Is Obama's Mortgage Rescue Program Working?; Miscommunication, Mistrust Plague Modifications

By Gallagher, Jim | St Louis Post-Dispatch (MO), May 19, 2013 | Go to article overview

Is Obama's Mortgage Rescue Program Working?; Miscommunication, Mistrust Plague Modifications


Gallagher, Jim, St Louis Post-Dispatch (MO)


Rose Bess was falling behind on her mortgage payments after her marriage broke up in 2011.

"We had just separated, and I started sliding," she said.

So, she was delighted to get a call from Bank of America, which was servicing her mortgage.

The bank suggested she apply for a mortgage modification a lowered interest rate and a monthly payment she could afford.

"I thought, 'This is a prayer from God,'" Bess said. "I was all for it."

Then began an odyssey that isn't over yet. It's a tale of misunderstanding, miscommunication and frustration all around. She's still facing possible foreclosure, and she's not alone.

Since taking office in 2009, President Barack Obama has been pressing banks to cut monthly payments for troubled homeowners when possible, rather than foreclose.

The effort was rocky from the beginning. The administration says 1.6 million homeowners have had their payments cut under the program, including 9,000 in Missouri and 48,000 in Illinois. But a recent report from the Special Inspector General says up to half of modifications fail, leaving homeowners facing foreclosure again.

The main vehicle is the Home Affordable Modification Program, called HAMP, a voluntary program in which most major banks participate. The government has spent $4.3 billion on the program so far.

HAMP is designed for people who have jobs or other income, but no longer have enough to make full mortgage payments. Banks are supposed to calculate a monthly payment a borrower can afford, equaling at most 42 percent of a person's income.

The bank then calculates how much the lender would collect by foreclosing on the house and selling it. If the lender would lose less money by modifying which is usually the case it's supposed to cut the homeowner a break.

The government chips in to get the banks to go along. Uncle Sam pays up to $1,600 upfront to the mortgage servicer. The government also pays the bank some of its missed interest if it will bring the monthly payment below 38 percent of the borrower's income.

Bess lives on the same block of Virginia Avenue where she grew up. "My mom and dad raised six kids on this block. I know everybody here," she says.

The block in St. Louis was hit hard by the Great Recession. Two abandoned houses, one of them burned out, sit across the street from Bess' modest two-story home. Other houses range from well-kept to tumble-down.

"The block she lives on has been devastated by foreclosures," said Alderman Christine Ingrassia, who represents Bess' Tower Grove East neighborhood. More foreclosures mean more empty houses, and a neighborhood at risk.

Bess supports herself by taking care of children in her home while their parents work. That creates an obvious problem. "If I lose my house, I lose my job," she says.

It also creates a problem with modifying the mortgage. She doesn't have a paycheck stub to show Bank of America, making it harder to verify her income.

Although Bess was separated from her husband, she wasn't divorced, and that sparked the first round of confusion. He signed a quit claim deed, giving up his claim on the house.

At one point, she was told the quit claim was enough. At another, she said Bank of America wanted a divorce decree. Then the quit claim was enough again, but it hadn't been recorded with the city. "I went downtown and got a stamp and said it's a recorded deed."

The bank said it was missing paperwork that Bess said she sent in a common complaint among people seeking modifications. As the process dragged on, old financial documents had to be updated.

OVERWHELMED

Such confusion has dogged the system since the housing bubble burst in 2007 and the Great Recession began erasing jobs. In the early years, chaos and conflicting motives in the mortgage servicing business frustrated homeowners. The servicing system was overwhelmed by the rush of foreclosures. Homeowners seeking help complained that banks lost their paperwork repeatedly, gave conflicting information, offered modifications one day and sent foreclosure notices the next. …

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