Shawn Vestal: ‘Loan mods’ leave Main Street crumbling

In April 2009, a Kootenai County homeowner struggling to pay the mortgage got a letter encouraging enrollment in a federal program meant to help people avoid foreclosure.

The homeowner called the mortgage company, gave them information, and awaited an application for the Making Homes Affordable program – one of the “Main Street” pieces of the federal stimulus plan, intended to help homeowners stave off foreclosure with lower payments. Her anonymous story is included in a new report from the Idaho attorney general.

The homeowner waited. And waited.

Called back. Was told the packet was on the way. Was told to keep making those loan payments – or as much of them as she could .

Waited. Called back. Was told the MHA program would not work, but another program would.

This was September.

“I expressed my concern that I was scared we could lose our home,” the homeowner said in a complaint filed with the AG’s office. “She told me not to worry, that would not happen because I was doing everything they asked me to and the loan was up for modification. In December, we received a foreclosure notice …”

That story is one of several documented in the report from Idaho Attorney General Lawrence Wasden – and one of the “legion” of similar complaints nationwide, federal watchdogs say. The Wasden report details, among other things, a pile of complaints about mortgage servicers giving shoddy, confusing service to people desperate to keep their homes.

The biggest source of complaints deal with a federal stimulus program meant to help at-risk homeowners renegotiate lower payments. The “loan mods” are a big piece of the stimulus plan’s “Main Street” wing, and the program has been an utter flop.

Some $46 billion was budgeted to help 3 million to 4 million homeowners.

Fewer than 240,000 have gotten that help under government programs, according to the Special Inspector General for the Troubled Asset Relief Program. More than three times that many applications have been “cancelled,” and thousands have found themselves snared in a bureaucratic insanity loop, dying for clear answers and sometimes leaving a months-long process even worse off than they were before.

Wasden’s report includes a wealth of personal stories about hardship made worse by the incompetence of banks and mortgage servicers. Or maybe incompetence isn’t the right word. You get the feeling that these organizations – Bank of America, Chase, Citibank – can be competent when their hearts are in it.

“Homeowners described dozens of frustrating, oftentimes heartbreaking, scenarios in their complaints – stories of never-ending modification negotiations, lost paperwork, misleading representations, unaffordable modification offers, and communication difficulties,” the report states. “Essentially, consumers’ complaints showed that America’s mortgage servicers were demonstrating the quintessence of customer disservice.”

Meanwhile – as foreclosures rise, with estimates of another 20 percent increase this year – the federal government does nothing.

Literally nothing.

“Despite nearly daily accounts of errors and more serious misconduct, Treasury reports that it has yet to impose a financial penalty on, or claw back incentives from, a single servicer for any reason other than failure to provide data,” according to the latest report by the Special Inspector General of the TARP program. “(G)iven the current pace of foreclosures, (the loan-modification program’s) achievements look remarkably modest, and hope that this program can ever meet its original expectations is slipping away.”

That’s the big picture. Here’s Main Street:

Michael Hicks is three months behind on the mortgage for his Nampa, Idaho, home – and 20 months behind on an answer to his application for a loan modification. A married father of two who’s out of work with a back injury, he has spent his savings and his retirement on keeping up with the mortgage since May 2009.

He missed the first payment in November.

Now he’s more than $5,000 behind and out of reserves.

He’s on his fourth application – he was told they lost his first one, then asked to “update” his application with a couple of brand-new ones, etc. After he complained to Wasden’s office about the delays and runaround, a Bank of America official responded that he needed to apply once again, that there were missing documents in his application.

“I was calling once a week to ask if there were additional forms they needed and they said no,” he said.

Nevertheless, he called to start the process a fifth time – only to be told that no, he didn’t need to apply again after all. His application was in the pipeline. It was going to be pushed through.

He’s waiting to hear, as the foreclosure clock ticks.

“It’s probably lost again,” he said.