Ben Mayfield believed he had a deal that would save his dream home from foreclosure.
His mortgage servicer, GMAC, slashed his monthly payment about 70 percent last July after he asked for a loan modification. Mayfield, who is 57 and a car salesman, made six months of payments, as agreed, according to bank records he shared with Save Your Home.
Then a shocker: GMAC returned his Feb. 1 payment with a notice that it was foreclosing on the Salisbury log cabin he bought 15 years ago.
"I'm scared to death, and I'm mad all at the same time," he said.
Mayfield's experience underscores the growing problem of homeowners stranded for months in the limbo of what is called a trial modification. That's supposed to be a three-month period during which homeowners prove they can make reduced payments, on time. Then the modification is supposed to become long term. Increasingly, homeowners and lawyers say that conversion isn't happening on time or, as with Mayfield's case, at all.
Thirty percent of the 74 troubled homeowners who contacted Save Your Home in the last five weeks have had trial modification problems, ranging from delays of as much as nine months to rejections such as Mayfield's. Most of the other callers are stuck earlier in the system, still trying to get to the trial phase.
"It is a story that we have heard from around the country," said Stuart Rossman, a lawyer with the National Consumer Law Center, who has filed four federal lawsuits against lenders, alleging they failed to deliver long-term modifications to borrowers in trial plans.
GMAC says an Aug. 10 change in the federal foreclosure-prevention program meant Mayfield no longer qualified for the modification offered just a few weeks earlier. However, the Detroit-based servicer did not notify Mayfield and accepted months of reduced payments before beginning foreclosure.
"That's inherently unfair and wrong," said Al Ripley, a lawyer handling housing issues with the N.C. Justice Center in Raleigh. "Obviously this guy lost a lot of valuable time and resources in continuing to make payments under the trial modification."
The centerpiece of the nation's $75 billion foreclosure prevention effort is the Home Affordable Modification Program (HAMP), overseen by the Treasury Department. The year-old program has been strongly criticized for falling short of White House projections for helping homeowners. Lenders and servicers, who struggle to keep up with the volume of requests, bear the brunt of criticism for slow, inept service.
Last month, citing reports of lousy service, the House oversight committee began an investigation into the program.
Frustrated homeowners are turning to federal courts.
Rossman is seeking class action status in the four lawsuits he has filed on behalf of Massachusetts borrowers. He filed two last month, one against Bank of America and the other against Wells Fargo. This month, he filed similar cases against Chase and OneWest Bank, for its handling of IndyMac loans. The cases allege homeowners haven't received long-term modifications despite having made timely trial plan payments.
A key concern is that borrowers spend scarce dollars to make payments that ultimately might not save their homes and could have been used securing other housing.
"It's really outrageous," said Bruce Marks, the national modification crusader and self-styled "bank terrorist." "The homeowner proves that they can make the payments, and then they say that's not good enough."
Marks is chief executive of Neighborhood Assistance Corporation of America. The nonprofit is perhaps best known for its multi-day mortgage modification marathons which draw tens of thousands of distressed borrowers to meet with lenders, servicers and investors on site. Many receive same-day modifications with payment reductions.
Marks told Save Your Home he would look into Mayfield's case. For him, poor modification servicing is a continuation of the industry's lax underwriting and exotic mortgages that triggered the economic crisis.
"They are so bad and predatory in their practices," Marks said. "What they do is awful."
A paperwork merry-go-round
In 1996, Mayfield was delighted to find a three-bedroom log cabin home on several acres for $130,000. He put down about $20,000. In 2005, he refinanced, taking a 30-year mortgage at 9 percent. He cashed out about $35,000 to pay off bills.
Last year, in late February, Mayfield suffered a heart attack. Without health insurance, he says his medical bills soared above $70,000.
Within about six weeks, he returned to his job at a car dealership. At that time, he says he was current on his $1,200 monthly payment, which includes insurance and taxes.
His servicer at the start was Homecomings Financial. Last July, GMAC took over servicing Homecomings loans.
Mayfield called for a modification, hoping to reduce his mortgage payments because of his medical debt. The paperwork merry-go-round soon started. A May 26 letter said he was denied, followed by a request for more information.
In late June, he was laid off, as the economy sapped sales. His unemployment benefits are just enough to cover his mortgage, but he has savings and few other bills.
On July 28, Mayfield's detailed notes indicate a GMAC service rep told him he was approved for a modification and would soon receive forms.
As Mayfield understood it, he did not have to make his August payment. Starting Sept. 1, he was to pay $356 each month for three months.
On Aug. 25, he received the promised paperwork, which he says he signed and returned.
Mayfield received repeated notices of default and pre-foreclosure during the time he was making his payments. He also received at least one denial but without explanation. Each time, he says he called customer service and was told to ignore the letters and continue making payments. He also had to resubmit documents, another common complaint.
On Jan. 27, he mailed the sixth payment. Soon after, he received the check back and an attorney's letter saying he had a foreclosure hearing March 22 in Rowan County court. The auction date is April 14.
"Anger, anger and more anger," said Mayfield, who has been divorced about 20 years, has no children and returned to work last week as a commission car salesman. "They were telling me, don't worry about it. I felt like I had blindly walked the plank, believing every word they said, until I walked off the edge."
Effects of HAMP changes
Jeannine Bruin, a GMAC spokeswoman, said Mayfield was "one of the earlier loans that we evaluated for HAMP." The company set the trial payments of $356 under the guideline that payments, including insurance and taxes, be no more than 31 percent of income, she said.
Getting Mayfield's payments that low, she said, required lowering the interest rate to 2 percent, extending the $126,000 loan to 40 years and deferring more than $80,000 to the end of the loan.
Bruin said later guidelines prohibited deferring that much, which meant Mayfield didn't qualify because GMAC couldn't lower the payments to the 31 percent threshold.
HAMP and related programs weren't fully developed when announced little more than a year ago. Lenders and servicers have had to respond to program changes while also dealing with floods of distressed borrowers.
However, the guidelines GMAC says resulted in Mayfield's denial last month were dated Aug. 10, shortly after Mayfield was offered a trial plan. Servicers also can choose to allow a larger deferral. And regardless, Marks said, borrowers who make trial payments shouldn't be rejected.
"These servicers and lenders say homeowners have to be responsible for their actions, but they don't believe it applies to them," he said. "The homeowner proves that they can make the payments, and then they say that's not good enough."
Bruin declined to say how many other borrowers had been bounced out of modifications for similar reasons or why Mayfield hadn't been notified for months. GMAC, an industry leader in granting long-term HAMP modifications, is reviewing other options for Mayfield, and will delay a foreclosure sale during that process, Bruin said.
"He's not going to get foreclosed on while we're looking at his file and talking to him," she said.
On March 1, Mayfield received a letter from GMAC requesting yet more paperwork. If the documents aren't received within 10 days, the letter says, "we will not be able to provide you" a HAMP modification. That would be the modification Bruin says he's already been denied.