Bankruptcies Fuel the Fire!
Nadia Vanderhoof from TCPalm brings us an article that exposes the aftermath of our governments failed band aids. In English, there is a high volume of people that either attempt to enter or enter a mortgage modification program only to be flushed out of the other end in bankruptcy court.
When families go through a loan modification program their goal is to save their house. They typically follow the rules and regulations of the program in an effort to stay in their house. These folks are late on their mortgage payments. Most (if not all) of our governments programs have a requirement that payments must be missed in order to qualify for a modification. As the application period progresses, the homeowners are not only getting deeper and deeper into hole they are also getting closer and closer to foreclosure.
Statistics show that only a small percentage of PERMANENT modifications are approved. In order to stay in their homes and to eliminate the possibility of a deficiency judgment after their house is foreclosed on, more and more people are turning to the bankruptcy courts. Bankruptcies also prolong the inevitable……it prolongs foreclosure but it also prolongs the recovery of our housing market. When the banks foreclose, they will eventually put that property on the market.
A quote from the article tells it all, “Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”
Flawed mortgage modification programs fueling Treasure Coast bankruptcies
By Nadia Vanderhoof
Federal mortgage modification programs aimed at keeping financially at-risk Treasure Coast homeowners from being foreclosed on are instead fueling consumer bankruptcies, according to several housing experts.
Some Treasure Coast homeowners who were denied mortgage modifications through President Obama’s Home Affordable Modification Program say bankruptcy was the only way they legally could get out of their homes and protect future assets from mortgage servicing companies and lenders.
After nightmare experiences and enormous frustration with the modification program, they feared lenders might go after their assets to recoup losses years after a foreclosure or short sale, which is selling a home for less than the remaining balance on the loan.
While there are success stories of the program — which has kept some Treasure Coast residents in their homes and out of foreclosure, the number of people helped is small.
As of October, lenders had granted a meager 2,156 permanent modifications to Treasure Coast homeowners — 384 in Indian River County and another 1,772 in Martin and St. Lucie counties combined.
According to RealtyTrac, foreclosure filings were reported on 11,880 homes in the tri-county region through this year. Another 18,998 were recorded in 2009 and 15,631 in 2008.
Meanwhile, bankruptcies on the Treasure Coast continue to pile up.
In 2008, there were 1,723 consumer bankruptcies filed in Martin, St. Lucie and Indian River counties. That spiked to 2,562 in 2009. This year, the Treasure Coast is on track to surpass those numbers with a staggering 2,202 local consumers already filing for bankruptcy through September alone.
“Some people are being put into a position of bankruptcy because their modification did not take place,” said Richard Peek, president of the Florida Association of Mortgage Brokers. “Not everything is being done as far as assisting people in being able to maintain their homes.”
RESIDENTS STRUGGLE WITH LENDERS
Karen Lehmann is one of those people.
She vacated her Vero Beach home in September and filed for bankruptcy after nearly a two-year modification struggle with Litton Loan Services, the company servicing her mortgage owned by banking giant JPMorgan Chase & Co. With two part-time jobs as proof of income, Lehmann said a modification was approved on her $188,000 mortgage, bringing it down to $146,000 in 2009. The modification was later revoked by Litton despite on-time mortgage payments, months of repeated phone calls, mounds of paperwork, court hearings and mediations.
The reason? She no longer fit the modification guidelines of the loan’s investor.
“When they reneged, that was it. I was so tired, I didn’t have any fight left in me,” Lehmann said. “I had done everything I could. Bankruptcy was my last resort. It was not something I took lightly.”
Lehmann, who paid a reduced monthly mortgage of about $700 before the modification was revoked, said shortly before she moved out of her home of 11 years, Litton and Chase wanted her to agree to a short sale for $94,000.
“I thought, this is never going to stop. They wanted me to sign a quit claim deed and if the house didn’t sell by December, they wanted me out by January,” Lehmann said. “On top of that, they were trying to come after me for more insurance and property taxes. They wanted almost $5,000 more to insure (the home).”
Out of desperation and to prevent further monetary demands from Chase and Litton — Lehmann turned to bankruptcy to protect her finances.
“I wanted to get on with my life. I didn’t want them to try and get back at me later,” Lehmann said. “No doubt, they would have come after me for the balance of the mortgage after the short-sale. With everything that happened, everything I went through, there was no guarantee it was going to end there.”
TREASURE COAST CASE EXEMPLIFIES THOUSANDS
Some financial experts say the events leading up to Lehmann’s bankruptcy aren’t unique. Her ordeal is likely shared by thousands of homeowners nationwide.
Michael Larson, a real estate analyst with Jupiter-based Weiss Research, described Lehmann’s experiences as an unforeseen consequence of the Treasury’s failed modification program.
“The government was overselling this program, over-promising and under-delivering. It was not designed to take care of the key problem and fix the problem of upside-down homes and the structure of those loans,” Larson said. “There’s a fundamental problem with these modification programs and many more people will foreclose, go bankrupt or both as long as there is no long-term change to its design.”
Barbara Bradley-McLeod said her lender, Bank of America, strung her along for about a year, promising a mortgage modification on her Port St. Lucie home after her work hours were cut in 2009.
“Every time I tried to talk to them, they said I was missing something else. Send us this paperwork. We need some other papers,” Bradley-McLeod said. “Then they said that we didn’t qualify because we had a Freddie Mac loan or a Fannie Mae loan. This was after one whole year. And I never missed one mortgage payment.”
Bradley-McLeod filed for bankruptcy earlier this year.
“It seems like the banks, the big companies all got bailed out, but what about the little people? Nothing trickled down to us,” Bradley-McLeod said.
Treasury spokesman Mark Paustenbach said the agency is aware there are problems with the program, but “breaking a contract between a borrower and a servicer would be illegal.”
“We talk to families every day that are at risk of losing their homes and are terribly frustrated by their inability to communicate with their lender and get the help they need,” Paustenbach wrote in an e-mail. “We have worked tirelessly for 18 months to stand up a ground-breaking program that has given half a million of these folks permanent mortgage relief. But we know that we have only begun to address the problem. We will not stop until we make mortgage modifications easier, shorten decision time, reduce paperwork and give homeowners greater peace of mind.”
BANKRUPTCIES CONTINUE TO RISE
In 2009, the Treasury Department announced the Home Affordable Modification Program, a $50 billion Troubled Asset Relief Program program aimed at helping up to 4 million at-risk homeowners avoid foreclosure by reducing their monthly payments. Experts say the program has failed to live up to its promises.
“Many families encounter an incompetent or even predatory mortgage servicing system once they apply to the program, experiencing delays or denials that are inconsistent with the promise of the program guidelines,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending, during her Oct. 27 Congressional testimony. “Hundreds of thousands of people who received trial modifications during HAMP’s initial phase have ended up in a worse financial situation as a result of their participation in the program.”
Other experts say bankruptcies, already on the rise because of the recession, will continue to spike until the avalanche of foreclosures slows down and more pressure is placed on lenders to engage in massive principal reductions.
“In past business cycles, we looked to housing to bring back the economy because of how multifaceted it is,” Metrostudy’s Chief Economist Brad Hunter said. “I don’t think there’s a solution to stimulating the economy without solving the housing problem and getting (gross domestic product) growing again. It isn’t growing fast enough, at this point, because of the unemployment rate, which is tied to housing.”
Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”