COLUMBIA — Since 2009, Sheila Durnil has worked four jobs. She has been laid off. She has lived on unemployment benefits. She has suffered chronic migraines and been hospitalized for an emergency appendectomy. She has watched these stresses affect her older daughter, LaKrista.
But the biggest blow of all was falling behind on her mortgage.
In December 2007, Durnil and her two daughters moved from a mobile home at Columbia Regency to a three-bedroom home she bought in northeast Columbia. About a year later, she began struggling to make monthly payments in full.
Friends told her about a federal program that could help make her mortgage affordable. She applied through the bank that collects her mortgage payments, US Bank, as soon as she could and was denied twice. The bank also rejected her from three in-house loan modification programs.
Once, she was $21,000 behind on her mortgage. Twice, she was within two days of having her home foreclosed on and was left scrambling, desperately calling her bank every day from a break room at work.
And still, some would regard Durnil’s situation with envy.
That’s because on her third try, she was accepted into that federal program, a feat thousands of homeowners and former homeowners across the state didn’t achieve. Two years after first being denied, she is one payment away from a permanently modified, affordable mortgage.
Launched in March 2009, the Home Affordable Modification Program was the Treasury Department’s keystone attempt to curb the nation’s rising number of foreclosures. The program gives homeowners the chance to reduce their mortgage payments if they meet certain eligibility requirements.
If accepted, they pay a lower rate during a three-month trial period. And if they make their payments, the modification is supposed to become permanent, and they no longer have to pay the old, higher rate.
That end result — a permanently reduced monthly payment — has proven elusive for most homeowners who’ve signed up.
Through a Freedom of Information request, the Missourian obtained Department of Treasury statistics that detail the program’s shortcomings in the state. As of Feb. 28, of 18,159 trial modifications that were started in Missouri, 6,944 became permanent (1,484 of those trials are currently active). Of those that became permanent, 1,026 were eventually canceled.
Excluding active trials, 35 percent of Missouri homeowners admitted into the program have permanently lowered mortgage rates. An additional 12,524 applicants were rejected from entering the trial phase of the program, as of Jan. 31.
In Columbia, 53 of 139 homeowners who entered trials have permanent modifications. (This figure excludes 16 currently active trials.)
The program was created to make loan modifications easier by tackling a central barrier in the modification process. The banks and mortgage companies that receive mortgage payments — known as mortgage servicers — have little incentive to help homeowners prevent foreclosure because they don’t own most of the loans they handle. So if a home is foreclosed on, they often don’t lose money.
To induce servicers to participate in the program, the Treasury gives one-time payments of $1,000 for a completed modification and up to an additional $1,000 per year for three years if a borrower makes timely payments.
But the Treasury hasn’t been able to force servicers to follow program guidelines. By its own admission, it has no way of holding them accountable because the program is voluntary and there is no penalty when servicers fail to help qualified homeowners.
As a result, most program enrollees haven’t received permanent modifications at the end of a trial. Instead, their rates return to original amounts, and they now owe back payments. This means if someone’s original monthly payment of $1,000 is reduced to $700 during a trial, they now owe $900 because of the $300 less they’ve paid each month — and their rate returns to $1,000.
“Without question, we have not helped as many people under (the program) as we originally estimated,” said acting Assistant Secretary for the Office of Financial Stability Timothy Massad in a March 30 release on the Treasury’s website.
The underwhelming results were partly driven by the program’s “prudent” eligibility requirements, Massad said, which weren’t designed for homeowners who can afford to make payments. Nor was the program intended for borrowers who can’t sustain a mortgage even after modification, he said.
But the program’s former inspector general, Neil Barofsky, highlighted a different problem in a report to Congress in January — the “abysmal performance” of servicers. “From the repeated loss of borrower paperwork, to blatant failure to follow program standards, to unnecessary delays that severely harm borrowers while benefiting servicers themselves, stories of server negligence and misconduct are legion,” he said.
In Missouri, the servicers processing the greatest number of applications have some of the lowest success rates. Of the four servicers that approved the most trial modifications, none converted more than a third into permanent modifications that weren’t canceled. Not including active trials, here is how they performed as of Feb. 28:
- Bank of America — 23 percent of trial modifications offered are permanent (962 of 4,217).
- CitiMortgage — 32 percent (731 of 2,316)
- JPMorgan Chase — 32 percent (731 of 2,316)
- Wells Fargo — 28 percent (609 of 2,155)
CitiMortgage spokesman Mark Rogers said trials were usually canceled because homeowners provided insufficient documentation, defaulted on trial payments or were ineligible for the program.
