The Register-Guard: Homeowners Face A Tangled Web

Hundreds of Lane County residents are seeking relief from housing payments that are high enough to ruin them financially. But, just as these home loans were easy to take out three years ago, getting out of them with credit intact is difficult if not impossible. And homeowners seeking help now are largely on their own.

Major lenders are cranking up their foreclosure operations this spring. A federal rescue program for homeowners has been slow to materialize. And foreclosure counselors say it's next to impossible for homeowners who are trying to get relief by modifying their loan terms to get anybody with the authority to do this on the telephone. "You can try talking to God, because he's about the only person to listen," said Beaverton real estate broker Todd Clark, who's spearheading an effort to inform Congress of the difficulty of renegotiating home loans. 

Oregon lawmakers are considering a bill that would require lenders to meet face-to-face with homeowners before pursuing foreclosure.

Eugene-based foreclosure counselor Stacey Howard testified in favor of Senate Bill 628 after she tried to reach Chase Home Lending on behalf of a homeowner and was transferred a dozen times and cut off twice. (A Chase official said the company has hired hundreds of additional employees this year to deal with the flood of troubled mortgages.)

"We can't get through. We cannot get through and we're doing it every day. How is the homeowner — with their lack of information — supposed to accomplish this?" Howard asked the senators.

Foreclosure filings soar

One in five Lane County homebuyers took out high-cost, subprime or nonconforming loans in 2004 and 2005, according to federal statistics. Roughly half of subprime borrowers can be expected to default, according to national statistics from the National Mortgage Bankers Association.

While foreclosure filings are leveling out nationally, locally they're soaring. Lane County filings jumped from 600 a year to 1,200 a year within the past two years.

Those who are now dealing with loans they can't afford have three choices:

Refinance into a 30-year, fixed-rate mortgage with an affordable monthly payment amount.

Persuade their lender to renegotiate their loan to accept a smaller amount of interest or principle in order to lower the monthly payments.

Walk away from their house and default on the loan, which may affect their ability to land a job, take out car insurance or buy another house for years to come.

These are individual choices but the stakes are collectively high. The increasing number of people who sell their homes at a loss and the trend toward banks dumping houses on the market in foreclosure sales is depressing home prices, said Erick Harpole, a real estate broker with Keller Williams Realty.

"If that person is your neighbor, your home value is going down too. That's just the long and short of it." 

Refinancing a good way out 

Refinancing is the best way out of an overly expensive mortgage payment. It lowers the interest rate, reducing the monthly payment without damaging the borrower's credit rating.

But without a stellar credit rating, that isn't easy. Lenders are exceptionally picky about whom they loan money to today, Harpole said. "If there were 10 people who could qualify for a loan based on programs available in (2005), there's only 1 to 1½ of those 10 people who can qualify for a loan today."

Eugene mortgage broker Marcos Bodart can testify to that. Bodart took out a high-priced loan with a low teaser payment on his own house several years ago. When the housing market slumped and his income dropped, he realized with alarm he couldn't refinance. He owed more than the house was worth.

That's common, said John Helmick, CEO of Gorilla Capital, which specializes in buying houses at foreclosure auctions.

"The homes that are in foreclosure primarily were financed or refinanced in 2006 and 2007," Helmick said. "Those people financed 100 percent of the value of their house at that time. . . . Now, the house is worth less than when it was financed." 

Lenders won't refinance a house for less than the appraised value, so unless the borrower can make up the difference in cash, he or she is out of luck.

Interest rate reduction

The next step for troubled borrowers is to see if their mortgage holder will either reduce the interest rate or the amount of principal that the borrower owes.

Failing that, they ask if the bank will accept less than the borrower owes if the borrower can find a buyer for the house — called a short sale.

Short sales are common in local real estate listings nowadays but they're not easy to negotiate, say short sale specialists such as Harpole and investor Jack Hochman.

They describe a Kafkaesque world with dead-end phone systems, employees without the power to do anything and organizations without clear lines of authority.

nd people wanting to modify their loan, or get out from under a mortgage through a short sale, are in a hurry — especially when they've received the first default notice. At that point, they have 120 days before their property can be sold on the courthouse steps.

"You're really working against the clock," Harpole said. "If you don't follow the timeline and you don't give them the documents when they need it you're dead."

Getting documents to the right place isn't as easy as it sounds, foreclosure counselor Howard said. "We fax stuff again and again and again and they say they haven't received it. It's really frustrating. It's really difficult for the homeowners."

Often, the lenders have different departments taking contradictory actions, broker Clark said.

"You talk to the short sale department and the loss mitigation department and the foreclosure department, and they are completely separate. So, even if you have an offer on the property, the loss mitigation department won't call the foreclosure department and say, ‘Hey we've got an offer on this property, take it off the auction block. I think we can work this out.' So I have to call the foreclosure department and say, ‘Hey we've got an offer on this property so we need it removed from the auction block.' It's absolutely crazy."

Competence on the other end of the phone also may be in short supply, Hochman said.

"The (lenders) were drafting people without any experience into these departments. There is no certification for being a loss mitigator. The training has to be weak at best. . . . And these people are carrying anywhere from 150 to 300 files on their desk."

Tough times for finance firms

These are difficult times for finance or mortgage companies too, said Thomas Kelly, spokesman for the New Jersey-based Chase Home Finance. Each week, Chase gets 40,000 calls from distressed borrowers, he said.

Since January, the company has hired 650 new "loan counselors," bringing the call-answering staff to 3,000, he said.

"We continue to hire people because the number of people who are delinquent on their mortgages is the highest level in 60 or 70 years — since the Great Depression," he said.

Chase will do its best, Kelly said. "We understand a person's home is a very emotional thing and we're working very hard to connect with people and get them information as quickly as we can."

Local short sale professionals said it takes 30 to 50 hours of work spread over a couple of months to arrange a single sale with a loan servicing company.

A number of the high-risk loans that are now in trouble were packaged with other loans and re-sold to other investors, so there may be private equity firms, retirement investment pools or hedge funds that hold an interest in any given property.

The borrower sends money to the company that services the loan, that company communicates with a trustee, and the trustee reports to the investors.

To further complicate the situation, the loan is probably registered on the Mortgage Electronic Registration System, a big database in Virginia. And MERS administrators also have the power to foreclose on loans. All of which makes mortgage relief negotiations difficult if not impossible, said Jeffrey Norton, a New York attorney who represents homeowners in housing-related lawsuits.

A borrower, for instance, may assume Countrywide holds their mortgage, because that's who sends the monthly mortgage statement. It's more likely, he said, that Countrywide sold the loan and is just handling the monthly payments for the unnamed investors behind the scenes.

"People don't understand the process," Norton said. "Countrywide is not in a position to do anything (to help the borrower). They make . . . money off of enforcement and foreclosure and the fees they're getting on both sides of the deal."

In fact, companies like Countrywide that are just servicing the loans have a disincentive to work with a borrower who is struggling. They can be sued by the investor if they start lowering interest or principal for struggling homeowners carrying too-costly loans. The borrowers' relief is the investors' loss, said David Tatman, administrator of the Oregon division of Finance and Corporate security.

Cutting deals that reduce their income has never been part of the business model, Harpole said. "They'll take the house back in foreclosure and deal with it that way. At that point, they get cash back versus just postponing the write down of that asset value. It's an ugly reality," he said.