Borrowers in foreclosure prevention plan losing mortgage aid

Borrowers in foreclosure prevention plan losing mortgage aid 


Saturday, March 13, 2010

About 90,000 distressed borrowers have lost their mortgage aid under the government's foreclosure prevention plan, and many more are at risk of losing the help, according to Treasury Department data released Friday.  This is just the tip of the iceberg in the mortgage foreclosure crisis.
Many of those borrowers did not turn in or their lenders lost the required documents to prove they qualified for the program, which typically lowers mortgage payments by more than $500 a month. Some applicants earned too much under the government's formula, while others made too little and were unlikely to be able to keep up even with the lower payments.
Under the program, which was launched a year ago, borrowers could receive a loan modification after a phone conversation with their lender and then have three months to prove they qualified for the program and to make the initial payments. Then they would be moved into a permanent loan modification.
But the Obama administration was forced to loosen those guidelines as lenders struggled to collect all the required documents, including pay stubs and tax returns. Although more than 1 million borrowers have had their payments lowered under the federal program, about 500,000 have passed the required three-month threshold without receiving a permanent loan modification.
Those borrowers are in limbo while mortgage lenders review their applications to see whether they qualify for the government program or should be considered for other types of mortgage relief.
"Those are the ones we are going to be watching closely," said Faith Schwartz, executive director of Hope Now, an alliance of mortgage lenders. Some borrowers will be put into non-government mortgage relief programs, and others will lose their homes, she said.
"I am optimistic you will see transitions to [non-government] solutions. [But] you can't avoid foreclosures, so you will see those as well," she said.
James Reynolds of Norcross, Ga., is among the homeowners in limbo. Wells Fargo approved him for the trial phase of the program last year, and his payments dropped from about $1,100 a month to $860.
After six months, Reynolds said, Wells Fargo told him he had too much money in a savings account, which he had planned to use for his retirement, to qualify. He has continued to make the lowered payments and is waiting to hear whether he qualifies for Wells Fargo's other mortgage relief efforts.
"It should be a no-brainer for them, but it's kind of got me worried," said Reynolds, 55. "It is taking too long."
Wells Fargo said the modification process is complex. "And at times, that can result in poor two-way communication and delays," said Tom Goyda, a company spokesman.
Before homeowners are put in foreclosure, their cases are given another review, he said. "We are continuing to work with Mr. Reynolds on options based on his specific financial circumstances."
Overall, Wells Fargo has completed 25,000 permanent modifications and is close to a deal on 7,500 more, according to the Treasury data. Meanwhile, it has about 114,000 borrowers in the trial phase of the program. But about 19,000 borrowers have been dropped from the program. Those cancellations will likely rise in coming months, with about half of those who make their first three payments projected to lose the mortgage aid anyway, according to a company statement.
The government program "is and will continue to be an important part of our efforts to keep people in their homes, but we are using every tool available to us to help prevent foreclosures whenever possible," Mike Heid, co-president of Wells Fargo Home Mortgage, said in a statement.
That's just the latest problem with the $75 billion government program, which pays lenders to modify mortgages. Consumer advocates have complained that many borrowers have turned in required documents, which their lenders lose or do not properly process. Without a formal appeals process, borrowers are at risk of being unfairly denied help, they say.
Through February, about 168,000 borrowers have received a permanent loan modification, up 45 percent from January, and an additional 90,000 had deals pending, according to Treasury data.
"It sounds like fringe success when what we really need is an increase in permanent modifications to stem the tide of foreclosures," said John Taylor, president of the National Community Reinvestment Coalition.