Both Rogers and Wells Fargo spokesman James Hines said their banks have introduced in-house modification programs for homeowners who don’t qualify for the federal program. Hines said a web portal created for homeowners to submit documents had eliminated problems with missing paperwork at Wells Fargo.
Bank of America and JPMorgan Chase didn’t respond to requests for interviews.
When clients first came to Columbia bankruptcy attorney Cecilia Young with complaints about difficulties contacting servicers, she assumed the companies would respond better to an attorney.
She was wrong.
“We didn’t have any impact,” she said. Her office still tries to assist bankruptcy clients with the program. But because her staff couldn’t hasten the process, they stopped calling servicers for many clients six months after the program began.
Another great frustration, Young said, was that many of her clients had to submit application forms and financial earnings statements repeatedly. Servicers would tell them their application couldn’t be processed because of missing paperwork. But when clients would try to call their servicers, they were often put on hold for long periods of time or failed to reach a person at all.
“It’s been a nightmare for a lot of my clients,” she said.
According to statistics from the Treasury’s HOPE Hotline, a help line for struggling homeowners, Missouri residents filed myriad complaints against servicers:
- Servicer lost paperwork (118 complaints).
- Servicer didn't respond to borrower submission of paperwork within 15 business days (112).
- Servicer misapplied program guidelines (273 — was added as a category in March 2010).
- Borrower was wrongfully rejected by servicer (131 — added in April 2010).
- Borrower was put on hold for too long, couldn’t reach servicer in multiple attempts or couldn’t reach the right employee (79).
- Servicer didn't respond to voicemail/e-mail (23).
Aside from troubles with servicers, Young said a critical flaw of the program is that many applicants are rejected because their income is too high, yet they still don’t make enough to pay their mortgage. To qualify, a homeowner must be making payments that are more than 31 percent of their gross monthly income. Anyone below that threshold misses out; 5,259 Missouri homeowners were rejected and an additional 1,534 enrollees had trials canceled for this reason.
Several of Young’s clients were told by servicers to stop making payments while their application was being evaluated. Servicers dragged their feet as back payments piled up, and then didn’t offer a modification, leaving homeowners with back payments and unaffordable mortgages. One couple was told not to pay for a year before being rejected, Young said. Like many of her clients, they declared bankruptcy.
HOPE Hotline statistics show that 56 Missouri residents filed complaints because a servicer incorrectly told them they must be delinquent to be eligible for the program.
According to Joanna Kollmeyer, a financial counselor at the Columbia Consumer Credit Agency, even if a client manages to get a modification after becoming several months delinquent, the payment reduction could be much less than what they expected. “The past due amount has to be taken into consideration for future payments,” she said.
Of her clients who entered the program behind on their mortgage, some made payments on time — but weren’t offered a permanent modification. “Now they owe the old past due, and the accumulated due from the lack of full payments in the past three months,” she said.
“It might be enough to send them into foreclosure.”
Adding to the frustration, servicers gave little explanation to many homeowners after rejecting them or canceling their trials, she said. According to program guidelines, servicers are required to send rejection notices in writing and include an explanation for denial.
For many homeowners, getting into the program has been a lengthy process. By the time the right person at a servicer receives the proper paperwork, Kollmeyer said, it has often taken so long that documentation is outdated, so homeowners have to send updated materials. But borrowers aren’t always notified when servicers need more information. “A lot of people assume (a servicer) will contact you if they need something, which is usually not the case,” she said.
Trials were canceled for 2,843 Missouri residents for incomplete paperwork, and an additional 3,401 weren’t offered trials for the same reason.
The Missouri Department of Insurance, Financial Institutions and Professional Registration has no affiliation with the program, but its consumer complaint hotline has consistently fielded calls from upset homeowners frustrated with the program.
Communications Director Travis Ford said many of the complaints suggested the servicers who collect mortgage payments weren’t always the problem. In many cases, Ford said, the bank or investor that owned the mortgage was preventing a trial modification from becoming permanent. When that happens, he said, the department can try to contact the owner of the mortgage to learn the status of someone’s application but can’t do much more to help.
Ford said many homeowners calling in reported that the owner delaying a modification was often one of the government-owned mortgage giants, Fannie Mae and Freddy Mac — the very institutions assigned to oversee the program.
In a December 2010 report, the Congressional Oversight Panel said Fannie Mae and Freddie Mac are “highly conflicted because they hold the credit risk on most mortgages in the United States, and have their own operational concerns, raising the question of why Treasury decided to saddle (them) with oversight of (the program).”
The Congressional Oversight Panel now estimates that, nationally, the program will prevent roughly 700,000 to 800,000 foreclosures — far short of the original aim of three to four million.
