Bundled loans stall modification plan

Weeds grow in the driveway of a foreclosed home in Antioch, California.


Kai Ryssdal: Earlier this week the Obama administration's foreclosure prevention program got its first report card. Making Home Affordable, the program is called. And the grades were decidedly mixed. A lot of banks have been slow to help homeowners manage their monthly payments. There are a lot of reasons why that's so. But a big one brings us back to what got the economy into this mess in the first place. Mortgage-backed securities. Karen Weise from the investigative newsroom ProPublica has our story.

KAREN WEISE: The Making Home Affordable program is for homeowners who have trouble with their mortgage, but could probably keep up if their monthly payments were lower. The program gives banks incentives to bring down those payments to about a third of a homeowner's income. But Barbara Harris and her husband haven't seen that relief.

They live in a peaceful suburb of Atlanta. Their two-story home is filled with knick-knacks and souvenirs. And it's all color-coordinated.

WEISE: I see a lot of pink. Who's the pink fan?

BARBARA HARRIS: Me. I'm the pink lady.

The Harrises have lived here for nearly two decades. Both are retired from government jobs. Their problems started five years ago, when carpenter bees attacked their home.

HARRIS: One side over here was eaten out. They ate down the whole side of the house.

So the Harrises decided to refinance their mortgage, to pull out $21,000 in cash for the repairs. They called a mortgage broker who advertised in their church bulletin. The broker came back with an offer from Wells Fargo for a loan at just over 7.5 percent. What the broker didn't tell them was that the rate was adjustable.

HARRIS: Why would we agree to that? Honestly, we are still confused that we didn't read the whole thing. We really trusted her.

The retirees were shocked when the interest rate jumped to over 12 percent. Their payments went from an affordable $1,600 a month, to $2,500.

STEVE KRUMM: As you can see, there's been lots of correspondence back and forth on this.

Steve Krumm is the Harris' legal aid lawyer. For two years, long before the Making Home Affordable program, he's been trying to reduce their monthly payment. But finding somebody to take responsibility hasn't been easy.

That's because their loan is wrapped up in one of those infamous mortgage-backed securities. And that makes things, shall we say, complicated.

If Wells Fargo still owned the loan, there would only be two parties involved: the bank and the Harrises. But Wells Fargo sold the loan to Goldman Sachs. Goldman then bundled it with nearly 3,000 other loans, and sold off that package of loans to investors as a mortgage-backed security. It kept Wells Fargo on to collect payments from homeowners.

HARRIS: There are too many people stirring the pie, so you don't know who to really go to. We thought it was just with Wells Fargo. And I'm saying, who are these investors?

Who are the investors who bought the mortgage security? Wells Fargo told me that's confidential. Typically, they're institutions like pension funds or hedge funds. Maybe your 401(k).

I've talked with lots of homeowners who'd like to know for sure, because they've been told an investor won't allow their modification. But experts say that doesn't make sense. That's because investors don't decide what loans to modify. Bill Frey works with investors who buy these mortgage-backed securities.

BILL FREY: The investors have no direct involvement in it, and have no legal say in the modifications that are allowed.

That's the job of servicers like Wells Fargo. They're the banks that process your monthly payments.

KURT EGGERT: It's really the servicer that takes the very active role of collecting the payments and determining whether to foreclose or not.

Kurt Eggert is a law professor at Chapman University. He says the Making Home Affordable program requires servicers to help any homeowner who qualifies. The only exception is if a contract with investors prohibits it.

See, these contracts say what servicers can and can't do. And they usually allow modifications. But the problem is, many contacts are so vague, it gives investors wiggle room to sue if they don't want to modify loans.

EGGERT: It causes the servicer to want to watch their back more.

And watching their back often means doing little or nothing.

There are three ways banks can modify a loan. They can lower your interest rate. They can reduce how much you owe. Or they can add extra years at the end of your loan.

