Mortgage Loan Modification | Mortgage Loss Mitigation - Loan Modification Information

Housing Counselors See Better Results on Loan Modifications

By Alan Zibel
Wall Street Journal
December 20, 2010

Efforts to help troubled homeowners avoid foreclosure have been plagued with problems over the past two years. One big hurdle: Many homeowners who receive modifications to their loan terms wind up falling into default again.

A study published Monday by the Urban Institute found that working with a nonprofit housing counselor dramatically lowers the probability of those re-defaults.

The study evaluated borrowers who got help through the congressionally mandated National Foreclosure Mitigation Counseling program, run by nonprofit group NeighborWorks America.

The study examined a sample of 180,000 borrowers who received counseling in 2008 and 2009. It found that 36% of those homeowners fell back into foreclosure or serious delinquency (defined as missing at least three months of payments) within eight months of getting help.

That may not sound great, but it’s a whole lot better than the 49% of 150,000 borrowers studied who received loan assistance but no counseling.

The key reason: Counselors have typically worked with dozens of foreclosure cases and know the ins and outs of haggling with mortgage companies. So they are able to extract more significant concessions from lenders than most borrowers can on their own.

The report also found that borrowers who worked with housing counselors reduced their payments, on average, by $267 more per month than they would have without counseling.

Oops! BofA Sends Loan-Mod Letter in Error to WSJ Reporter

By Nick Timiraos
Wall Street Journal
December 17, 2010

Bank of America helpfully sent out a letter last week informing a Brooklyn homeowner that the bank didn’t have all the documents needed to finalize a loan modification application.

“Our records indicate that we are still missing some of the required documents, or some of the documents were sent to us with missing or incorrect information,” said the form letter dated Dec. 6.

But there was one problem: the letter was addressed to the couple that sold the Brooklyn apartment in 1998. It arrived in the mailbox of a Wall Street Journal reporter who bought that apartment and has never had a mortgage on it.

It’s no secret that banks’ paperwork problems have plagued the Obama administration’s Home Affordable Modification Program, or HAMP, and the letter offers a glimmer into potential miscues. Borrowers frequently tell of sending and resending paperwork three or four times, while banks often say that modifications aren’t being completed because borrowers aren’t filing all the necessary documentation.

Bank of America says this letter was sent in error after a loan modification negotiator entered in the wrong nine-digit loan number and that the incident appears to have been “very isolated.” “It was simply someone going into a template [who] punched in the wrong number,” said a bank spokeswoman. “Obviously, we’re very sorry for the confusion.”

In this case, no harm, no foul. In light of the recent mortgage-document controversy, perhaps our colleague should feel lucky that it wasn’t a foreclosure notice (or lost pet parrot) instead.

HAMP lowers borrowers’ monthly payments for five years if borrowers successfully complete three months of a so-called trial modification. Bank of America, which is the nation’s largest mortgage servicer, has the largest backlog of trial modifications that are at least six months old and haven’t been made permanent. It had some 32,500 “aged trials” in October, compared to 7,100 for J.P. Morgan Chase, the next largest volume.

Beacon Capital Closes on Loan Modification

By ELIOT BROWN
Wall Street Journal
DECEMBER 15, 2010

Boston-based Beacon Capital Partners has closed on a modification of a troubled $2.7 billion loan, which was one of the largest commercial-real-estate loans to ever be securitized, a company official confirmed Tuesday.

Beacon used the loan, which was carved up into commercial-mortgage-backed securities, to buy a 20-building office portfolio in Seattle and Washington, D.C., in 2007 near the top of the market.

Earlier this year, Beacon reworked debt on Seattle's Columbia Center.

"We believe this is a good outcome for the bondholders and the equity," Beacon's president, Fred Seigel, said of the recent restructuring in a brief interview Tuesday.

The deal marks Beacon's second major debt restructuring this year. It follows Beacon's reworking of a $380 million securitized loan on a separate property in Seattle, the 76-story Columbia Center, for which Beacon received a three-year extension, with options for two more years.

