Home loan purgatory

On a subzero evening in early December, Sofia Hernandez had finished serving dinner and was sitting down to help her 6-yearold son study for his weekly spelling test. It was around 5 o’clock, and her husband was almost home from work when she heard someone ring the doorbell.

It was dark outside, and Sofia, whose name has been changed to protect her privacy, wasn’t expecting guests. The dog started barking wildly, and her son was about to rush to the window to see who was there. Telling him to stay put and finish practicing his vocabulary words, she went to peer through the window and saw a man holding a letter.

“Hello, I’m with Bank of America. Are you Sofia Hernandez?” she remembered him saying. “I was sent to hand-deliver a letter to the homeowners here.”

Her heart raced. She and her husband, Armando, had lived in the single-family home in the Dunning neighborhood on the Northwest Side for eight and a half years but were now five months behind on their mortgage. They were among the first wave of cash-strapped homeowners who were seeking assistance through President Barack Obama’s new loanmodification program to lower their monthly mortgage payments. But that was months earlier and the bank had been dragging its feet on a decision.

Armando, who owns his own construction company, had been able to pay the additional $760 to his $1,100 mortgage as the rate adjusted upward over time. But then the construction business began drying up in 2007. While out working,

Armando had an accident and was hospitalized, saddling the family with more bills. In January 2008, Sofia was laid off from her full-time job, and she has yet to find a new one.

As the man stood at the door, Sofia sent her 14-year-old daughter out the back door to get Armando, whose truck was pulling into the garage behind the house. By this time, Armando had already made his way to the front door where he overheard the conversation.

His face went ashen. He imagined their family being thrown out on the street. His first thought: “Oh, my God. Oh, my God. Oh, my God! Is this the day we’ve been dreading?”

In February 2009, Obama announced the authorization of $75 billion to curtail foreclosures by encouraging banks to permanently lower unaffordable monthly mortgage payments. The goal is 3 million to 4 million modifications through 2012. But with about 113,000 loans permanently adjusted through December, the Obama administration is retooling its fledgling program on the heels of customer complaints of slothful banks clumsily handling applications.

Now, one year after the March launch, a Chicago Reporter investigation shows that many Chicagoans have less than a 50-50 chance of getting those loan modifications–”even with the help of a government-certified homeownership counselor. In addition, the foreclosure rates for the city remain high, and even when people do apply for a loan modification, hundreds still end up losing their home.

Through interviews with national and local housing experts and counselors, the Reporter found that banks are understaffed and inundated with applications, making some homeowners wait up to nine months to find out if they’ve been approved. In other cases, banks have routinely lost homeowners’ paperwork, forcing them to apply numerous times, or bank employees have incorrectly entered income data, disqualifying applicants. In addition, some banks are beginning the legal foreclosure process as they weigh whether to approve customers’ loan modification applications. Some people have been lucky enough to get approved for a temporary loan modification only later to find out that it will never become permanent.

“The pace of these [loan modifications] is such, such, such a mess,” said Kathleen Van Tiem, manager of the subprime lending intervention program at the Chicago Lawn/Gage Park office of Neighborhood Housing Services of Chicago, the city’s largest foreclosure counseling agency. “Not nearly enough is happening, and [the Home Assistance Modification Program] has been grossly disappointing.”

Illinois housing counseling agencies certified by the nation’s housing department and participating in the modification program have been tracking their clients and outcomes since the program started one year ago. Their data provide a small sampling of who’s seeking counseling and what their outcomes were.

The Reporter analyzed the results of that data, provided by the Illinois Housing Development Authority. Among the roughly 7,200 clients seeking foreclosure intervention services, the Reporter found:

* In Illinois, Latinos had the highest rate of successful loan modifications of any racial or ethnic group. Less than half–” 45 percent–”of applications from Latinos resulted in a modification, compared with 31 percent for Asians, 18 percent for African Americans and 13 percent for white clients.

* Most clients seeking a modification were Latino. Sixty-one percent of them said they were behind on their mortgage because of a reduction or loss of income. The rate was slightly higher than that of their white or black counterparts. Just 16 percent of Latinos said that they defaulted on their mortgage because their loan payment increased.

