Troubled Homeowners Still Find Help Hard to Get

As the housing crisis deepens, major lenders say they will help borrowers avoid foreclosure, but nonprofit groups and others say their actions are not living up to their promises.

David Zalubowski / AP

"Some lenders are willing and able to work out loan modifications," said Juanita Bryant, a loss mitigation officer at Michigan Neighborhood Partnership, which covers one of the worst-hit states in the country. "Those lenders are in the minority."

Among the people Bryant's group is trying to help is Will Clark, 53, who bought his home in Detroit in 1996. After being diagnosed with diabetes in 2006, and with his savings wiped out by medical bills, he contacted his lender.

"I wanted to work something out because I couldn't afford the house anymore," Clark said.

His lender, JPMorgan Chase unit Chase Home Lending, told him he could try a short sale -- sell the house for less than the outstanding debt and the bank would forgive the rest. Or he could hand over his property to the bank in a process known as deed in lieu of foreclosure. Both would harm his credit rating, but not as badly as foreclosure.

Clark found a buyer who offered him $70,000 for his house. But, according to both Clark and MNP, Chase ignored the offer until after the home went into foreclosure. Michigan allows borrowers up to six months to try to regain a foreclosed property, and Chase then said it would accept $80,000. Clark's buyer agreed, but wanted Chase to put it in writing. MNP said the bank refused, and the buyer gave up.

"If I had known this would happen, I wouldn't have bothered finding a buyer and just given them the keys," Clark said.

Chase spokesman Tom Kelly denied that the bank had ignored Clark, and said it had been "willing to work something out."

"We made a counter offer and got no response," he said.

MNP's Bryant said that Chase was both unresponsive and unwilling to cooperate, adding that Clark's experience is common.

Nonprofit groups around the country say many lenders either have no system for dealing with stricken borrowers, or they are not interested in cutting deals.

"Our experience on the ground does not reflect lenders' claims they're helping people," said Robert Pulster, executive director of ESAC, a Boston-based group that helps people with mortgage trouble. "Occasionally we have a breakthrough with a lender, but they need to do much more."

Or, lenders are not telling the truth when they claim to be helping people and are simply engaged in a public relations exercise. "They're lying bastards," said Mark Seifert, executive director of East Side Organizing Project (ESOP) in Cleveland, on a tour of the city's ravaged Slavic Village district. On some blocks here almost every last home is boarded up.

Some nonprofit groups say that just as lenders packaged and sold their mortgages to investors around the world during the property boom, the solution lies in persuading those investors to approve more loan modifications.

Gabe del Rio, vice president of lending at Community Housing Works in San Diego, said the problem is investors outside the United States bought the mortgages, so lenders no longer own them.

"Lenders say they are modifying loans, but they don't have authority from investors," he said. "We must get the message across to these investors that more loans must be changed."

Lifeline

Since last October two U.S. government-backed initiatives have been announced since to reach out to modify loans for borrowers with bad loans, such as adjustable-rate mortgages where the interest rates and monthly payments spike.

Unveiled in October, the Hope Now alliance of mortgage counselors, lenders and servicing companies says it helped some 370,000 borrowers avoided foreclosure by the end of 2007.

In February, "Project Lifeline" was launched by six lenders who say they services around 50 percent of U.S. mortgages: Chase, Bank of America , Citigroup , Countrywide Financial , Washington Mutual and Wells Fargo . This plan would halt foreclosure proceedings for borrowers more than 90 days in arrears to determine if they could afford payments under different conditions.

"Every little bit like this helps," said Lori Gay, Chief Executive of nonprofit lender Los Angeles Neighborhood Housing Services. "But there is still a long way to go."

In a December 17 report entitled "U.S. Subprime Market Update" Moody's Investors Service found that by September 30, lenders had modified 3.5 percent of loans whose interest rates had reset in the first eight months of the year, up from just 1 percent in its previous survey.

But the report added: "Without a higher level of modifications, Moody's expects delinquency rates to increase."

A multistate task force, the State Foreclosure Prevention Working Group, said on February 8 that 70 percent of stricken borrowers are not up for loan modification. "The lack of interaction between mortgage servicers and homeowners remains a major problem," the group said.

And in an October survey of 33 mortgage counseling agencies, the California Reinvestment Coalition (CRC) found most reported that the "industry as a whole is not consistently modifying loans for long-term affordability."

CRC associate director Kevin Stein said there could be a number of reasons for the disconnect between lenders' claims they are modifying loans and the perception in the field.

"It may be that some lenders have no system in place to deal with loan modifications, or a communication problem within the company," he said. "But there is a huge disconnect there."

Barb Van Kerkhove, policy analyst at Rochester, New York-based Empire Justice Center said "our experience varies greatly from lender to lender and even between individual employees. It often depends on who answers the phone."

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