While full details about the modifications weren't available, the restructurings appear to allow Beacon to escape the risk of CMBS investors foreclosing on its giant holdings, which hit trouble when higher rents failed to materialize amid the economic crisis.

The 20-building, 9.9-million-square-foot portfolio was acquired from the Blackstone Group in 2007. It had been owned by Equity Office Properties, a public company that Blackstone acquired that year.

The loan to finance the purchase was so large—second in the CMBS market only to the $3 billion first mortgage for the 2006 purchase of Stuyvesant Town and Peter Cooper Village in New York City—that it was spread out over seven batches of securities.

Failing to meet bullish assumptions made in 2007, the income on the properties was barely covering the mortgage payments, with a slim debt service coverage ratio of 1.08 at the end of last year, according to research firm Trepp.

Beacon sought to decrease those payments, stretching out the loan while cutting its interest rate.

An agreement reached on Dec. 3 calls for a five-year extension to 2017 on the interest-only loan, with the interest rate getting cut from 5.797% to 3%, according to ratings agency Standard and Poor's, which was informed about the deal. In addition, Beacon must put in $200 million in new collateral, according to S&P.

Such workouts have become customary in the CMBS market. Special servicers who oversee the multitude of troubled loans are beginning to process and return to normal many of the problematic loans made between 2005 and 2007. But more CMBS loans are running into trouble every week, bringing the delinquency rate to near record highs.

Investors in the $2.7 billion Beacon workout are likely to benefit differently from the modification, based on the risk level of the bonds they hold. Given that the extension chops the loan's overall interest rate, those holding the last-to-be-paid bonds are likely to see revenues dry up, as the newly lowered interest payments typically wouldn't cascade all the way to the lowest bondholders.

Oversight Panel: Obama’s Mortgage Modification Program Falls Short

By Meena Thiruvengadam
Wall Street Journal
DECEMBER 14, 2010

The Obama administration’s flagship foreclosure prevention effort may ultimately aid just 700,000 borrowers–far short of the up to four million homeowners it had aimed to assist, according to an oversight report released Tuesday.

“It’s not what we were all hoping for, but it is something,” said Ted Kaufman, who chairs the Congressional Oversight Panel, which authored the report. The Obama administration launched its Home Affordable Modification Program (HAMP) in 2009, committing up to $75 billion to rescuing homeowners struggling under the weight of their mortgages. Now, however, it appears the Obama administration may spend just $4 billion on its flagship effort.

The program offers financial incentives to coax mortgage servicers into modifying loans held by homeowners on the verge of default. It also provides financial incentives to borrowers to urge them to remain current on their mortgage payments.

“Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help,” the report said.

The Treasury has so far made incentive payments of less than $800 million in connection to HAMP. “We always expected the money would not be paid out at that high a rate,” said Tim Massad, Treasury’s acting assistant secretary for financial stability. He noted that payments are only made for successful permanent loan modifications.

In a conference call with reporters, Massad conceded the program will fall short of its goal of aiding three to four million struggling homeowners. The Congressional Oversight Panel cited Treasury’s failure to require servicer participation, failure to hold servicers accountable and decision to outsource critical program functions to Fannie Mae and Freddie Mac with curbing the program’s potential.

“Treasury has essentially outsourced the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, but both companies have critical business relationships with the very same servicers, calling into question their willingness to conduct stringent oversight,” the panel said.

Also, the panel said modifications often push borrowers further underwater on their mortgages, giving them just “a slim chance of returning to positive equity in the foreseeable future.”

Of the more 483,000 permanent mortgage modifications in progress under HAMP, most have left borrowers with unpaid principal balances that are higher than they were premodification.

The number of modifications in permanent status also is a fraction of the nearly 1.4 million trial modifications initiated under the program. More than half the trial modifications launched under the program have failed.

As a whole, the HAMP has had “a lot less impact on the housing market than we thought it would have,” Kaufman said.

