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Mortgage modification alternatives mystify many homeowners

Allison Rinehart's best hope for saving her home isn't the massive federal effort to stem foreclosures.

She's been denied, possibly in error, for that plan so she's banking on an alternative mortgage modification to keep her Charlotte townhouse.

"This is the only thing my daughter and I have," said Rinehart, who is 45. "I am a single parent, no child support, working as many jobs as I can take on."

The taxpayer-funded Home Affordable Modification Program, or HAMP, is the centerpiece of the nation's foreclosure prevention effort. But it doesn't work for many people.

For example, Bank of America estimated in April that more than half its 1.44 million delinquent mortgage customers weren't eligible for HAMP. Wells Fargo says about 80 percent of its roughly 500,000 modifications are non-HAMP. Combined, the two service nearly 40 percent of U.S. mortgages.

HAMP also has seen a surge in homeowners failing the three-month trial period, and a decline in new trial enrollments. Critics blame servicers for the declines, saying they're doing a poor job and unfairly bouncing people from the program. Servicers acknowledge there were problems, especially early on. They also say homeowners aren't complying with payment agreements or document requirements.

Whatever the reason, the problem isn't going away. The number of struggling homeowners locally and nationwide is expected to remain high because job growth remains sluggish and millions of people are out of work. That means alternative modifications are likely to become even more important tools for preventing foreclosure.

"The goal is just to get to affordability ... whether that happens through a modification through HAMP or outside of HAMP," said Tom Goyda, a Wells Fargo spokesman.

There are many reasons property owners can't qualify for the federal program.

For example, they might have refinanced or bought after HAMP's Jan. 1, 2009, cutoff. They might not meet income or debt requirements. HAMP modifications, subsidized by taxpayer dollars, also aren't available for investment property, vacation homes and high-end homes.

In April, Bank of America finalized more than 23,000 HAMP modifications and had more than 210,000 in the pipeline. The Charlotte bank also has been averaging about 13,000 alternative modifications a month this year, said spokesman Dan Frahm. Most are for customers with mortgages issued after the cutoff or above the HAMP limit or on properties that aren't their principal residence.

"HAMP is at the center of our modification efforts at Bank of America," Frahm said. "It's also important to recognize that no one solution or program can address the ... issues facing homeowners, who are experiencing hardship as a result of prolonged recessionary impacts."

President Barack Obama announced the HAMP program in February 2009, well into the financial crisis. Prior to that, lenders and mortgage servicers were already doing modifications so it's natural there are more of those. Many HAMP applicants also are still working through the slow, cumbersome process.

Servicers participating in HAMP must first consider homeowners for loan aid under that program. If that doesn't work for customers, servicers can consider them for their own programs.

Goyda said Wells is doing alternative modifications for about 60 percent of customers who reach HAMP's trial phase but don't ultimately qualify. About 10 percent find other solutions, and the balance are probably headed for foreclosure.

Of HAMP, he said: "It's only one part of our overall efforts to help customers find affordability."

Consumer issues

Consumer advocates, while sharply critical of mortgage servicers for poor modification service, generally endorse HAMP's intent and its standardized approach.

"It's a useful template," said Julia Gordon, senior policy counsel with the Center for Responsible Lending in Washington. "It's by no means some kind of gold standard."

For example, a recent HAMP change eliminates unemployment benefits as a qualifying source of income for modifications.

"That's just crazy," she said.

Gordon cautiously welcomes alternative plans because they can potentially help more people. She's concerned homeowners won't have a consistent way to know what's available and how to qualify. She and others have seen instances where payments are actually higher under non-HAMP plans - not a workable solution for a struggling borrower.

She also frets about the lack of federal oversight for in-house plans. The U.S. Treasury oversees HAMP, but has been criticized for not penalizing servicers for mistakes.

Gordon urges people to review any modification offer carefully. What's the new payment? Has the principal been reduced if the loan balance exceeds the value of the house? How long does the modification last?

"It is conceivable you could have a proprietary product that's better," she said.

Under HAMP, the government pays servicers and homeowners for successful modifications. For homeowners who make all their payments on time, that can amount to $5,000, paid toward their loans.

Those incentives aren't available under alternative plans.

Al Ripley, with the nonprofit N.C. Justice Center, has been critical of HAMP's cumbersome nature. He's also concerned about the lack of consistency and transparency in alternative plans. He says all servicers should be required to disclose their guidelines and processes for all modifications.

"It would be very helpful for homeowners to have more predictability when applying for a modification," Ripley said.

Allison's story

Allison Rinehart's budget was tight in late 2004 when she paid about $136,000 for her Charlotte townhome.

She put $4,000 down on the home and took a 30-year mortgage at nearly 9 percent. Her monthly payments were $1,111. Rinehart and her daughter, Sydnea, now 15, got by on the roughly $30,000 a year Rinehart made as a longtime, self-employed hairdresser and middle school coach.

Last spring, she noticed business dropping off more sharply as her clientele struggled in the downturn. In July, she asked for a modification from Select Portfolio Servicing, the Utah firm handling her mortgage. She received an unusually speedy offer of a trial plan, which is supposed to last three months.

Rinehart was told to make the first payment on Sept. 1 at her original amount. Subsequent trial payments were cut to $685. She made those payments through March, when she received a letter saying she was denied a HAMP modification. Soon after, she contacted the Observer.

"This has caused me sleepless nights, depression, and anxiety," said Rinehart, who also works in her church's office and has been a nanny. "My 15-year-old doesn't know whether or not she will have her home the next day or not because of this."

SPS offered another trial, with monthly payments at an even lower $456. Rinehart started the payments in April but worried it was a delaying tactic and she'd be denied again. Meanwhile, she received notices from SPS saying that to keep her house she had to repay the thousands of dollars that hadn't been paid during the trials.

"It really scared me," she said. And angered her. If she had the money, she wouldn't have asked for help.

"It was a slap in the face."

In May, the Observer began contacting SPS, asking about Rinehart's case. After several weeks of messages and e-mails, the company said it would send Rinehart a response.

In that letter, SPS said Rinehart didn't qualify for HAMP because she failed to send documents by a certain date. Rinehart said that's not true, that she has copies and certified mail receipts proving she sent everything requested, on time.

The May 27 letter, which Rinehart provided the newspaper, confirmed Rinehart made the first two trial payments. The letter said once she made the third payment, due last week, "SPS will complete the modification process and you will receive the final modification agreement which requires your signature.

"Once this is received, SPS will permanently modify the terms of your note and bring your account current."

Her June payment cleared her bank 10 days ago. On Thursday, she arrived home to find the promised paperwork. She believes that happened only because she went public.

On Friday, she was reviewing the papers and reflecting on what sustained her.

"I relied on my faith."

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