Loan modifications come slower than some seek
| Wednesday, Dec 02 2009 06:46 PM
Last Updated Wednesday, Dec 02 2009 06:47 PM
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Just after the federal government announced a new campaign to ramp up assistance to mortgage borrowers at risk of losing their homes, some in Bakersfield remained worried.
"The banks say one thing, but the truth is they don't care that people are struggling and trying to work with them. They're totally unresponsive," said homeowner Frank Cavadi, 58, whose home in east Bakersfield has lost more than half its value over the last three years.
Cavadi recently wrestled a temporary, three-month modification from Wells Fargo, but it took him a year of persistent calling to get it, and the relief is only temporary.
"Normally, I hate the federal government getting involved in anything, but that's what it's going to take," Cavadi said. "Some of these banks that got bailed out need to help people to get the economy moving again."
On Monday, the U.S. Department of the Treasury and the Department of Housing and Urban Development announced an initiative to help borrowers in the temporary, trial phase of a loan modification convert to permanent modifications.
This newest effort is part of the Obama Administration's Home Affordable Modification Program, which has helped more than 650,000 borrowers since it began in March.
But that figure falls far short of the administration's goal.
The program is supposed to commit $75 billion to give up to four million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac a chance to refinance into smaller monthly payments.
At the end of October, just 20 percent of those eligible had signed up for trials lasting up to five months.
In a statement, Phyllis Caldwell, the new chief of the Treasury Department's Homeownership Preservation Office, called the pace of trial modifications "encouraging."
But she added, "We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones."
The California Association of Mortgage Brokers says it has found clients' experience with pursuing modifications a mixed bag.
"I'm aware of people whose institutions proactively approached them even though they weren't behind on their payments yet," said spokesman John Holmgren. "On the opposite side, I've seen people who are in trouble but have the ability to pay a portion of their mortgage -- sometimes a substantial portion -- but got immediately shut down or couldn't get any communication from their lender at all. There's been inadequate follow up."
The government says it will try to turn that around, in part by withholding payments from mortgage companies that aren't doing enough to help homeowners.
Hoping to shame the poorest performers, the government also plans to publish a list of the slowest movers later this month.
It's not surprising that the modification process has been so sluggish, said John Emery, dean of the Cal State Bakersfield School of Business and Public Administration.
"If you've ever refinanced a home, you know that the stack of paperwork is about an inch thick," he said. "It's a massive amount of labor, both for the homeowner compiling documentation and the staff that has to process it.
"And it takes a lot of staff. You have to get your underwriters and appraisals and all sorts of other things."
Then, too, banks are reluctant to write off bad loans, which go on their books, Emery said.
"They'd rather give a temporary modification and hope things get better," he said.
But there were 6,530 local foreclosures this year as of October, according to the Kern County Assessor/Recorder's Office, and those foreclosures will continue until the economy gets stronger, Emery said.
"Initially the crisis was exotic loans, in some cases loans that should never have been given in the first place because borrowers couldn't afford them," he said. "The newer foreclosures are more related to divorce or huge, unexpected medical bills or just losing your job.
"The recession is a big part of this. The economy continues to grow, but it's slow. We're not zipping out. We're crawling out."
