Government Asks Banks To Expand Foreclosure Prevention

On Friday Reuters put out an article saying that Government is asking the 25 largest mortgage servicers to step up their efforts in doing modifications. This program is expected to save as many as four million borrowers from foreclosure. Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan wrote a letter to these lenders saying,
"There is a general need for servicers to devote substantially more resources to this program for it to succeed and achieve the objectives we all share,"


So the Government recognizes that the lenders are currently inadequately staffed to handle the current influx of applications. The letter also asks mortgage servicers to expand their reporting of modification work, create stronger measurements for how they deliver help and cooperate with a fail-safe program that will make sure that eligible borrowers are not wrongly denied assistance. Thus recognizing as well that lenders have been and are currently wrongly denying applications. My question is this, “ Why does the Government continue to trust these banks to do the right thing?” We've already handed out $700 Billion in taxpayer money ($350 Billion already received) in order to save these banks. ALL of them were scrutinized for CEO spending and payouts, and NONE of them had an answer to 4 simple questions, “ How much money have you spent, how much money have you lent, how much do you still have, what are your plans for the remaining funds?” The response was the same from all of them, “ At this time we are not doing money in, money out tracking. We've spent some of it, we've lent some of it, we still have some of it.....” If you loaned me $2000 because I said I needed help, and you saw me next week driving a new car, you'd probably have something to say to me right?


JP Morgan Chase claims to have approved 87,100 borrowers for lower monthly payments. Notice there is no explanation of how they got borrowers to a lower payment. Most of them were offered forbearance agreements with 6 mos to 12 mos balloon payments. Which means the borrowers payment will be reduced for a 6 to 12 mos period at which the end of the period, they are due for a balloon payment, typically the amount that wasn't paid during this time. So you save a few hundred dollars a month only to have to pay it all back after a year. Now if you had a hard time trying to make your payments in the first place, how are you supposed to come up with thousands of dollars. The second thing they are not addressing is how many applications they have right now, compared to how many they've “approved”. I did a little research on them, and found quite a few complaints from customers.


Bank of America is making similar claims that they get over 80,000 phone calls A DAY from consumers looking for assistance with their mortgage. They claim to have 7,400 representatives to field these calls. So assuming that you put 100 people in a call center, they are saying that they would have 74 of them? I guess I missed the news release of Bank of America suddenly hiring more employees, and building 74 new locations since last year.....I did some research on Bank of America and their practices regarding mortgages. One of the first things that came up was on consumeraffairs.com. There is a cornucopia of complaints from their customers, yet they were one of the major recipients of recent government bailouts. Now, Bank of America has bought out Countrywide, and are trying to make the transition. This presents two problems. 1) What happens to all of the Countrywide people that put in for modifications, and now have to resubmit for Bank of America? 2) If we've already illustrated they they are not adequately staffed to handle their existing applications, how are they supposed to efficiently take on Countrywides' as well.


Citigroup (Citi, Citi Finance, Citi Mortgage) is also a big one. Aside from the laundry list of consumer complaints on-line, we have quite a few of our own clients that have some pretty bad horror stories. In order, the largest mortgage lenders were Wells Fargo, JP Morgan Chase, Bank of America, Countrywide, and Citigroup. With the acquisition of Countrywide, Bank of American now emerges as the largest. With three of the 10 biggest mortgage lenders taken over in 2007, it leaves fewer players vying for a smaller pie.


There was a replicated article in WSJ, it added that “housing counselors complain many borrowers are waiting for help as mortgage-servicing companies get up to speed”. Bruce Dorpalen, The National Director of Housing Counseling for Acorn Housing Corp. said, “We are not getting anywhere near the level of resolutions we expected...” (I thought ACORN was Association for Community Organizations for Reform Now, not a Housing Corporation???) He's admitting that they just plain aren't getting the job done right now. The Executive Director of Housing and Economic Rights Advocates in Oakland, CA Maeve Elise Brown was quoted saying “Homeowners on their own are not able to navigate the system”. She also said, “Often, housing counselors must educate their staff about their own program”. So who is doing the negotiations? Staff that doesn't have the experience, and need to be trained first? So what happens when you're file is assigned to “the new guy/gal”? Are you really expected to put all of your trust and hope in their hands?


We've concluded that the Government recognizes the current problem. They also recognize that previous efforts have thus far been unsuccessful. It seems like the Government is trying to recover from their initial knee-jerk response to modification companies labeling them all together, and realizing that there is a need for such companies. The task at hand is to distinguish which companies are the good guys, and which ones are the bad guys.
We've established that leaving it up to the banks to do what's right is probably not in the cards. I believe the saying is, “ the definition of insanity is attempting the same thing over and over expecting a different result”. How much more of our taxpayer money are we going to risk doing this? My kids are already going to have to pay on that money, I don't want my grandchildren to have to pay as well. Both the Government and other agencies (HUD, ACORN, HERA, etc...) agree that it's next to impossible to do get a modification on your own, and furthermore concede that they're not doing to well either.


It seems more and more apparent that doing a loan modification through a reputable company is the most efficient, and effective way to get it done. If you notice, the majority of the complaints regarding the above mentioned lenders are from consumers who attempted to do their own loan modification. They got stonewalled, frustrated, and finally complained. Does anyone else see a pattern here?