Loan Modification Fail for ‘Real OC Housewife’ Alexis Bellino

By Dawn Wotapka
Wall Street Journal
DECEMBER 7, 2010

Back in August, we reported that a loan mod saved Jim and Alexis Bellino – cast members on Bravo’s “Real Housewives of Orange County”-from foreclosure. Well, the saga appears to have taken a negative turn: The Bellinos had a “property foreclosure notice” published in their local newspaper, RadarOnline.com reports.

The couple purchased their Newport Beach, Calif., mansion at the height of the real-estate frenzy. They paid $4.56 million in August 2007, a month after the county’s median home price struck an all-time high and then plunged 42%, the Orange County Register has reported. The Bellinos couldn’t be reached for comment.

The loan mod helped the couple with three children narrowly avoid foreclosure earlier this year. They’ve been trying to unload the six-bedroom, six-bath home, but even slashing the price hasn’t helped: The asking price reportedly fell to $3.7 million on Nov. 29, from about $5 million on Nov. 10. With penalties for missed payments added in, the debt on the house is now $4.7 million, RadarOnline reports.

The Real Housewives are no strangers to real-estate drama. We’ve previously written about Orange County Housewife Tamra Barney, who unloaded her 4,300-square-foot Tuscan-style abode in a short sale earlier this year. Earlier this year, another OC housewife, Jeana Keough, used a loan mod to avoid foreclosure on her seven-bedroom, nine-bathroom home.

Banks Told To Stop Foreclosures During Mortgage Modification

By Alan Zibel
Wall Street Journal
DECEMBER 1, 2010

Acting Comptroller of the Currency John Walsh said he has directed banks to halt foreclosure proceedings if borrowers are starting loan-assistance programs, if legally possible.

The so-called dual-track system in which banks proceed with foreclosures while evaluating borrowers for loan assistance has gained attention in recent weeks. At a Senate Banking Committee hearing Wednesday, Walsh called the system “unnecessarily confusing for distressed homeowners.”

Sen. Jeff Merkley (D., Ore.) called that process “enormously confusing and enormously stressful” for families facing foreclosure.

Another regulator disagreed. Edward DeMarco, acting director of the Federal Housing Finance Agency, said simultaneous actions are necessary at times. That’s because foreclosures can take an extended period of time and because borrowers don’t always respond to offers for help, he said.

Donald Bisenius, an executive vice president at mortgage titan Freddie Mac (FMCC), also opposed ending the dual-track system. “Unnecessary delays in an already lengthy foreclosure process would be counterproductive,” he said in prepared remarks.

Mortgage companies say they are fixing the problems and will return to a normal foreclosure process quickly. Obama administration officials said they are investigating the issue and haven’t found evidence of a threat to the U.S. financial system.

Foreclosure Crisis, Part 2: Modifications

By JESSICA SILVER-GREENBERG
Wall Street Journal
NOVEMBER 6, 2010

The Obama administration's program to help struggling borrowers keep their homes is being hurt by the same miscommunication, botched documents and other snafus that caused the original foreclosure crisis.

After J.P. Morgan Chase & Co. agreed in January to her trial loan modification under the Home Affordable Modification Program, Stephanie Lulko made six $767-a-month mortgage payments, even though the bank said it had no record of her loan and then warned in a letter that she would be foreclosed on unless she paid $4,091.94.

The 44-year-old Ms. Lulko, of Oklahoma City, says bank employees told her to ignore the letter. Their tune changed in June, when J.P. Morgan said she earned too much to qualify for a permanent modification. The problem this time: The bank's numbers were wrong. "I wish I had never applied for this modification," she says.

In September, the bank rejected her request for a permanent loan modification for a second time. She faces foreclosure unless she pays nearly $5,000—the difference between her original and modified loan payments, plus late fees. Ms. Lulko has been unemployed since her temporary job at the U.S. Census Bureau ended in August.

