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Homeowners Say Banks Not Following Rules for Loan Modifications

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Posted on Jan 14, 2010
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By Paul Kiel, ProPublica

This article was published previously on ProPublica.

Nathan Reynolds is something of an expert on the government’s foreclosure prevention program. A mortgage broker who’s worked in the Chicago area since 1998, he’s seen both his business and his home’s value plummet in the past few years. After receiving his own trial loan modification from JPMorgan Chase, he’s helped others apply for modifications through the program on his own time.

But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income.

That’s not a legitimate reason for a loan servicer to deny someone’s modification, according to the Treasury Department’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.

Housing advocates say they frequently see homeowners rejected or kept in a trial modification for questionable reasons. “There’s a real resistance on the servicers’ part to making permanent modifications,” said Diane Thompson of the National Consumer Law Center.


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The administration set a goal of helping up to 4 million homeowners through the $75 billion mortgage modification program as a way to blunt the boom in foreclosures. Treasury has produced a growing number of mandatory guidelines for banks and other loan servicers to review applications and perform the modifications. In exchange for tailoring loan payments to 31 percent of the homeowner’s monthly income, both the servicer and the owner of the loan receive incentive payments.

Servicers representing 85 percent of the housing market have signed up to participate. Applicants must first go through a trial period before their mortgage payments can be permanently reduced. But servicers have been slow to convert hundreds of thousands of trials into permanent modifications — as of November, only about 31,000 had been made permanent. That spurred Treasury to publicly criticize the servicers’ performance and to put out new guidelines in recent months to speed up the process.

Treasury said recently (PDF) that the effort has resulted in a “significant increase” in offers of permanent modifications, but numbers demonstrating how significant won’t be available until February.

ProPublica has reported since last June on homeowners’ frustrations in receiving a prompt answer from servicers, particularly the program’s largest servicers — Bank of America, JPMorgan Chase, Wells Fargo and CitiMortgage. In response to widespread complaints, those servicers have dramatically increased staffing and touted other improvements, such as new document management systems.

But when homeowners do get an answer, the reasons don’t always jibe with how the program is supposed to work. Housing advocates say this is a direct result of a lack of effective oversight of servicers in the program, something ProPublica has focused on before.

‘An Excuse to Deny Someone’

Reynolds was a prime candidate for a loan adjustment and was among the earliest homeowners to receive a trial modification.

His mortgage brokerage business had followed the market downward, and as a result, he’d fallen three months behind on his interest-only mortgage. Area real estate cratered. His own home, bought in 2001 for just over $400,000, had rocketed up to about $1.2 million in value in 2006, and then down again to about $350,000. With a refinancing in 2005 and a home equity line of credit with Countrywide, his mortgage debt exceeded his home’s value by more than 70 percent.

Soon after the loan program was announced last February, Reynolds applied. He received an application in late April and was accepted, making his first payment of about $2,400 (down from $3,300) in May. He made six more payments. Like many borrowers in the program, he says he was asked over and over to send the same documents and later, updated versions of those documents. Finally, in late November, he received an answer: He was denied a permanent loan modification.

The reason? A Chase employee explained to Reynolds that they’d determined his financial difficulties weren’t permanent. In his application, he’d written that he believed that the government’s rescue efforts would “save the U.S. housing market” and that his business “will once again be profitable.” The Chase employee told him that statement indicated his hardship was only temporary.

“That’s just nonsense,” said Thompson of the consumer center. “To me, that sounds like an excuse to deny someone.”

Chase spokeswoman Christine Holevas told ProPublica that Reynolds had been denied “because the skill and ability is still there to earn the income.” Since he’d “stated in his letter that business would be picking up,” it was “not considered a permanent hardship,” Holevas said.

Such a determination contradicts Treasury’s guidance to servicers for the program. A FAQ (PDF) issued to servicers says the program does not “distinguish between short-term and long-term hardships for eligibility purposes.”

When ProPublica asked about this guideline, Holevas did not directly respond. She did offer another reason for denying Reynolds: Chase’s review of financial information showed his income had not decreased.

Reynolds, who has a wife and two small children, says no Chase employee had made such a claim to him and that the documents he provided show that his mortgage business dropped more than 50 percent in 2009. He submitted a new hardship statement in December, in which he tried to make clear that his troubles are real and lasting. Holevas said those documents would be reviewed.

Now, Reynolds says his finances are at the breaking point and bankruptcy appears unavoidable if Chase denies him again. “I did everything that was asked of me, but Chase has me backed into a corner that I cannot get out of.”

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By Johnson Smith, March 21, 2011 at 8:58 am Link to this comment

Banks support only those who have money; the rest of them will just have to take what is asked, which is why worldwide estate markets are slumming it out right now
Compare payday loans

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By quick personal loans, January 5, 2011 at 5:53 pm Link to this comment

I have been attempting a loan modification with Chase since November of 2008.A House Flipper beat me out of around $5,000 and put me in a bind temporarily.
  I was put on a ‘trial period ’ for 3 months last summer,I have since paid 5 payments ,all on time since.
  I have faxed and mailed documents over and over and over.Same info,new forms,or they say I omitted something,which I have not. I hired a banking attorney to verify my actions.They filed a foreclosure on me last April as I was attempting to work out a solution.To make matters worse,I did not even know about it until I read it in my hometown newspaper. They have the foreclosure on hold,but threaten me with it on the phone when they call wanting me to resend the documents.
  This is like a nightmare that I cannot awaken from and I know thousands of others are going through the same scenario.I sure do not feel good about Chase,especially after using our tax dollars to help them !

