The Mortgage Slick Could Be Stopped

The Mortgage Slick Could Be Stopped

Housing foreclosure is ebbing and flowing across the US like the oil cloud in the Gulf of Mexico, shifting and poisoning as it goes about silently attacking us and our communities.

The latest bulletin on the progress of the mortgage slick came in a May 13, 2010, Reuters report quoting RealtyTrac.com, saying that while mortgage lenders initiated fewer foreclosures in April than March 2010, they took control of 92,432 properties during April, an increase in home seizures of 1 percent from March and 45 percent from April 2009.

“What we’re really seeing is the effect of lenders slowing down the initial notices of default while they are processing what’s already in the pipeline,” said RealtyTrac’s Senior Vice President Rick Sharga.

Unlike the oil spill, however, the corporations – in this case mortgage lenders – and the government readily have the power to staunch the flow of foreclosures, to end its destruction. But it appears that the lenders and the government are actually cooperating to enable the vast majority of foreclosures to continue through wink-and-a-nod programs that give the appearance of help, but do nothing for millions of floundering homeowners.

The primary such scheme is the Home Affordable Modification Program (HAMP), begun in 2009 under the Department of the Treasury and initially advertised as a means of helping homeowners by subsidizing lenders to reduce monthly mortgage payments by reducing the interest and principal and stretching the loan out over longer periods of time. Lenders are not required to make agreements with borrowers, and it appears that the Treasury Department is doing little to enforce the intent of the HAMP law, and effectively nothing to get at the fundamental problem of cutting down the principal on mortgages that were based on highly inflated housing prices.

Note that the major mortgage lenders – Bank of America/Countrywide, Wells Fargo, JP Morgan/Chase and CitiMortgage – and smaller lenders, too, received bailout money under the Troubled Asset Relief Program (TARP). While much of this has been repaid, these lenders owe their survival in part to many of the homeowners whose property they are now seizing.

Lagging Behind

The Congressional Oversight Panel said in its April 14, 2010, report on HAMP that 2.8 million homeowners got foreclosure notices in 2009 and:

“Treasury’s response continues to lag well behind the pace of the crisis. As of February 2010, only 168,708 homeowners have received final, five-year loan modifications – a small fraction of the 6 million borrowers who are presently 60+ days delinquent in their loans. For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes. It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble.”

Robert Doggett, a lawyer specializing in foreclosure defense for Texas RioGrande Legal Aid, says simply of HAMP: “It’s a failure.”

As will be discussed, he and other public interest lawyers, who have dealt with HAMP, see it as a program that is designed to favor lenders, making minimal requirements of them and doing nothing to reduce the principal of mortgages so that they are in line with the market and, therefore, truly more affordable. A review of HAMP in practice arguably leads to the conclusion that the federal government, as embodied in the Treasury Department and Congress, is united with the lending industry against homeowners.

HOPE for Whom?

Collusion between the government and the lenders is boldly illustrated in the operation of the Department of the Treasury’s foreclosure counseling hotline – 888-995-HOPE .

When you call the hotline, you are NOT speaking to a counselor hired by the US government. Instead, you are speaking to what amounts to an indirect employee of the same lending industry that may seize your home.

The phone message says that the hotline is “a service of the Homeownership Preservation Foundation [HPF], a non-profit organization dedicated to helping homeowners at risk of foreclosure” at no charge and “partnered with the Federal government” to make information available on HAMP.

Doggett says that HPF is essentially an arm of the lending industry, and that it does not provide callers with all the information that they need to protect themselves. His blog ForeclosureBuzz.org documents lending industry funding for HPF, and HPF’s web site shows that its board of directors is largely made up of people formerly or currently employed in lending.

But although HPF implies that it is providing the counselors with whom you will speak, it appears that, in fact, you will talk with an employee of Sykes Enterprises Inc., an international call center operator that handles similar services for major financial services companies, including those that deal in mortgages.

I learned about Sykes by calling the hotline and asking a counselor who her employer was. She said, “a private company.” I asked which private company, and when I persisted, she said: “I don’t think I’m supposed to say that.” When I asked again, she put me on hold and came back after a minute and said: “Sykes.”

Andrea Burnett, spokesperson for Sykes, said that providing call centers for financial services is one of the core businesses for Sykes, which employs 31,300 people in 23 countries, according to it annual report, which claimed $1.2 billion in revenue in 2009. She said she could not say whether Sykes has a contract with the federal government to run the hotline, but that she would check and let me know; she did not call back. She said that a confidentiality agreement might have been part of the contract that would prevent her from telling me whether such a contract exists.

Sykes Enterprises is apparently being paid to run the hotline as a subcontractor under a basic contract between HPF and the Federal National Mortgage Association (Fannie Mae), with Fannie Mae administering the contract for the Treasury Department. Fannie Mae has been under the conservatorship of the Treasury Department since September 2008, after collapsing under toxic mortgages; it is being supported by taxpayer funds.