J.P. Morgan denies any wrongdoing related to Ms. Lulko's loan. "We worked with the borrower over a number of months and communicated the status of the loan modification during that time," spokesman Tom Kelly says. He adds that the lender has converted 29% of temporary modifications into permanently reduced payments as of September.

The foreclosure-paperwork furor is deepening criticism of the U.S. government's high-profile mortgage-restructuring effort, which has fallen short of its goal of helping three million homeowners. More than half of the 1.4 million borrowers approved for temporary modifications have fallen out of HAMP because they didn't qualify.

The program "has undoubtedly put people into foreclosure," says Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, which funds HAMP. "It's a parade of documentation horrors."

In a report to Congress on Oct. 26, Mr. Barofsky concluded that some borrowers seeking loan modifications through HAMP might wind up "worse off than before they participated." Back payments, penalties and late fees triggered when homeowners are rejected for a permanent fix can push some borrowers over the edge, he said.

As part of HAMP, mortgage servicers and investors get financial incentives to modify a borrower's loan payment to 31% of monthly gross income. Servicers typically hit that number by lowering interest rates or extending a loan's life. Borrowers must make at least three "trial payments" to be considered for a permanent fix.

Borrowers who miss a payment or otherwise fail to win a permanent modification essentially are stuck with the original terms of their mortgage.

"The trial period provides homeowners an immediate reduction in payments at no expense to taxpayers," says Andrea Risotto, a Treasury spokeswoman. "It is the gateway for many homeowners to get the help they need."

The Treasury Department doesn't record how frequently errors occur with documentation on home loans submitted to more than 2,500 financial institutions and servicers empowered by the U.S. government to grant and reject HAMP requests. An outside review of borrowers denied permanent modifications disagreed with the servicer's decision in 4.8% of the loans during the fiscal quarter ended in August.

Treasury officials don't keep track of how many of the disputed loans are subsequently averted from foreclosure. Ms. Risotto says borrowers can call a counseling hotline if they believe they were wrongly denied.

Meanwhile, anecdotal evidence points to a modification process at least fraught with miscommunication and misunderstanding.

Bank of America Corp. says it "inadvertently verbally reviewed" a loan-modification request by Lindsey Farnsworth of Sugar Hill, Ga., who started making reduced payments to the Charlotte, N.C., bank in May after being told she was "preapproved" for HAMP.

Ms. Farnsworth, who quit her job after her daughter was diagnosed with leukemia, says she was stunned when Bank of America said in September that she didn't qualify for a loan restructuring because the mortgage was made by the Federal Housing Administration.

Bank spokeswoman Jumana Bauwens says Ms. Farnsworth also isn't eligible for a loan modification under separate FHA guidelines "due to her financial situation." She was told last month to pay $4,860 or face foreclosure.

Loan servicers are required to follow government guidelines on loan modifications. Last month, the Treasury Department sent a notice "reminding them of their requirement to comply with all applicable state and federal laws," says Ms. Risotto, the Treasury spokeswoman.

Mr. Barofsky says the oversight is toothless, noting that no servicers have been fined for bungled paperwork or improper foreclosures. At the request of nine U.S. senators, Mr. Barofsky is auditing whether servicers in HAMP are correctly following Treasury's guidelines when deciding whether borrowers should get a loan modification. The inspector general also is scrutinizing how borrowers are notified that they failed to qualify.

Later this month, PennyMac Loan Services LLC plans to auction in a foreclosure sale the Queens, N.Y., home of Luis and Violeta Alvarez, who got a temporary loan modification from another loan servicer in February.

Mr. Alvarez, 67, found about the sale when a lawyer called to say he had seen it listed on a website. His lawyer says PennyMac denied the couple a permanent modification but won't say why. Mr. Alvarez says PennyMac and the previous loan servicer have lost various paperwork eight times.

"How can you do this to people?" says Yvonne Alvarez, adding that her father has made every payment on time since his $4,612-a-month mortgage was reduced to $2,440 in February. PennyMac declined to comment on Mr. Alvarez's case, citing privacy concerns.