In the Harris' case, Wells Fargo offered to drop their rate to a little over 4 percent -- a big drop. But Steve Krumm, the Harris' lawyer, says the monthly payment would still be almost $300 more than the Making Home Affordable program requires. That's because Wells Fargo insists on increasing the amount of the loan.

STEVE KRUMM: What Wells Fargo is proposing to do to say that they can modify the loan based on the principle balance in addition to unpaid fees, accrued interest, late fees and numerous other fees.

That means the Harris' $235,000 loan would grow by an extra $80,000. Wells Fargo told me that's the best deal the investors will allow. So I looked at the contract that Wells Fargo has with the investors, and it doesn't require the bank to add in all that overdue debt. It actually says Wells Fargo can change any term of the loan.

I repeatedly asked Wells Fargo for an explanation. It wouldn't answer my questions. The bank would only say that it considered the new monthly payment to be reasonable.

Barbara Harris says she simply can't afford it.

HARRIS: I would be very lost without my home. And I do believe that the president has made it possible for someone in the situation like my husband and I to be reprieved and helped.

The Harrises wish they could turn back the clock. Because back when they refinanced, they could've qualified for a government loan or probably even a prime loan. But instead, their broker talked them into a subprime loan, and the Harrises became yet one more family caught in a mortgage-backed security.

In Atlanta, Ga., I'm Karen Weise for Marketplace.

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When there was NO bid for mortgages back in that Sept-Nov period, the US govt could enforced the collateral req. on the banks, and forced them to sell the 12-14T US home mortgages for .15-.30 on the dollar. The investors in these mortgages would have taken the hit, just like any investors loses when their inv sours. The govt, as purchaser could have bought them (good & bad loans...all mortgages before private money rushed in to outbid them), let the holders refi them through FNM for 1-2% more than the govt paid. Perhaps the govt could have even charged a 1-2% fee above their purchase price for admin. For ex., your 500k mortgage would now be 100k-150k. The govt would then be in position of getting paid int by US homeowners, and not loaning money to China, and paying them interest. The US homeowner, watching their mortgage drop 70-80% would have had money to deposit into banks to recap them, or spend in the economy.

Before I start, I have a disclosure to make: I am a mortgage underwriter. While I commiserate with those who have lost or are about to lose their homes, hearing about the evil mortgage lenders is starting to wear a bit thin. I have the same response to the Harris' unfortunate predicament as I have to all such stories -- unless someone held a gun to their head or otherwise threatened them when it came time to sign the loan documents, they have no right to demand to be extricated from the situation they are in now. Unprincipled loan officers are a blight on the industry and the bane of my professional existence, but in the present rush to pillory the mortgage industry, let's not forget the concept individual responsibility. It’s time to put away the pitchforks and torches and think just a little bit.

Very few times as of lately I had the chance to listen to the show; but luck will be yesterday was the perfect day... I'm a real estate professional working mostly in the new home market until early last year when things change. I re-enter this profession last year in October when the market started to crumble, I had work in a similar markets back in the 90's. So I came to the company to work on the short sales (homeowners who can't afford and need to sell, asking the bank to forgive part of the debt).

The frustration is palpable in your story. It's the same frustration I've experienced in the last 6 months. And I wonder if there is anyone in the government or with the private sector that is listening.

The banks all received big chunks of stimulus money to keep themselves afloat; and they are very unwilling to work out on solving the back log of bad loans they have in their pipelines.

On every file I work I need to send the paper work to the bank several times, and misterously they never get them, and they take weeks to let you know they never got the paperwork. In the mean time, they are not getting the mortgage payments and the new buyer can't move in...

What will it take? What is the President doing about these situations? I know I'm not the only one being frustrated... There are hundreds out there with the same problem.

If there is some sort of petition being circulated out there to have the government do something... Please send it over and I will get everyone I know sign up.

We really need to get the banks to work out this loans or we will be in this whole for years to come...

