Dec 23, 2008 4:46 pm US/Pacific
Mortgage Modification Can Be Trying, Chaotic
PLEASANTON (CBS) ―
Hope Now, the mortgage industry's alliance intended to help struggling homeowners, announced Monday it's helped almost one-million home-owners get loan modifications this year. But, advocates for homeowners say the group is inflating its success.
Homeowners who've tried, say it can be trying - and time consuming - to get a bank to agree to change the terms of a home loan.
Tammy Yanak-Schoonover of Pleasanton knows firsthand. She's lived in her own home in Pleasanton for 20 years. But a divorce, and putting herself through college and grad school, left her with little equity. Last year, her mortgage jumped from $1,800 to $4,200, something thje school guidance counselor said she just can't afford.
So, she asked her bank, Downey Savings and Loan, for help in the form of a loan modification. What she got was a nightmare. She said she "made a lot of phone calls, trying to get somewhere, one person passing me to someone else … left hand not knowing what the right hand was doing."
Yanak-Schoonover is not alone. The F.D.I.C. estimates 4.4 million homeowners could end up defaulting on their mortgages between now and the end of 2009.
"It's chaos," said Kevin Stein a director at the California Reinvestment Coalition, a group that helps homeowners in distress. "We have this crazy, byzantine system for dealing with loan modifications."
Stein said homeowners who do try to get lenders to change the terms of their loans get the run-around: "You call one person, they don't return your call, you wait on hold for minutes, for hours, for someone to respond, and if you call back that person is no longer there."
Stein also says loan servicers may have a financial interest in NOT modifying loans. "Servicers are not reimbursed for the cost they incur in working with a borrower to modify his or her loan," said Stein, "but servicers ARE reimbursed for the cost they incur on foreclosing on a homeowner."
When servicers do agree to change the terms it's not always for the better, said Stein.
Tom Davidoff, a professor at the Haas School of Business, shares that view. "When lenders say 'yes' to a loan modification, they're not being very generous," said Davidoff. "They're not reducing the payments by much, or they're not reducing the principal by much, or both.
In fact, a government report recently found more than 50% of people who get modifications end up re-defaulting.
Banks may give homeowners more help in the coming year because of public pressure and the mounting problem, according to Davidoff.
Downey Savings eventually did agree to modify Yanak-Schoonover's loan.
Her monthly payment will go from $4,200 a month to $1,700 - but only for 3 years. And during that time she'll only be paying interest.
Then her loan will go up, again, every year, for the next 3 years. It's not perfect - but at least she'll stay in the home while she prepares for higher payments down the road.
Housing advocates recommend anyone who's having trouble paying their mortgage contact a non-profit
HUD-approved housing agency for help.
(© MMX, CBS Broadcasting Inc. All Rights Reserved.)
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