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Homeowners wait to meet with Wells Fargo employees during a free workshop for customers who are facing mortgage payment challenges April 26, 2010 at the Oakland Convention Center in Oakland, California. Over 1,000 people who are in risk of slipping into foreclosure were scheduled to attend the mortgage workshop in hopes of getting loan modifications to avoid losing their homes.
Nearly 350,000 homeowners in California received some kind of foreclosure notice in the first half of this year. That is the highest rate in the country. Realty-Trac, the online service that tracks foreclosures, also reports banks are on pace to repossess more than 1,000,000 homes around the country by the end of this year.
Tens of thousands of struggling families have been trying to deal with their banks and lenders, sending in paperwork and payments, in an effort to win a modified loan with better terms. Many have been frustrated with ongoing delays.
A pristine gated community in Irvine may not be the place you think of when you think housing crisis and sub-prime loan debacle. Still I am standing in front of a house with a foreclosure notice tacked in front. And it's right across from Jean Wilcox' house. She has been trying to get her loan modified for more than two years.
“Just mind boggling and extremely frustrating,” she says. And she’s a lawyer. “I do banking and real estate law. So I know what I am speaking of. If they are doing this to me can you imagine what they are doing to the generic consumer who is completely gullible.”
A lot of homeowners are finding themselves in a loan modification limbo. Wilcox is one of more than 1,500,000 home owners trying to get banks to adjust their mortgages. It’s part of a $75 billion federal program to help home owners in trouble.
The banks give some people trial loans and ask them to pay for three or four months. Or even longer. If people pay on time, the banks are supposed to, presumably, make the loan permanent. Wilcox has been dealing with EMC, a mortgage service company with Chase Bank.
“They keep offering you this carrot." She says the lenders keep telling her, "'We can do this. This is a horrible loan you have. We can modify this. Just make some payments. Show us you have the cash flow to do this and we can do this.' So I perform. I meet my obligations. And they don’t.“
And she says she went through that three times. And three times she got denied. "Yes. Three times. And I don’t know why." She says she put thousands of dollars in and got nothing out.
Her experience isn’t unusual. Thousands of homeowners successfully pay the trial loan and are still denied a permanent fix. Also homeowners frequently report that banks lose or claim to never receive documents that were sent.
“Its messy. For some reason it's very messy. The servicers are very disorganized,” said Pat Pinto, an attorney with the Orange County Legal Aid Society who helps homeowners in trouble deal with banks.
"There have been occasions we have submitted five or six times the same documents to the same servicer who repeatedly tells us ‘we didn’t get them.’"
"Now we have the fax sheet, the confirmation sheet that the lender received it. But the lender tells us ‘I’m sorry we didn’t receive it.’ I don’t know what their fax room looks like. I can only tell you they repeatedly lose my documents," Pinto said.
As the bureaucratic process drags on, Pinto says she routinely sees homeowners sinking into despair.
“Almost every day we’re saying to a homeowner to please go and get help, mental help. We see the homeowners crumbling before our eyes.”
Chase Bank and its company EMC are among those most often cited by people who have been having big delays in the loan modifications efforts and who have been on trial loan modifications and then denied permanent modifications.
Gary Kishner, a spokesman for Chase, says “our main goal is to keep the homeowner in the home. That is our goal.”
Still in the end, for the banks, the decision comes down to one simple but little known calculation that determines whether people get to stay in their homes.
“Net present value,” Kishner explains. "Net present value tells you whether the modification makes sense on behalf of the investor. In other words, the property if it were to be sold on the open market if it would net the investor more money than the modification.”
So it comes down to simple math which makes more money for the investors: a foreclosure or a modified loan. The cost of foreclosure to the overall economy is not part of the equation.
Jean Wilcox says what the banks have done adds up to consumer fraud.
After dumping thousands of dollars into trial loans and being denied repeatedly, she is going to take her case to court. And she is looking at a class action lawsuit against the banks on behalf of tens of thousands of other people in a similar situation.
Monday KPCC's Shirley Jahad tells us about the psychological toll the drawn out loan modification process takes on many homeowners.