Thanks for reading or listening.

The banking industry has certainly earned our ire. I was a supporter of the bail out in the beginning but I should have known better.
The rich always protect themselves (I don’t blame them, they do it because they can, if the rest of us could we would too) the rhetoric is a reflection of that protection:
When times are good it’s all FREE MARKET! FREE MARKET! FREE MARKET! When the house of cards fall down the drum beat is TOO BIG TO FAIL! TOO BIG TO FAIL! TOO BIG TO FAIL!
Because the rich can afford the best help out there (lawyers, advertisers, government) individuals are left to scramble like rodents in the dark trying to find their way. This is the way it has always been (sometimes better, usually worse) and this is the way it will always be.

I'm at the heart of the Foreclosure Crisis in northern California, I worked in Real estate and as things got worse i found myself without work, i found a job working for a serving company in there Loss mitigation department, while training there i learned about modifications and modded my own Countrywide loan, then i assisted family members, neighbors and STRANGERS in modifying their loans. It's not a hard process- if you understand the inner workings of bank- otherwise you get lost in the eternal telephone loop and get bounced around from department to department.
I can now say i've successfully assisted over 30 people with loan modifications, others with submitting papers, "negogiating", or simply understand how new regulations affect them...
I understand the comment by Nancy Adinolfe about not being fair to others, I agree however I only help those who indeed need it- facing foreclosure, hardships, job loss, etc..
The banks make it seem like anyone can modify their home loan on their own, however that's like saying anyone can change their own car brakes! I cant answer questions about your car brakes but i'm willing to share the little i know about modifications - email me

Bundles Mortgages is there any real help for the US goverment- The lender will (servicer) will not do anything- AT ALL on 250,000 of the loan- just like mine that they handle- NEG AM-LOAN they say the lowest payment is what you are paying now- REGARDLESS of all the extras they tack on EVERY MONTH these loans will all EXPLODE- and the service agrees but continues to state the OWNERS of these loans will do nothing- and CREIDT rating is now 650- so I can not get another LOAN HELP -- c.grillo@juno.com- PS I have TWO BUSHES of paper work with HOME AMERICAN and the Services and no help over TWO YEARS now of yelling for help-

I've been trying for months to have my loan modfified through Suntrust Mortgage. I was told that they would extend my mortgage for 40 years adjust my interest rate to 25 for five year going up 1% each year after until the 8th year it would set at 5.375% for the duration of the loan. They would also have to do a principal forbearance of 70,600.00 to bring me to 31% debt to income ratio. Now, they are changing what they can offer. I now told the can not offer me this modification and all they could do for me is offer a 6 month forebearance where I would make only 1/2 the mortgage payment. They also told me that once the plateform created by Fannie Mae is up and running they will rework my numbers inorder to get me the loan modification. I was also told by Suntrust that Fannie Mae will not give pricipal reduction of any kind nor can the forgive any of the 2nd mortage. Does anyone know what my options are?????

I bought my home about 14 years ago in Saratoga CA. Due to the new economy and change of career, my income dropped to 1/2 of what I used to make when I closed my last loan. Today my payment is more than 1/2 of my salary. In Februray, I started the process of seeking laon modification from Citi Bank. For more than three months the bank threw me into an infinite loop, from one department to the next, each time calculating my expense and income (sometimes 3 x day).Finally, after hundreds of phone calls, I was told that my loan is owned by a private investor and "Citi Bank cannot do anything about it." I was told that my only choice is to foreclose. I put my head on my desk and cried for a long time. My despair wasn't only about the loan but about the end of my enthusiasm for Obama and the "new direction" of our country. I said to myself, no, we can't.

These loan modifications are not fair to the people who have never missed a payment despite the fact their home values have dropped, in some cases, by 80%. Why would any one ever expect a bank to decrease the amount of their loan? And, how do they not know ahead of time that their payments are going to increase?


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