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Fallout: The Financial Crisis

Government’s loan mod program ineffective

Marketplace Staff Sep 3, 2010
Fallout: The Financial Crisis

Government’s loan mod program ineffective

Marketplace Staff Sep 3, 2010


Tess Vigeland: Troubled homeowners are certainly aware that financial transactions can follow you around. A foreclosure will affect your credit scores and your ability to borrow for years. That’s one of the reasons for the various mortgage modification programs put in place by the Obama Administration. But as we’ve reported before, the effectiveness of those programs is questionable.

The investigative journalism group ProPublica has been looking into it and one of their reporters, Paul Kiel, joins us. Welcome.

Paul Kiel: Thanks for having me.

Vigeland: Now, you talked to more than 300 home owners. Describe for us their experience so far in these programs.

Kiel: Well, we characterized it overall as a nightmare. That’s a pretty fair characterization, I think. The average time someone had been trying to get a modification, which we counted from the time that they reached out to their lender, and that was about 14 months. People, on average, had to send the same documents, they said, six times. And then there’s all sorts of things about documents being lost by the servicer, given wrong information by employees when you call up the call center and that sort of thing.

Vigeland: Well, let’s play a piece of tape from one of the individuals that you interviews. His name is Wallace. He’s from Baltimore, Md., and here he is talking about his experience so far.

Wallace: I was sent a loan modification process, and I couldn’t get any closure. Nobody would tell me anything. From Chase Home Finance, they kept saying, “Always send a mail.” I send a mail. I grew up poor, I used to hear my mother say, “It’s in the mail.” It’s not in the mail. Chase called me and they actually told me to miss two payments.

Vigeland: Now, I heard this tape and this is not the first time I have heard that a bank is telling people to actually go ahead and miss the payments. Why are banks doing this and what did Chase say when you contacted them about Wallace?

Kiel: Well, first of all, as what they say, they generally give somewhat of a boiler plate reply, in terms of, they’re doing the best they can and to find the solution for the home owner, that sort of thing. I mean, as for why the banks might be telling people this, what happened — definitely in the first six months of the program, and we think has continued to happen — is that people who were keeping up with their payments, who basically were doing everything in their power to make those payments, they were kind of put to the end of the line. The people who were two months or more behind, were the ones who were considered first. It’s kind of an auto-pilot, sort of dummy process for how those people were considered. If you haven’t missed any payments yet, they kind of have to look at your financial picture to make a determination as to whether you’re really telling the truth that you can’t make your payments.

Vigeland: Now another person you interviewed, David Moe, he’s 70 years old, a retiree. He just has had enough. His home is now in foreclosure. He shared something with you that was new to me. Let’s take a listen to that.

David Moe: The man across the street came over one day, and he said, “I got a call from Chase, and they said you’re behind on your mortgage and they can’t get a hold of you. And they want me to tell you to call ’em.” I was horribly embarrassed.

Vigeland: Now Paul, I had never heard of that — a bank actually going and calling the neighbor. How does that happen?

Kiel: Well, I think it happens, because you have an industry that’s sometimes pretty confused about whether it’s trying to help home owners or whether it’s mainly in the business of collections. And actually what happens at some of these banks is you have the collections department and you have what’s called the “loss mitigation” department. And it may happen that a home owners working with the loss mitigation department, talking about their modification and so forth. And then they’re getting separate calls from collections people saying, “Make your payment, make your payment, make your payment.”

Vigeland: Where you do find home owners are placing the blame at this point? Are they really focusing their anger at the banks or at the government’s loan modification program?

Kiel: Well, I think there’s plenty of anger, so there’s plenty of places to direct it. It’s the short answer of that.

Vigeland: Yeah, very true.

Kiel: A lot of frustration with the Congress people. And actually, one thing that I found interesting is that members of Congress have bene flooded with calls from constituents. And some offices have even kind of dedicated staffers to this sort of thing and they’ve kind of turned into housing counselors in a strange sort of way. And one major frustration is that there’s not really a place to go with these sorts of complaints, and that’s definitely something I hear very frequently.

Vigeland: Paul Kiel is a reporter with the investigative news organization ProPublica and we’ve been talking about their look into the government’s loan modification system. Thanks so much for the stories.

Kiel: Alright. Thanks a lot.

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