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Tess Vigeland: You may have heard the big news in the mortgage mess this week: couple of hedge fund managers indicted for their role in pushing subprime mortgage investments. A slew of borrowers, real estate agents and lenders arrested for mortgage fraud. We’ll talk details with Chris in a just a bit.
Meanwhile, the government is pushing the banking and real estate industries to do more about the foreclosure problem through its Hope Now program, because so far, it’s not generating a whole lotta hope.
Marketplace’s Jill Barshay reports.
Jill Barshay: Colleen Buckman is a massage therapist in Minneapolis. Back in December, she decided to redo her adjustable rate mortgage. It was about to reset to more than 11 percent, which she couldn’t afford.
Colleen Buckman: They had me send all my financial information and so I did. I was in constant communication with them for the past six and a half months and constantly got, “Oh yeah, another 15 days. Oh, 30 more days.”
While she waited for a response, her monthly bill skyrocketed.
Buckman: I just scrambled to make my life work and juggled money around, borrowed money from friends for five days while I waited on another paycheck to make sure I always was not delinquent.
Turns out she might have had more luck if she had been delinquent.
Cheryl Peterson manages a foreclosure prevention program for Habitat for Humanity. She says many clients are often unable to get the attention of a servicer for months until they go into foreclosure.
Cheryl Peterson: When you’re working with a lender that long, it can seem like they really do want to foreclose, so it’s very stressful to homeowners.
Telephone Voice: Please hold while we transfer your call… [hold music]
Mortgage servicers say they’re listening, but they’ve got problems too. Any change to a mortgage has to be approved by the investors who actually own the loan.
Still, 27 mortgage servicers signed on to a new set of guidelines designed to make them more responsive. Faith Schwartz is executive director of the Hope Now group that drew up the plan.
Faith Schwartz: Five days is the request to get back to them once a request has been made. 45 days, the commitment is, they’ll give ’em an answer.
Borrowers seeking a workout should get a simple yes or no. But these new deadlines are voluntary and non-binding.
Schwartz: This is meant to continue to encourage phone calls to servicers or third party housing counselors. It is no secret that one out of two people that get foreclosed upon don’t ever talk to their servicer.
Advocates for homeowners say these timetables won’t do much to stop the tidal wave of foreclosures. John Taylor is the president of the National Community Reinvestment Coalition.
John Taylor: What you really need is a reduction in principle and or interest rate and if we don’t do that, we’re going to continue to see foreclosure numbers and we’re going to continue to see the impact on the economy.
Back in Minneapolis, Colleen Buckman managed to avoid foreclosure. In the end, she brought in a mortgage counselor to help. The mortgage servicer finally replied this week and Buckman’s eligible for a workout.
I’m Jill Barshay for Marketplace Money.