“A government auditor has warned that the U.S. Treasury Department doesn’t understand why distressed homeowners are re-defaulting at an “alarming” rate on government-aided mortgages …”
Obama’s HAMP Initiative Struggling To Help Homeowners
If the Treasury Department ever actually asks these homeowners why they ended up defaulting on their modified mortgages, I’m guessing I know what one of the big reasons will be.
No, not the tired chant of the narrow-minded and the bank shill, who insist that stupid, lazy people “bought too much house.” That may have been the case for some people, but those are the ones who walked away in the first wave of foreclosures. The rest of us got caught up in circumstances beyond our control, an economic crisis brought about by the very banks we were turning to for assistance.
I believe a huge contributing factor was the way those banks screwed around playing games to drag out the loan mod review process, driving people to the financial and emotional edge and then getting them to agree to terrible deals because they were, by then, so desperate to avoid foreclosure.
Take my case in point. In March 2010 when I wrote to Wells Fargo to tell them that my business had taken a huge hit and my sig-other who was paying half the household had skipped out on me, things weren’t that bad. I was current on my mortgage; I had excellent credit and very little other debt; and I had some money in savings. If my erstwhile mortgage servicer had looked at the information I provided and done the math, had looked at my credit history and had given me some consideration for being a decades-long customer, my mortgage loan would have been restructured while I was still well able to easily make a lower payment. I would have carried on paying my mortgage every month and all would have been well.
Contrary to what the ignoramus people would tell you, I would not have been getting a “free house.” For the privilege of paying a lower monthly payment, I would, in fact, end up paying MORE for my home than my original mortgage called for.
The bank would re-structure my loan to stretch the payments out over a longer time and temporarily decrease the interest rate, providing me with a lower monthly payment. But they wouldn’t end up getting paid less for the house. Usually the difference between my old payment and my new, lower one would be tacked on to the end of the loan as a “balloon payment.” That means that instead of having my house free and clear after the last monthly incremental payment, I’d still owe several thousand dollars.
Banks restructure debt all the time for companies, even countries. No big deal. Market conditions change and their customers’ ability to pay can change, too. Better to modify the loan now to help the client keep paying than to face a loss later when he defaults or goes into bankruptcy. Seems like a no-brainer, doesn’t it?
But restructuring only works if it’s done in a timely manner, while the entity – person, company, utility, country – is financially fit to keep paying the new, lesser payment. Wait until the client is on financial life support and of course you’re setting yourself up for a redefault. Doesn’t take an economic genius to predict that.
So, back to Wells Fargo and my experience. I sent my request for a mortgage loan modification in March. I didn’t get an answer (denial) until October! By that time I had depleted my savings as much as I dared to keep my mortgage paid each month. I stopped paying and reapplied for a loan mod. I was on the HAMPster wheel with Wells Fargo until February 2012, when they offered me a loan mod just ONE HOUR before my house was slated to be sold on the courthouse steps. Two years. Twenty-four document submissions. Eighteen “single point of contact” people.
They waited until the 11th hour and what they offered me was a terrible deal. I would have ended up paying about $500,000 for a house worth about a fifth of that. Meaning I would have been stuck with it forever. And the “home preservation specialist” who I was dealing with at the time reminded me of a used-car salesman, trying to get me to agree to the terms over the phone, with nothing in writing, while I was standing on the curb next to the courthouse steps. She called me and pressed me over and over. Think Wells Fargo wasn’t banking on my emotional distress over the foreclosure sale to get me to make a bad bargain? That’s just slimy business practice.
I opted out. I had already resigned myself to the fact that Wells Fargo wanted the house waayyy more than I did. I had found another place to live – cheaper, newer, much closer to my work – and was in the process of moving.
Wells Fargo’s offer was way too little and came way too late. They had already driven me over the edge. If they had offered me a sensible restructure within a couple months of my request, I would have taken it and I would have successfully kept on paying.
But if I had taken the terrible deal they offered after jerking me around for two years and if my business hadn’t rebounded, I might have ended up in a situation where I would have lost the house anyway. Not because I bought too much house, but because the bank waited too long to acknowledge what I said in my first communication – that I was on the verge of default and I wanted help to keep paying my debt.
So don’t blame the built-in failure of the modification program on homeowners. The blame rests with the companies who created the need for so many mortgage loans to be modified in the first place – the big greed-powered banks.