceptable. Could she fax something? No. E-mail? No. I then asked why I’d been on the phone at six o’clock the night before for over an hour giving a financial interview. Olga wanted to know who I spoke with and I said Natalia Carrillo and Bailey; she then asked if they were with Chase!

(This had to be a parallel universe). I said of course they were with Chase, where else would they be from but she didn’t seem to care. Olga said, “Well, you were denied two days ago. Maybe they didn’t check the system.”

I had a feeling about who might or might not be checking the system and I was not going to let Olga off the hook without a fight. I said I needed a letter and I did not consider this modification denied without something in writing. Olga said the letters come from Loss Mitigation but the Chase Home Lending Executive Office sends them. She went on to say she would be out of the country for two weeks. I said that really would not do, I needed something to acknowledge we even had this conversation. I convinced Olga to send me an e-mail telling me that I would get a letter. It wasn’t much but it was all I could get her to commit.

Chase Home Ownership Centers are not decision makers!

April 20, 2010, 11:25 am: I asked Jason Papa what the function of a Chase Home Ownership Center was and if I should drive there for a face to face meeting. He said “anybody active we can’t take”; we “originate and monitor applications” and “we are not decision makers at the Chase Home Ownership Center”; he went on to say they were a “contact point” for the consumer. He remembered my loan and requested permission to pull the file. I agreed and we talked about the situation.

I wanted clarification on “too much equity” and the 30% formula Jacqueline Ham from the Chase Home Lending Executive Office had provided on February 12, 2010. Jason said if my monthly mortgage payment was less than 31% of my monthly gross pay I would not qualify for HAMP. I reminded him my loan did not qualify for HAMP regardless, but I was asking about the equity formula, not the relationship between monthly mortgage payment and monthly salary. I also made it clear my monthly mortgage payment was far greater than 31% of my monthly gross salary. Jason was stuck on HAMP and referenced the $727,750.00 cap. (I didn’t bother to point out that in Cape May County, NJ the cut-off was $487,500.) I jumped in and said it was not about HAMP. I was asking about the Chase in-house program – I thought Chase had another program, an in-house program that he’d mentioned in our January 5, 2010 call.

Jason said I’d been denied (in August 2009) but I could always “apply again if my situation changes”. I said my situation had changed; my savings were depleted and I was pursuing the 12/11/09 loan modification application allegedly underway. I said an interior appraisal had been done on 4/1/10. Only then did Jason realize what I was talking about and he said he could not help me. I persevered and asked about a face-to-face meeting with a decision-maker; Jason said “no one meets with the decision-makers” (Nobody gets in to see the Wizard, not nobody, no how!) and the decision-makers “don’t write a lot of letters”; “they only send one when the decision is made”.

Based on my attempts to get a copy of the denial letter allegedly sent 6/30/09 and/or 8/25/09 for my 2/24/09 modification, I knew this was true. Chase put as little as possible in writing, thus continuing the opaque banking practices and predatory lending schemes devised by Washington Mutual.  I thanked Jason for his time and we ended the call.

Chasing Help With My Chase Loan Modification

December 11, 2009, 11:00 am: I called Congressman Frank LoBiondo’s Mays Landing, NJ offices and spoke with Joan about my situation. Could the Congressman help? Joan suggested I write a letter and gave me some numbers for credit counseling and related assistance. Two of the numbers led right back to the HAMP site so I called the Consumer Credit and Budget Counseling in Marmora, NJ and left a voice mail. A Mr. Izzy C. would call me back.

Making Homes Affordable

In December 2009 a senior residential loan officer at a local bank spent an hour with me. He told me right from the get-go his bank was not going to loan me a penny, then he looked at the magazine article and the book and my assets and really listened. He said it would be unethical of him to grant me a loan; I could never pay it. I had to get out from under this and move on. He went on to say he had on his desk four conforming loans for people who were well-qualified and had more assets on hand than the amounts they wished to borrow but even those loans were stuck, sitting with the OCC awaiting approval, and that if he was having a hard time getting these loans approved, my non-conforming loan didn’t have a prayer. He told me my only option was HAMP. He said he’d had to turn down a local policeman who’d been laid off and was collecting unemployment; that man was ultimately able to obtain a loan modification at a 2% interest for a forty-year term. I listened, thanked him for taking the time to speak with me and vowed to myself that if I was ever again in a position to do business with a bank, his small local bank would be first on the list.

I went home to look at the website http://www.makinghomeaffordable.gov/modification_eligibility.html and saw the $ cap of $729,750. Okay, a reach, but maybe this could work. Yes, I owed more than $729,750.00 but I could drain my retirement savings and bring the loan amount due down to hit that number. I’d be penniless but it was still worth doing if I could get a loan modification. I called my investment adviser and told him to tee up for liquidating my retirement savings and then I called back his sharp mortgage broker friend and laid out my plans. He listened carefully and asked where the $729,750. 00 number was coming from. I told him it was on the makinghomeaffordable.gov web site. He informed me that HAMP qualifying numbers are location-based and vary by county; the Cape May County, NJ maximum $ amount was $487,500.00. I could liquidate my retirement savings and my assets and still not bring the loan balance down enough to hit that number. HAMP was not going to work for me.