Sometimes, it can be hard for borrowers to tell if a servicer is putting them through HAMP or its own loan-modification process.

Last December, Connie and Michael Umphress got a "reduced payment plan" from Wells Fargo & Co. for the mortgage on their Portland, Ore., home. The couple thought their lower monthly payments were triggered by HAMP. Instead, the San Francisco bank said last month that they were rejected for a permanent loan modification under an in-house Wells Fargo program. Wells Fargo warned it would foreclose unless they paid $12,000.

Mr. and Mrs. Umphress were scrambling to come up with the money when Wells Fargo told them that they qualify for a temporary HAMP modification. "It feels like Groundhog Day," she says. "We are relieved, though, and can breathe easier now."

Vickee J. Adams, a Wells Fargo spokeswoman, says the December approval was based on "verbal or stated income," which isn't allowed under HAMP. As of September, 30% of temporary loan modifications by Wells Fargo had been converted to permanent fixes, she adds.

Mr. Barofsky, a frequent critic of HAMP, says the foreclosure furor that erupted in mid-September convinced him even more strongly that mortgage servicers have wrongly denied permanent loan modifications to deserving borrowers.

"If there are problems like we've seen on one side of the shop, why would we expect anything different on the modification side?" Mr. Barofsky says in an interview.

Number of Borrowers Under Loan-Modification Plan Falls to Lowest Level

By NICK TIMIRAOS
Wall Street Journal
SEPTEMBER 22, 2010

By NICK TIMIRAOS

The number of new borrowers receiving help from the Obama administration's signature loan-modification plan fell to its lowest level since the program began last year, according to figures released Wednesday.

Just 18,000 borrowers started modifications in August, while three times as many that had previously been enrolled were disqualified from the program. Overall, around half of the 1.3 million borrowers put in trial modifications since June 2009 have had their modifications canceled.

Fewer than 500,000 borrowers have received permanent help, far short of the program's stated goal of reaching three million to four million struggling homeowners.

The program's disappointing results mean that more homes could be heading toward foreclosure, putting more downward pressure on an already weak housing market.

"You name it and they've tried it and, unfortunately, it's not working," says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm.

Under the Home Affordable Modification Program, lenders receive incentives to help borrowers avoid foreclosure by reducing their mortgage payments, typically by lowering the interest rate and extending the loan term. Homeowners must make at least three "trial" payments before the modification can become permanent.

Some 200,000 borrowers are in trials, awaiting banks' decisions to extend permanent help. Around half of borrowers have been in trials for six months or longer.

Many haven't been able to qualify for the program because they make too much or too little money, because they've missed a payment on their modified loan, or because banks haven't been able to collect the necessary paperwork.

On Tuesday, Fannie Mae said that companies managing loans on its behalf can no longer count unemployment benefits or other temporary income sources when evaluating borrowers for HAMP. The move could further limit the number of borrowers that can participate, although it could produce better performance rates of modified loans.

The Obama administration says the program has nonetheless succeeded in forcing the mortgage industry to become proactive about modifying loans.

But it has disappointed borrowers like Cecil McCammond, who couldn't get a HAMP modification through Citigroup Inc. Instead, the bank has extended his loan term and lowered his interest rate for two years, from 6.5% to 4.5%. The rate will rise by one percentage point this year and next year.

"I don't have a problem paying what I owe," says Mr. McCammond, 57. But he says he thinks he should be able to refinance at the current rate. That's hard to do because his Wheatland, Calif., residence is worth around half of the $257,000 that he owes.

"If people don't want to work with us, we can stop paying, live in the house free for a year, rent for a couple years, and then buy again," says Mr. McCammond, who says he hasn't worked for two years because of a medical condition.

Earlier this month, the administration launched an initiative designed to cut loan balances for borrowers who are current on their payments but who owe more than their homes are worth. The program relies on investors' willingness to reduce loan balances in exchange for handing the smaller loan off to the government.

The administration will also roll out later this fall a program designed to help unemployed borrowers by extending bridge loans so borrowers can make their payments.