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Homeowners Say Banks Not Following Rules for Loan Modifications
Posted on Jan 14, 2010
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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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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