The congressional hearings on the foreclosure crisis are underway in Washington D.C. and no one with any brains at all expects a positive outcome.
The hearings are focused on the mishandling of certain paperwork related to home foreclosures by mortgage lenders.
The questions being asked of the lenders are centered around the allegation of phony, incorrectly notarized or incomplete documents that were submitted in court by lenders during the foreclosure process.
Critics say the documents as presented constitute fraud, and that no bank should be able to take back a home after submitting such shoddy paperwork. In some cases, the bank cannot prove it is owed the money.
Although this is an issue of grave concern, this line of questioning completely misses the point and ignores the much larger issue of the fraud being committed by lenders taking part in “Making Home Affordable”, the federal mortgage modification program. In March 2009, the Making Home Affordable program was rolled out with much fanfare, promising to provide struggling homeowners with an option other than foreclosure.
Millions applied for mortgage modifications, hoping for lower payments that would allow borrowers who had lost their jobs or suffered massive pay cuts to remain in their homes.
The program was part of an effort by the U.S. Government to help reduce the swelling number of unoccupied properties that were driving down the value of homes across the country, and was a mandatory program for financial institutions that received bailout money from taxpayers.
Officials had good intentions, but you know what they say about good intentions.
Borrowers who applied to the program for consideration were instructed to fill out a detailed form explaining the reasons they needed relief and how they came to be in the unfavorable financial situation they were in, then to submit copies of tax returns and pay stubs.
They also were required to submit a personal budget showing they could afford the home with a reduced payment. The requirements were many, and rightly so.
The idea was that after a borrower sent in all the required documents, the lender would review the case, set up a reduced “trial modification” payment for the homeowner and quickly decide on a permanent payment plan the borrower could afford.
The public’s perception of the program turned sour quickly. Everyone was a critic, with most repeating the media-driven falsehood that the program was only helping people who bought homes they could not afford in the first place.
Tea Party rallies featured people holding signs asking, “Is Obama paying your mortgage?”
The reality is very few borrowers are getting help from their lenders through the program.
I have spoken with many people who are currently involved in – or who were involved in – the modification process, and they all share a similar theme: They felt their mortgage lender had virtually no interest in actually giving the borrower a modification.
The banks routinely ran out the clock by “losing” paperwork and repeatedly asking borrowers to resubmit documents. Then, lenders foreclosed on the home after demanding insane amounts of cash to cover back payments and shady “legal fees related to the foreclosure process”.
I have a unique perspective on this issue.
All of these things happened to me.
In October 2008, I lost my job as a structural ironworker after breaking my leg in an off-duty accident. I was out of work for 14 months.
In October 2009, I was solicited by my mortgage lender through the U.S. Postal Service. The letter detailed the program and said that I may qualify. I went through all the requirements and was told I had an “excellent case.”
I was given a “trial modification” payment and was told to begin paying that amount in January 2010, and not to make any payments until then. I signed a paper that said the trial payment was only good for 90 days, and that a determination on the outcome would be made at the end of that 90 days.
I have lived in my modest home since 1996.
In March 2010, after hearing nothing from my lender, I called to check on the status of my modification. The lender said they were behind in processing my case and to continue making the trial payments.
At that time, they asked for updated documents, claiming to have lost several of the originals. June and July passed. In August 2010, I received notice that the lender again needed previously submitted documentation. Again, I complied.
In September 2010, after faxing and re-faxing 43 pages of previously mailed and faxed documents, I received notice from the lender that I failed to complete the necessary paperwork and that the trial period was over.
The lender demanded the difference in the “trial” payment amount and the “regular” payment amount to keep the loan in good standing.
During this time, the lender started the foreclosure process on my home, which added several thousands of dollars in “legal fees” to the total amount required to reinstate the loan.
I was served by a county sheriff.
The lender did not negotiate, did not follow the law and violated the spirit and intent of the program by dragging its feet during the year-long process, which was only supposed to take 90 days.
I have dealt with loan sharks more forgiving than these people.
There is a happy ending to my story, an ending most will not experience themselves. I was lucky. Since finding employment and enjoying a more favorable financial situation, I was able to meet the lender’s demands and reinstate my loan.
Many more, like the people I have spoken with privately, have not shared my fate. Some have lost completely while waiting on a modification. Some are holding out hope the modification comes before the sale date. Most have given up hope.
All deserved a chance.
This is the very real and very terrifying issue that the congress needs to be investigating.
It is as tough as a two dollar steak out there.
Required reading: The Secret Test That Insures Lenders Win on Loan Mods at propublica.org.