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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.