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N.C. homeowners wary of latest foreclosure fix

Despite changes to the federal plan, mortgage-modification candidates seethe over delays, misinformation, bad service.

By Stella M. Hopkins
Save Your Home
A continuing series by The Charlotte Observer.

More Information

  • N.C. homeowners wary of latest foreclosure fix
  • Banks, investors key to more help

    The government's overhauled foreclosure-prevention plan came together after several months of negotiations among the Treasury Department, major banks and investors in mortgage securities. A major sticking point so far has been getting everyone involved to agree on restructuring loans.

    The problem is that most of the troubled mortgages aren't owned by the banks themselves. They were bundled into securities during the housing boom and sold to investors. To reduce principal payments on those mortgages, banks often must get permission from the investors who hold the securities - and may not be willing to take less.

    Banking industry officials were optimistic that investors would negotiate.

    "You have two choices: Modify the mortgage and help a borrower stay in their home or possibly get nothing if they foreclose," said Scott Talbott, the chief lobbyist for the Financial Services Roundtable, an industry group.

    Some analysts said the new plans have a better chance of success than past efforts because reducing principal for some struggling borrowers would be more effective in helping homeowners than reducing interest payments or other forms of aid. Laurie Goodman, a widely followed mortgage securities analyst with Amherst Securities Group, called it "a huge step forward."

    The plan aims to help 3 million to 4 million borrowers avoid foreclosure - the same target the administration tried to reach with its original plan last year. Even with the changes, the effort will probably prevent no more than 1.5 million foreclosures, estimates Mark Zandi, chief economist at Moody's Analytics.

    Disputes among banks and investors could prevent the effort from stopping more foreclosures, as could another drop in home prices.

    "Practically speaking, this is probably going to prevent foreclosures. But I don't think they're ever going to reach 3 to 4 million homeowners," said Chris Mayer, a real estate professor at New York's Columbia Business School. "These plans always turn out to be harder than we think." Associated Press

  • The new foreclosure prevention programs are complicated, and many details have not been worked out. Implementation is expected to take months.

    To read Friday's announcement and more details online, go to: Click on the "new enhancements" link near the top of the page and scroll to the bottom of that document, where there are four links for specific details. The choices are consumer FAQs, examples of how the new plans are expected to work and details of both additions to the main modification program and the new refinancing options.

    About this series

    This year, Observer reporter Stella Hopkins is examining how the nation's massive foreclosure prevention effort is playing out for homeowners as rising numbers seek to save their homes. Reach her at

Distressed N.C. homeowners, embittered by months-long battles for mortgage modifications, expressed skepticism Friday that the latest federal foreclosure-prevention plan will bring any relief.

A key change in the plan announced Friday would encourage lenders and servicers to write down the amount due on mortgages for people whose homes are significantly "underwater," or worth less than they owe. Another major provision would require payment reductions for up to six months for borrowers who have lost jobs.

"I just think it's a nightmare, and I don't believe it," said Louis Caruso, a Monroe construction worker who has been out of work more than a year and trying to get his payments to Nationstar Mortgage reduced since December. "I'm at the point, I don't know what to do."

The new programs are intended to increase the effectiveness of the highly criticized $75 billion foreclosure-prevention plan President Barack Obama announced in February 2009. The goal was to stem the wave of foreclosures that are depressing home values and threaten the struggling economy.

The plan has been criticized as inadequate by regulators, lawmakers, consumer advocates and homeowners. Lenders and servicers, who have scrambled to hire employees for modification work, bear the brunt of criticism for misinformation, inept service and lengthy delays.

Chris Pelone of south Charlotte applied to Bank of America for a modification in November, shortly after he was laid off. By February, he still had not received the paperwork promised to begin the process, so he called Save Your Home. On Feb. 19, the bank said an "associate has been assigned to the Pelones' case and will contact them."

That hasn't happened.

On Friday, five weeks later, the bank said: "We apologize to the Pelones for their experience with Bank of America. We have assigned them to a negotiator and hope to come to a resolution soon."

Based on his experience so far, Pelone said he is "pretty skeptical" the new programs can be effectively rolled out.

"I feel like I've been really patient," he said. "I think they're just ignoring me because I haven't missed any payments."

Bank of America, the nation's largest servicer, announced a new modification program on Wednesday that calls for writing off up to 30percent of the principal on certain mortgages, in which the loan exceeds the home's value by at least 20 percent. The new federal plan calls for servicers to consider writing down principal for loans that exceed the home's value by at least 15percent.

The bank's new program is limited to borrowers with specific subprime and adjustable rate mortgages made through Countrywide, which Bank of America bought in 2008. The bank expects about 45,000 of its borrowers will be eligible, a small slice of the total 11 million nationwide estimated to be underwater.

Borrowers will have to make timely modification payments for five years to receive the full benefits. The federal plan requires three years of on-time payments to receive the full principal write-off.

Brian Moynihan, who became Bank of America's chief executive Jan. 1, has called the foreclosure crisis "the biggest issue that our economy faces."

The Charlotte bank has been hiring workers in its home retention unit, which now employs about 15,000 people. On Friday, the bank couldn't say whether it would have to add more people to handle the new federal offerings.

Wells Fargo, which bought Wachovia as it cratered late in 2008, also couldn't say yet whether it will have to hire more people to handle the new federal offerings.

In little more than a year, the nation's second-largest servicer has added 9,000 workers for a total of 16,500 to handle modification and other foreclosure-prevention efforts, said Wells spokeswoman Teri Schrettenbrunner.

Through February, only 170,000 homeowners have received long-term modifications through the key federal program, called HAMP. Lenders, including Bank of America and Wells Fargo, have modified far more mortgages under their own programs.

There also are about 1 million homeowners in trial modifications, the first phase under the federal plan. But increasingly, those trials drag on far past the intended three-month period. Some borrowers have then been denied or even foreclosed on, despite making timely payments - scarce dollars that didn't ultimately save their homes.

Several lawsuits have been filed against lenders, including Bank of America and Wells Fargo, alleging they haven't provided final modifications to homeowners in the trial phase.

The new provisions, for the most part, aren't expected to be up and running until the fall, which means more waiting and uncertainty for homeowners.

"Based on past results, I'm not optimistic," Al Ripley, a lawyer with the N.C. Justice Center, said of the new plans. "For homeowners facing foreclosure, it's been a desperate series of frustrating, failed attempts in dealing with mortgage servicers and lenders, trying to take advantage of the programs that have been offered so far."

For many, the process breaks down well before they receive even the temporary relief of a reduced trial payment.

"I am at the end of my rope and am not sure what to do," said Alison Hollowell, a Huntersville homeowner who applied for a modification with Chase in August, has resubmitted documents multiple times, and has yet to get an answer.

Hollowell, whose husband is an elementary school teacher, was in new home sales, one of the industries hardest hit by the downturn. With sales at a trickle, she switched to part-time office work after the May 2008 birth of their son.

Their mortgage payment is now more than half their income. Given the bleak housing market, a Realtor advised that they probably can't sell their home for what they owe, so they applied for a modification. The delay has further depleted the savings they've used to remain current on payments.

On Friday, Hollowell said she's glad to hear there's more help planned for homeowners.

"It's going to inundate companies with more work when they're not able to complete the applications they have now," she said. "If it gets stuck in the bottleneck, there's no help."

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