An official of the Treasury Department’s Homeownership Preservation Office said that it was decided at a meeting attended by staff members from her office and the Treasury Department’s legal and public affairs offices that the Treasury Department would not respond positively to my request for information on the cost and term of the contract.

Asked the reason for denying the information, she said it was decided, “We’re not going to be in the business of providing that kind of third party information” and that they did not want to be “sharing this kind of business information.” In fact, the official noted, “No one in the room said they knew what the figure (the dollar amount of the contract) was.”

I said the contract is being paid for with taxpayer money, and should not this mean the information is public information, and the official repeated the Treasury position.

Sykes sets up call centers in low-wage zones. In the US, for example, it just closed a call center in Minot, North Dakota, in May 2010 where, according to a local official, it and other call center operators in town pay about $9 a hour to the average call center worker. Ms. Burnett was quoted in the Bismark Tribune: “A lot of other companies are competing for the same employees. We were struggling to keep pace with our clients and what they are looking for.” A report on Sykes by Good Jobs First documented that Sykes “has a history of systematically seeking subsidies from the communities in which it planned to open facilities” and that: “Ultimately, it appears, domestic subsidies were less appealing than cheap labor abroad.” In 1996, Minot gave Sykes $2.7 million in aid for a building, land and utilities, fees site preparation and a five-year property tax exemption.

I called the hotline to try to learn what are the most common types of problems it receives and what is the most common advice it imparts, and a staff member would say only that the counselors help homeowners determine whether they are eligible for HAMP. She declined to provide any information beyond that, referring me to Josh Fuhrman, HPF’s vice president of programs. Fuhrman referred my email questions to the Treasury.

Treasury officials referred me to a February 2010 Treasury report on hotline activity showing that it has handled 829,302 calls since September 2009 and that, of that number, only 31,658 callers have felt that a lender has not being following HAMP guidelines. These complaints were “escalated” for attention by “counselors that work with borrowers and servicers [lenders] to resolve issues.”

The report goes on to say: “Cases that cannot be resolved by the escalation counselors are sent to HAMP Solutions Center (for loans by private lenders) and Fannie Mae or Freddie Mac (for their loans) where an in-depth analysis and contact with senior staff in the servicers’ shop generate a final solution. Program to date, there have been just over 275 escalations to these teams for additional analysis and resolution.” (Emphasis added.)

Given the class action legal suits around HAMP, two of which are noted below, and the numbers of homeowners who have appeared in the press complaining of problems with HAMP, it is astounding to learn that only 275 cases coming to the hotline have been forwarded to the top level of the resolution process. In addition, the term “servicers’ shop,” the offices of the lenders, suggests Treasury coziness with lenders and a lack of impartiality and advocacy on behalf of the mortgage holder.

Doggett says that the hotline most commonly encourages callers to be cooperative with the lender and to be patient with the lender. The hotline, he said, could be far more aggressive on behalf of the homeowner, giving information and instilling a fighting spirit that helps homeowners understand that they are in an adversarial position with the lender and must act vigorously to protect their interest.

An indicator of this failing, Doggett said, his “litmus test,” is the failure of the hotline to provide information on bankruptcy, which can be an appropriate avenue for stopping foreclosure for some homeowners, as noted in the Bankruptcy Client Brochure of the National Consumer Law Center (NCLC) in Boston.

Doggett documents ways in which the foremost mortgage counseling services fail to adequately inform homeowners in his article on ForeclosureBuzz entitled “Prominent Foreclosure Prevention Guides Hide, Deceive and Scare Borrowers About Bankruptcy.”

In the hotline, the federal government, which is supposed to be a representative of the public interest, advocating for the public in dealing with mortgage lenders, has completely withdrawn from that role, turning it over to businesses not accountable to the public and likely to be sympathetic if not completely subservient to the lending industry.

“Don’t Trust a Word They Say”

Doggett offered the following advice to people facing foreclosure:

  1. Find your loan documents and recent statements, read your mail, pick up certified mail, you need to know what is going on otherwise you are fighting in the dark.
  2. Be persistent in requesting assistance from your lender, they are understaffed to help, they are overstaffed to foreclose, and don’t trust one word they say, they lie like you breathe (they are bill collectors and say anything to get money from you), and never trust another company that says they can fix it easily by signing some document and pay a fee ’cause there are scams everywhere.
  3. Go see a lawyer that knows this (foreclosure) area, don’t trust lender websites like Fannie Mae, Freddie Mac, or the lender-controlled nonprofits like Neighborworks, and the Homeownership Preservation Foundation, and certainly not the state foreclosure prevention task forces. Most of these are compromised. Lawyers listed by the National Association of Consumer Advocates are the ones I would truly trust. There are not enough of them, but if you asked me, that is the place.”

