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Homeowners Say Banks Not Following Rules for Loan Modifications

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Posted on Jan 14, 2010
Flickr / respres

By Paul Kiel, ProPublica

(Page 2)

The Nine-Month Trial

Six months into a trial modification, Gary Fitz of California still doesn’t know whether or when his mortgage will be permanently modified, and he’s been told he’ll have to wait for a few more months.

Under the program’s design, the trial period was supposed to last three months, giving time for the servicers to collect and evaluate the homeowner’s financial information. At the end of the trial, if the homeowner fit the program’s criteria and had made all three modified payments, the servicer was supposed to promptly make the modification permanent.

Instead, trial modifications routinely last more than six months, homeowners and housing advocates say.

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There are a number of adverse consequences of a trial period’s dragging on, said the consumer law center’s Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most importantly, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. “Keeping someone in a trial modification really does not do them a favor,” she said.

Fitz’s case shows why some homeowners have remained in limbo so long.

He sought a loan modification in the spring of 2009 because his wife’s salary had been cut. Like millions of others, he applied soon after the administration announced the program last February. He was accepted for a trial modification and made his first payment in July.

Fitz was prepared for an uphill struggle. A Wells Fargo customer service representative told him early in the application process that he should make seven copies of his financial information — because Wells Fargo would likely lose it more than once. He says he’s sent the same paperwork in five times.

When the trial stage lasts so long, servicers commonly ask homeowners for updated financial information months into the trial period. Fitz, for example, submitted his paperwork for the first time last spring. But when Wells Fargo requested an updated package in December, it showed that he’d received a pay raise last June of about $80 per month.

Because of that, Wells Fargo started him over on a new trial period – even though his trial payments climbed just $27, from $1,733 to $1,760. His first payment on the new trial period is due Feb. 1, meaning that by the time he completes it, he will have been making trial payments for nine months.

Wells Fargo spokesman Kevin Waetke said the company does not comment on individual borrower’s cases. He did say, however, that “the federal guidelines require a final review of updated financial documents before moving any Home Affordable Modification from trial status to complete.”

That’s not true. In a Treasury guidance (PDF) to servicers issued in October, meant to streamline the review process, it says there is “no requirement” to “refresh” the homeowner’s documentation as long as it was up-to-date when it was originally received.

Wells Fargo also appears to have begun Fitz’s second trial period contrary to Treasury guidelines. A Treasury guidance (PDF) last April said that a servicer should not begin a new trial period if a homeowner has only a minor income change (defined as exceeding the “initial income information by 25 percent or less”). Guidelines issued later (PDF) are even more restrictive about starting a new trial period. The reason is clear: The purpose of the trial period for the homeowner is to demonstrate the ability to pay, and such a small change in income is unlikely to affect that.

Asked to respond, Waetke said that “given the complexity of the program, the volume of calls we receive and the number of modifications currently in process, there is the potential for a mistake to be made.” He added that Wells Fargo would continue to review the case.

Buying Time

Sometimes there seems to be no reason at all for a trial period to drag on.

Cynthia Mason of Texas, another homeowner with a Wells Fargo mortgage, also recently restarted her trial period after several months.

Last spring, she sought a loan modification because medical and other expenses had made it impossible for her to afford her mortgage payment on a fixed alimony income. She’d planned to supplement that income with a job, but has been unable to find anything. Like Fitz, she began the program in July.

In October, good news came with a phone call: She’d been accepted for a permanent modification. She waited for the final paperwork to arrive, but it never did. Instead, while speaking to a Wells Fargo employee about an unrelated issue six weeks later, she found out that she’d in fact been denied. When Mason inquired why, she says she was told some documentation was missing, but the employee could not tell her what it was. She also learned she owed late fees because she’d paid the modified payment, not the original, full payment, in November and December.

When she complained about the late fees (which were eventually canceled), she was passed to a different employee who told her she was being put back into a trial period. She didn’t understand why. Another representative finally told her that she’d been denied because of a negative “Net Present Value” test. The test is the calculation at the center of the Treasury Department’s program: It determines whether the loan’s owner (sometimes the lender, sometimes a mortgage-backed security’s investors) is likely to make more money modifying the loan or not. A negative result means the servicer has no obligation under the program to modify the loan and is a common reason for denial.

But in Mason’s case, a Wells Fargo employee told her she’d nevertheless been put back into the trial period in order to “buy time.”

Wells Fargo spokesman Waetke declined to speak about Mason’s case but did say that the bank sometimes extends the trial period “to allow customers time to get the documents so we can complete the review.” Mason says she doesn’t know of any documents that might be missing, and she’s not optimistic about receiving a permanent modification. By extending the trial, Mason told ProPublica, Wells Fargo is “just prolonging the inevitable” – denial.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism in the public interest.


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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!

Banks Only Commandment: FUCK THY NEIGHBOR AND ALWAYS DO IT FIRST!

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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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Outraged's avatar

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)

ALL THE BANKS MUST FAIL!!!

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Fat Freddy's avatar

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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