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By Payday Loans, July 11, 2010 at 8:59 pm Link to this comment

Trial modification loans; now this is beginning to sound like I will have my cake and eat it to by the banking industry in the US. I just read an article similar to this, however the borrower did not mention, hence belief that she did not understand that her modification was a trial. I would be interested in hearing from people who have successfully modified their loan and what sets them apart from this gentleman and others who don’t.

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By Andrew, June 9, 2010 at 9:45 am Link to this comment
(Unregistered commenter)

This is not surprising actually. Banks are only sweet to those who have money; the rest of them (or us) will just have to take in whatever ‘clauses’ they throw at us, as and when they like it, which is why worldwide estate markets are slumming it out right now, despite the rosy pictures they paint of high end properties which no one can (or want to) afford.

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Allan Krueger's avatar

By Allan Krueger, January 19, 2010 at 4:39 pm Link to this comment

OMG, banks involved in wrong doing? Shocking!


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By ardee, January 19, 2010 at 4:13 am Link to this comment

Outraged, January 19 at 3:49 am

I am truly sorry for your condition of permanent PMS, truly sorry. But I am flattered by having a stalker of my very own.

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By Outraged, January 18, 2010 at 11:49 pm Link to this comment

Re: “ardee”

Your comment: “A financial decision based upon ones investment and personal finances is neither moral, amoral, nor immoral.”

Forgive me for forgetting to address YOUR OTHER POINT…. then again, maybe its just as well to highlight it and let it rest on its own merits, so to speak.

You say, “A financial decision based upon ones investment and personal finances is neither moral, amoral, nor immoral.”

WHAT????!!!!!  It isn’t….?  What is it then?

Do financial “decisions” have and/or CAN they have morality/ethics…?  Let me make it easier.  If I can make “a dollar” as a scourge to humanity… is it okay…?  You know… like Hitler and “friends”.

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Outraged's avatar

By Outraged, January 18, 2010 at 11:32 pm Link to this comment

Re: “ardee”

Your comment: “More and more folks are simply walking away from their under water mortgages”

Is it at all possible for you to show PROOF of your claim, which I myself, believe to be TOTALLY ERRONEOUS.

You aver, “folks are “simply” walking away from their underwater mortgages”.  For whatever reason, (ahem) you claim that “folks are simply walking away”.  I see this differently.  I find that most are forced out by SUSPECT “folks”, lets call them “less than truthful souls” and their “andover jock sniffers”.... you get my drift “rightie”, sorry of course I meant, you get my drift… right?

Aside from that, it seems very UNLIKE PEOPLE to leave their homes simply because they’ve BEEN PUT UNDERWATER by criminals… can you explain your position in more detail?  I have not seen this, if it exists.

Therefore I have reservations as to YOUR claim that this is indeed the case.  I tend to think/realize/understand that MOST PEOPLE want and love their home and would not “simply walk away”, unless of course extraenous circumstances presented themselves.

Are you able to provide evidence that “more and more folks are simply walking away from their underwater mortgages”?  In a heart-wrenchingly specific way I personally have experienced something very, very differently from YOUR BOGUS CLAIM.

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By glider, January 17, 2010 at 7:42 pm Link to this comment

I agree with Freddie.  Seeing as this guy owned a mortgage brokerage firm and likely was part of the problem he is getting his just dessert.

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By keepyourheaddown, January 16, 2010 at 11:31 am Link to this comment
(Unregistered commenter)


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By Fat Freddy, January 16, 2010 at 6:02 am Link to this comment

Can somebody explain to me why Nathan Reynolds is deserving of any consideration for a loan modification? This guy owned a mortgage brokerage firm? He knew exactly what risks he was taking. I have absolutely no sympathy for this person. First, he financed his primary residence with an interest only loan. Interest only loans are more of a tool for speculators. It’s a type of bridge loan. Second, he refinanced and took out the equity in his home after only four years, based entirely on the market value of his home, instead of on the actual principle he paid down. Third, he had to have realized that the tripling of his home’s value in only 5 years had to be a fluke. Remember, this is a person that owned a mortgage brokerage firm.

The only thing this person should be eligible for is a check to cover first and last month’s rent.

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By ardee, January 15, 2010 at 5:48 am Link to this comment

Lets see, we shoveled enormous sums of money at crooks, without regard to strings, terms, behavioral modifications and now profess shock and distress at the actions of these very same crooks….. 

More and more folks are simply walking away from their under water mortgages, and the financial institutions are expressing outrage at such “immoral” behavior. A financial decision based upon ones investment and personal finances is neither moral, amoral, nor immoral.  Morgan Stanley just walked away from three commercial buildings in San Francisco because they were worth less than the mortgaged value…..where oh where is the outrage?

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DieDaily's avatar

By DieDaily, January 14, 2010 at 8:09 pm Link to this comment

OMG the bankers are being evil. What a newsflash!
Pardon me while I compose myself in the wake of this
stunning revelation.

(Accurate and well written article though.)

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