* Twelve percent of applications in Illinois–”15 percent in Chicago–”still resulted in the loss of a home either during or after the loan modification process. The rate for Latinos was 17 percent, followed by Asians with 12 percent, white applicants with 6 percent and black applicants with 5 percent.

It’s difficult to assess the exact reasons why Latinos are overrepresented in the loan modification process, though it isn’t surprising considering the difficulties minorities are facing with high rates of foreclosure, said Zhu Xiao Di, a senior research analyst at Harvard University’s Joint Center for Housing Studies. Latinos’ success in getting modifications could indicate a reversal of prior racial bias in mortgage lending, Zhu added.

Local information offers a snapshot of what’s happening, but is a limited sample since many homeowners skip counseling and deal directly with the banks to which they pay their mortgage, said Janis Bowdler, the deputy director of the Wealth-Building Policy Project with the National Council of La Raza, a Latino advocacy organization.

In addition, some clients choose not to respond to questions about their race or ethnicity, and overburdened counselors aren’t always consistent about filling in outcome codes. And it’s possible that clients may have duplicate records, according to Veronica Dzhafarov, a legal department administrator for the Illinois Housing Development Authority. “This type of data can be riddled with errors, but, unfortunately, it’s the best we’ve got to make any sort of assertions about how people are faring,” Zhu said.

It’s even more difficult to determine the impact because while banks are required to report race and ethnicity data to the U.S. Department of Treasury, it has chosen not to release that information to the public. The data have not been collected long enough for them to be statistically reliable, a treasury spokesperson told the Reporter.

“It’s something we’ve been howling about,” Bowdler said. “It’s imperative that we track what’s going on in the Latino and black populations so we can see if there are any disparities in the modifications being offered to minorities. So far, we don’t know much about the population at large, and we can’t really hold banks accountable without that.”

Government officials overseeing the program say it’s too early to tell whether the number of homeowners going into foreclosure is declining in accordance with the goal of the program.

According to the Woodstock Institute, the number of foreclosures in the six-county Chicago metropolitan area continues to grow. There was an 18 percent increase in the number of foreclosures comparing the third quarter of 2008 with the same period in 2009. Among them, 8,300 in 2009 were estimated to be Latino homeowners and more than 10,000 black homeowners, according to an October report by the William C. Velasquez Institute, a nonpartisan think-tank.

In Chicago, minority communities have the city’s highest foreclosure rates and a disproportionate share of subprime loans and other unsustainable mortgage products. They are also hardest hit by unemployment. An estimated 1.3 million Latino families and 1.1 million black families nationwide are expected to lose their home because of foreclosure from 2009 to 2012, according to the Center for Responsible Lending.

Not wanting to become another statistic, the Hernandezes began a fierce fight to keep their home. Prior to Armando’s injury, he had renovated their fixer-upper home himself–” raising the low ceilings, removing an unwanted archway and replacing outdated carpet with hardwood floors that he sanded and varnished. The Hernadezes had envisioned their son raising his own family there when he grew up and the couple’s future grandchildren running through the hallways and playing in the back yard.

In December 2008, the couple called Bank of America to say they couldn’t afford their mortgage and needed a lower payment.

The bank said no because the couple hadn’t defaulted yet. The customer service representative suggested Sofia call back in January, when the government was preparing to launch its loan modification program. If approved, the program could cap the couple’s mortgage payment at 31 percent of their income. The Hernandezes were paying 60 percent of their reduced income for housing.

When the program began, Sofia called the bank and applied over the phone. She faxed the bank the required paperwork. Weeks passed without any updates, and the next mortgage payment was approaching. The family didn’t want to default. They alternated not paying their electric bill, gas bill and credit cards, but it wasn’t enough. That’s when they canceled their car insurance, home telephone and plans for their teenaged daughter’s quinceanera.

“There have been plenty of nights where I’ve woken up and seen my husband sitting up agonizing over our situation,” Sofia said. “It’s heartbreaking to watch him beat himself up, thinking he’s not being a good provider for us.” Desperate, in April 2009, Sofia phoned the bank about their upcoming mortgage payment. There were no more bills left to eliminate.