Neil Barofsky, who resigned from being the program's inspector general March 30, accused the Treasury of being soft on servicer noncompliance and said the department’s reluctance to punish servicers with fines or incentive pullbacks seemed to be driven by a fear that forcing them to comply would drive them away from the program. The Treasury told the panel that because servicer participation is voluntary, the department’s ability to enforce performance is limited.
Barofsky, said if the Treasury doesn’t begin holding servicers accountable, the program will continue to flounder. “At some point, Treasury needs to ask itself what value there is in a program under which not only participation, but also compliance with the rules, is voluntary,” he said.
“And if getting tough means risking servicer flight, so be it,” he said. “The results could hardly be much worse.”
Although the Treasury admitted the program has fallen short, it has benefited the borrowers who received permanent modifications through the program — modifications the Treasury said probably wouldn’t have happened otherwise. Statistics from the Office of Thrift Supervision show that modifications produced from the program result in greater average reductions in payments than in-house modifications. Also, homeowners who receive modifications through the program are less likely to become delinquent.
In addition, the government has issued far fewer in incentive payments to servicers than anticipated, so the program will cost taxpayers less than the Treasury initially believed. When it was launched, $50 billion from the Troubled Asset Relief Program was set aside for the program. That number was reduced to $29.9 billion, but as of February, the Treasury had spent only $1.04 billion.
On March 4, Timothy Massad told the congressional panel that the program has had further impact by setting standards for modification practices that “have now been followed by the industry widely” and resulted in a greater number of in-house modifications. But according to the panel’s December report, the Treasury acknowledged “there is no clear causal link between HAMP and proprietary modifications.”
The long road to a modification
When Sheila Durnil first requested a program application packet from US Bank, three months passed before it arrived on her doorstep. She submitted the packet in June 2009 and was told in September she needed to make larger payments than she had been paying to qualify. Durnil said she paid what she could and waited for an update.
In November, that update left her incredulous — it was a foreclosure notice. Without notifying her, US Bank had rejected her from the program in September, she said.
“That nearly broke us,” she said. “It was such a shock.”
“My biggest issue was just getting in touch with them,” Durnil said. “They want to send me letters and send me letters and yell at me through the letters, but they don’t want to talk on the phone.”
Every time she called, she was put on hold for an hour, she said. She was transferred, transferred again, and on a few maddening occasions, accidentally disconnected. Talking to the same person twice was rare. On top of that, she had to resubmit paperwork on several occasions.
“I shed a lot of tears on the phone,” she said.
It was only when she began demanding the e-mail addresses and direct phone lines to the bank employees she’d talked to that she was able to consistently speak to the same people. Being able to “bombard them with e-mails” was vital, she said.
Durnil said working with US Bank has gotten better, but overall has “been a bad experience.” But compared to many other servicers, US Bank’s numbers are stellar. Of 536 trial modifications offered in Missouri that aren’t active, 359, or 67 percent, are permanent.
Ryan Murphy, a default resolutions specialist at US Bank, said the bank didn’t receive enough information about the program or have a large enough workforce to handle the program when it was introduced. “Phone lines were overwhelmed with calls,” he said. They’ve opened additional call centers and hired more personnel to better manage the demand since then, he said.
Even with improved support from US Bank, Durnil was rejected from the program for a second time in December 2010. In October, she was laid off from her job as an administrative assistant at MU’s Office of Research. She attempted to qualify for the program through her unemployment benefits. When Congress didn’t extend federal benefits on Nov. 31, she didn’t have proof of guaranteed future income and was denied.
In January, she received a second foreclosure notice. There was no way she was going back to Columbia Regency, but she was worried she’d have to move her family back into a mobile home.
Then, in February, a week before the sale, she landed a job at the Cannery Row Preschool day care. After another round of calling and e-mailing, she stopped the foreclosure two days before the sale.
Durnil applied to the program a third time, and US Bank quickly approved her application. On May 1, she successfully made her second trial payment of $591, reduced from $703.
And she landed a better job. Despite having 10 years of experience as a department manager at Walmart, she’d been working as a part-time cashier at Gerbes since March. On May 9, she accepted a full-time office support position at the MU Office of the Registrar.
She isn’t in the clear yet, but she said she’s optimistic about her chances. She knows things could be worse, and several inch-thick files filled with forms, resubmitted documents, rejection letters and foreclosure notices at her home serve as a reminder of that.
But if she makes her third and final trial payment June 1, US Bank told her the modification will become permanent, and Durnil might be able to put the two most distressing years of her life behind her.
“We worked very hard for this,” she said.