South Florida banks and borrowers struggle with loan modifications
Sides have sharply different understanding of what it means to modify a mortgage
By Harriet Johnson Brackey
South Florida Sun Sentinel
October 12, 2009
Weston attorney Kraig Weiss and his wife, Ana, are living what they call a "loan modification horror story."
Earlier this year, the Weisses agreed to a loan modification with Bank of America, only to have the bank take the offer back. The Weisses sued. Now the bank is moving toward foreclosure, even though the Weisses are making mortgage payments.
"The truth is, they don't care. They feel they are above it all and they don't have to answer to us," Kraig Weiss said.
A new federal report shows lenders are restructuring home loans for troubled borrowers, but stories like the Weisses' abound across South Florida and the nation.
On one side are borrowers. They want better mortgage terms, like the Weisses, to stave off foreclosure. In Broward and Palm Beach counties, more than 14,000 homeowners were in some stage of foreclosure as of August, the most recent month for which data were available.
On the other side, lenders say they're doing the best they can to deal with millions of troubled borrowers.
The Weisses' suit, filed in June, accuses the bank of breach of contract. They've also said that bank representatives traipsed onto their property to take pictures of their house during Yom Kippur, frightening Ana Weiss' 76-year-old mother when she looked outside.
Bank of America declined to comment on the case.
The Treasury Department announced last week that lenders have modified almost 500,000 mortgages in the eight months since the federal government announced its Making Home Affordable program, a plan to encourage — even pay — for loan modifications. Lenders hit that number one month earlier than expected.
Still, only 16 percent of eligible home loans have been modified, out of 3.1 million delinquent mortgages in September. The treasury has said the program's aim is to help as many as 4 million homeowners through 2012.
The Congressional Oversight Panel reported last week that the federal program may not reach its long-term goal and urged the treasury to improve the program or create new ones to meet an expected rise in foreclosures fed by increased unemployment.
"It isn't clear that 500,000 modifications will be enough to put a serious dent in the foreclosure crisis or to dampen the impact of foreclosure on the broader economy," said Elizabeth Warren, chairwoman of the oversight panel charged with assessing last year's $700 billion financial rescue fund.
Foreclosures, the report said, are now stalking families who took out conventional, fixed-rate mortgages and put down payments of 10 percent to 20 percent on homes that would have been within their means in a normal market.
Jerry Buechler, a firefighter who lives in a rental home in Plantation, tried to get the loan on his Port St. Lucie home modified. Then he pursued a short sale. Both efforts failed. Now, he rents the Port St. Lucie home, but he's not paying the mortgage.
Buechler said he can't charge enough rent to cover the cost of the house because the neighborhood is pocked with foreclosed homes that banks are renting for a pittance. His plans to retire to the house in a few years are on hold.
Bankers don't seem to be happy about this situation, either.
"Nobody has the loan modification approval process nailed down," said Guy Cecala, publisher of Inside Mortgage Finance.
There are no statistics available on how many have applied for or received a loan modification in South Florida.
Underwriter Terri Schmitz, a mortgage broker at AmeriFirst Funding in Fort Lauderdale, estimated that more than three of every four recent borrowers are going to need new deals because of the tough economy, lost jobs, reduced work hours or major changes in circumstances, such as illness.
A loan modification is essentially a new loan in which the lender agrees to reduce the interest rate or extend the length of the mortgage. Getting one can take months. Borrowers complain that banks drag their feet, lose paperwork, even tell qualified borrowers that they don't qualify.
Bankers point out that not all borrowers qualify. Someone who loses a job won't meet the income requirements, for example. The terms of some loans, particularly those later sold to investors, won't allow changes.
Lenders can modify a loan through the Making Home Affordable program, or they can do it on their own.
Wells Fargo, the bank that absorbed Wachovia, says it has 12,000 employees devoted to homeowners. None of those employees are in South Florida, among the nation's hardest-hit housing markets.
The combined Wells Fargo/Wachovia has modified 17 percent of eligible loans, or almost 65,000 loans under the treasury program.
Overall, Wells Fargo says it has modified almost nine times as many, or 304,000 loans. "A lot of loan servicers have not [been] as aggressive as we have with borrowers," spokeswoman Teri Schrettenbrunner said. Bank of America's record: 11 percent of eligible loans modified under the Making Home Affordable program. The bank says it has helped a total of 615,000 customers in six months.
Cecala says one reason the loan modification process has bogged down is that lenders don't think it works. Many borrowers tend to get in trouble afterward — and then banks foreclose, according to a report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
"[Lenders] still want to be paid back, and they don't want to give [borrowers] much slack," Cecala said.
J.P. Morgan Chase has one of the highest rates of modifications. It has offered modifications to 27 percent of eligible borrowers through the federal program.
The bank, which absorbed Washington Mutual, set up centers devoted to homeowners in February, including one in Aventura.
"We understand this is a very emotional time for borrowers," said Ertha Brathwaite, manager of the Chase Homeownership Center in Aventura. "We really try to explain the process and why it might take so long."
A common misperception, she said, is that borrowers expect to get a loan modification because they are "underwater," or owe more than the house is now worth. Almost a third of all mortgages in South Florida were underwater as of June.
"It's what you borrowed," Brathwaite said. "You wouldn't share in the gain [if you sold your home at a profit]. Why should the bank share in the loss?"
Another misunderstood notion: Banks will reduce what you owe. Cecala said he hasn't heard of any bank reducing principal. Instead, they cut rates and lengthen the term. Weiss says he felt lucky when he first got the deal, which cut his mortgage payment by $1,000 month.
"Here I have an agreement, and they're fighting me on it," he said.
Information from The Associated Press was used in this report.
Harriet Johnson Brackey can be reached at email@example.com
Copyright © 2009, South Florida Sun-Sentinel
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