“I begged the guy at the call center to tell me what was going on with our application,” Sofia said. The representative said that “we had been denied in March. –¦ I started crying on the phone and asked him, –˜How can that be when I’ve talked to you guys a half-dozen times since then?'”

Rick Simon, a Bank of America Home Loans spokesman, said the bank “worked diligently” with the Hernandezes to modify their loan but that they were ineligible for the Obama administration’s program. According to the bank, the financial information the family submitted showed that they could afford their mortgage. Their monthly payment for principal, interest, taxes and insurance was not more than the 31 percent of their gross income, a requirement of the government program, according to Simon.

Sofia was told to start the process over again. Weeks later, when calling for a status update, she was told again that the bank didn’t receive her paperwork. She faxed the documents again and began calling weekly for status updates.

The Hernandezes could no longer make their full mortgage and for the May payment, just started paying whatever money they had.

Among the 25 lenders participating in the government’s loan modification program last year, Bank of America had the most homeowners–”1 million–”who were more than 60 days delinquent on their mortgage. That was more than double the number of the next closest lender, JPMorgan Chase.

The Hernandez family’s frustrating interactions with Bank of America representatives is indicative of the hamster wheellike situation many defaulted homeowners and their housing counselors have found themselves stuck on during the past year. Lured by the promises of affordable mortgage payments, borrowers contact their banks in droves to avoid foreclosure.

But after sitting on hold, answering extensive financial questions, photocopying paystubs and bills, and waiting for an answer for weeks and months on end, many are told to resubmit their applications or paperwork over and over again.

Some applicants and their liaisons feel banks are unresponsive and incompetent. In January, the Obama administration retooled the program to help homeowners make their loan modifications permanent and combat numerous complaints about banks losing paperwork and inefficiency.

Van Tiem of Neighborhood Housing Services of Chicago said that the counselors at her office have a caseload of 50 to 60 families seeking modifications–”many of whom have been waiting nine months for a definitive decision.

A policy paper published by the National Consumer Law Center in October urged banks to address modifications quicker. Some banks sit on applications until the documentation is outdated, fail to put paper in fax machines that receive homeowners’ correspondences, give contradictory instructions through different departments and frequently make typos in formulas that determine program eligibility, said Cathy Lazuka from the Northwest Side Housing Center.

Banks “are content doing the bare minimum, and it can be like pulling teeth to get them to even check on the status of a loan modification application,” said Celena Santiago, homeownership center manager at the Spanish Coalition for Housing’s Humboldt Park branch.

But besieged banks say they don’t have sufficient staff and resources to handle the onslaught of applications they began receiving when the president launched the program one year ago, and they are now trying to remedy that. Paul Leonard of the Financial Services Roundtable said “tremendous capacity challenges” have arisen since concerned homeowners started inundating banks. “They’re hiring more people, training more and moving spending from the mortgage to mitigation side,” said Leonard, vice president of government affairs for the group’s Housing Policy Council, a trade association of 25 major mortgage lenders, servicers and insurers.

But Sofia had become distrustful of the bank. The same day she found out the modification was denied, she went to the federal housing Web site to get a list of approved housing counselors.

A study published in June by Housing Action Illinois in conjunction with the Woodstock Institute found about 45 percent of homeowners who completed counseling were able to remain in their homes–”a far higher rate than for those who try to navigate the process on their own.

Later that day, the Hernandezes met for free with a counselor at the Northwest Side Housing Center.

Housing experts say language barriers and a distrust of large institutions, like banks, could explain Latinos’ significant overrepresentation in getting help with the small housing counseling agencies. And like Armando, many Latino breadwinners are self-employed and have less conventional forms to verify their income.

The Hernandezes’ counselor reviewed their reapplication paperwork to ensure it complied with government requirements and contacted Bank of America. After several calls by the housing counselor–”and ultimately five months after initiating the loan modification application–”the Hernandezes were told that they were approved for a trial period. If they made the new lower payments on time for three months, the agreement could become permanent.

Banks are feeling pressure–”although not enough–”from the Obama administration and advocates to show progress in completing loan modifications, said Ira Rheingold, who runs the Washington-based Institute for Foreclosure Legal Assistance.