Jane Bowman, an attorney who deals with foreclosure for the Housing Preservation Project Inc. (HPP), a nonprofit law firm in St. Paul, Minnesota (not related to the Homeownership Preservation Foundation), said that, ideally, the hotline would have “the authority to force servicers [lenders] to give loans according to guidelines.”

“I also think,” she said, ” a homeowner should be told what the homeowner and the hotline can do if a lender is not cooperating. At this point, the homeowner can call the hotline, but it’s my understanding there is no duty imposed on the hotline to make any violations of the HAMP guidelines right. A homeowner is thus left with no remedies to force the lender to follow the guidelines.”

There have been a number of suits filed on behalf of homeowners because of the government’s unwillingness to enforce HAMP provisions. In July 2009, for example, HPP filed a federal class action suit against the Treasury Department and other federal agencies charging that the HAMP program failed to provide homeowners with due process or notice of a HAMP denial and the right to appeal decisions made by lenders. The NCLC filed a federal class action suit against Wells Fargo in February 2010, charging that the bank was refusing to honor agreements to modify mortgages and prevent foreclosures made in good faith by homeowners under the HAMP program.

Sens. Al Franken (D-Minnesota) and Olympia Snow (R-Maine) have introduced an amendment to the financial reform bill now before Congress that would create an “Office of Homeowner Advocate” within the Treasury Department, as noted by ProPublic.org. The office would have the power to punish lenders for not complying with HAMP provisions, but ProPublica observed: “The Treasury currently has the power to penalize servicers [lenders], but so far has not done so.”

A press spokesperson for Senator Franken says the amendment is supported by the White House and the Treasury. It is opposed by the financial services industry, according to ProPublica, which has done extensive research on the performance of lenders under HAMP.

Cram-Down Stick

Arielle Cohen, an NCLC attorney working on the Wells Fargo suit, said that the federal government has attempted to improve HAMP guidelines for lenders to make the mortgage alteration process more transparent, but “the results so far have not been good,” and HAMP is “barely making a dent” in stemming the continuing wave of foreclosures.

She said there is the question of “whether carrots are sufficient or whether sticks are needed as well.”

One stick that has been advocated is federal legislation that will allow bankruptcy judges to force lenders to reduce the principal of mortgage loans on primary residences. Lenders might then be reluctant to stall or reject borrowers for relief under HAMP knowing that a bankrupt judge might write off, “cram down,” a significant portion of their loan.

When an attempt to approve this cram-down provision failed in April 2009, Sen. Dick Durbin (D-Illinois), who voted for the measure, said of Capitol Hill that banks “frankly own the place.” A study by Common Cause, reported in Truthout.org on June 10, 2009, found that senators who voted against allowing cram-down “received $3.98 million from the financial industry during the 2008 election cycle, while proponents of the bill received $2.65 million.

Senator Durbin recently considered trying to introduce cram-down into the financial reform bill now before Congress, but, according to a press spokesperson, he has decided against it.

Seeing Is Believing

Although a March 2010 Treasury announcement of supposed improvements in the HAMP program includes mention of encouraging mortgage principal write-downs, the report of the Oversight Panel raises questions about whether lenders will be able to be persuaded to do so.

“As with other aspects of HAMP … uncertainty remains as to whether the incentives will be enticing enough to encourage servicers [lenders] to forego income and actually write down principal.”

It appears unlikely that even with an increase in incentives now planned, lenders are going to want to give up any money by reducing loan principal because there is a question, according to the Oversight report, of whether the incentives are high enough to even get lenders to just lower and stretch out mortgage payments, without reducing principal.

“For most mortgage modifications, not just those within HAMP, it takes a servicer [lender] between 12 and 24 months to recoup the cost of modification. Given that redefault rates … have been in the 60-percent range for a single year, and at 30 percent just in the first three months post-modification, servicers have a strong incentive not to attempt modifications, especially of loans they think are likely to default quickly. Most servicers, however, lack predictive capabilities regarding default, and therefore, if they are risk-averse, are likely to assume that all loans are likely to be early defaulters.”

Asked about new HAMP provisions that might lead to mortgage principal write-downs, Ms. Bowman, of HPP, said:

“The original HAMP guidelines stated that servicers should consider writing-down the principal, but I have not yet heard of it happening.

“I know the Treasury has announced new incentives for servicers to actually do write-downs and some servicers have said they will implement new principal write-down guidelines. The guidelines are still being drafted, so no one has seen them. I assume this new initiative was recognition that homeowners face additional burdens and hardships when they owe more on their mortgage than what their home is worth. However, I will not have confidence that principal reductions are actually being made until I see it.”

On April 14, Phyllis Caldwell, chief homeownership preservation officer of the Treasury, told the House Financial Services Subcommittee on Housing and Community Opportunity that the implementation details for principal write-downs under HAMP would be expected “by early fall 2010.”

If home seizures continue at the pace of that in April, we can expect at least 400,000 more people will have been put out in the street by September 2010.