Because of this, banks haven’t been thorough about processing homeowners’ applications to hit their quotas, he added. “Bank of America, for example, had pathetic numbers, so they moved to a phone-approval process and started using the rubber stamp en masse to bolster those numbers,” Rheingold said. “Many of these temporary mods are done without proper forms of documentation, and when it’s time to transition them into permanent ones, they’re just then tackling the extensive underwriting.”

As a result, trial modifications are not being automatically turned into permanent adjustments, according to housing counselors. And in some cases, homeowners are not able to make the modified payments in the three months following the trial period–”even though the trial period has ended–” thus voiding any permanent modification.

The Hernandezes’ counselor told them the bank would mail the final documents for their temporary loan for them to sign. “Elated doesn’t even begin to describe it,” Armando said. “We felt like it was possible to recapture our dream again.”

In November, the Hernandezes received a FedEx package from Bank of America. But it wasn’t their modification paperwork. Instead, it was an offer from the bank saying the Hernandezes had been approved for a $1,960 mortgage payment.

The so-called “best deal, sure bet” would cost the family $100 more each month than what they were paying when they applied for the modification and extended the unaffordable payments another 10 years–”to 40 years total–”at which point the couple would still owe $143,000. After doing some calculations, the couple realized that by the time the house was paid off, they would have paid more than $1 million in mortgage payments for a home they initially bought for $229,000.

“It was like, –˜Huh?’ ” Armando said. “What on earth would possess them to think we could afford higher payments than the ones that were getting us in trouble initially?”

According to Simon, this offer came as part of the bank’s normal second-look process under Bank of America’s National Homeownership Retention Program. “In November, we made a modification offer that would have cut their monthly payment significantly and reduced the principal balance on the mortgage. We believe this program provided a prime solution for the customers,” Simon said in a written statement to the Reporter. “For unknown reasons, they declined the offer.”

The Hernandezes had in fact disregarded the letter because they were waiting for final approval forms for the loan modification their counselor had negotiated. Instead, they got a surprise guest at their front door. Sofia was sitting at the kitchen table with her son when Bank of America made a house call.

“Stay right there,” she said to her 6-year-old as she approached the door. Once the man identified himself, Sofia invited him in from the bitter cold. She thought he was there to deliver the paperwork saying the family could stay in the house. But the letter he passed Sofia was another copy of the “best deal, sure bet” offer FedEx had delivered a week or two earlier. Sofia was confused. The bank representative said he was instructed to connect Sofia to someone at the call center once he made contact with her. The man pulled out his cell phone, dialed a number and passed the phone over to Sofia.

“This woman on the other end tried to bully us into accepting their package when I kept trying to explain that we had been approved by them for [the Home Affordable Modification Program]. She told me we were better off accepting the $1,960 payments because the program isn’t a 100 percent thing,” Sofia said.

Sofia said she was told that the housing counselor she was working with had not been authorized to access the bank’s files or speak on Sofia’s behalf and that the bank did not negotiate with third parties.

Sofia refused the offer, but before she could hang up, she was solicited to make a mortgage payment that day. The woman at the call center also told her that if the family didn’t submit updated paystubs, bank statements and a hardship letter within 48 hours, the bank’s modification offer would be voided because whoever was working with the Hernandezes’ file didn’t properly complete the job.

Sofia hung up the phone. That night she met with her housing counselor, who in turn contacted Bank of America the next day and confirmed that the Hernandezes had in fact been approved for a three-month trial modification during which they’d be paying $572 each month.

Each day, Armando and Sofia wait for the mail and check the porch for a FedEx delivery from Bank of America. When nothing comes, they find themselves glancing at the calendar.

The Hernandezes should have gotten instructions for their trial modification before Christmas, but the weeks have rolled by. Just after the new year, their counselor’s contact at Bank of America said the bank had contacted the loan’s investors and that the loan was in the legal department. In the meantime, the couple continues to wait.

“For us to be treated like this as customers who’ve taken every measure to try to keep our obligations–”it’s unbelievable,” Sofia said. “We haven’t paid our mortgage since June, and I feel like our security is a big question mark right now.

“It’s an awful purgatory,” she added.

Contributing: Kelly Virella, Amalia Oulahan and Jeff Biertzer.

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