Sunderland woman faces hurdles in quest to modify mortgage amid financial crisis

Thursday, October 15, 2009

SUNDERLAND - Karen Michaels herds her two standard poodles out of her van.

"Stay ... Down," she commands, unbuckling the excited dogs from their car seat belts and coaxing them away from a visitor at the South Silver Lane home she has owned since 2004.

The dogs obey. If only her life could be so simple.

Michaels, a self-employed massage therapist, is one of many in the Valley and beyond who risk losing their homes to a financial crisis.

Seeing trouble ahead, Michaels, 53, started applying for a home mortgage loan modification in late December. With her clientele diminished by the recession and her new single-parent status, Michaels was hoping the bank would cut her $1,705 a month mortgage in half.

The situation would be temporary. Once she secured a second job, she'd be able to make the full payments again, Michaels said.

But 10 months later, Michaels, who has a daughter in Amherst Regional High School, was still in negotiations with lender Wells Fargo, performing the same repetitive tasks, answering the same questions and jumping through the same hoops she's been trying to clear all this time.

"I don't mind doing this," said Michaels, sitting on her living room floor petting her 8-year-old white poodle, Bella. "I'll fax them however many packets they want, I'll call them back as much as they want. I just don't think they know what they're doing."

Stories like Michaels' are becoming increasingly common as banks scramble to address customer needs in this economic downturn.

Michaels believes she is among the 84 percent of homeowners who appear to be eligible for a trial loan modification, but have not yet received one, according to data released by the U.S. Treasury last week.

Meanwhile, foreclosures continue to threaten homeowners. In Massachusetts, petitions to foreclose, which mark the initial stage of the foreclosure process, shot up 154 percent to 2,396 in August from 943 during the same month last year, according to the most recent information from the Warren Group. Of the August petitions, 48 were made in Hampshire and Franklin counties.

Michaels' experience trying to negotiate a loan modification with Wells Fargo is twisted and convoluted. She keeps more than five pages of typed notes to record her conversations and phone calls with the bank.

A spokeswoman for Wells Fargo contacted by the Gazette did not go into the details of Michaels' case, but said, in general, that the bank attempts to work with its mortgage owners to find workable solutions.

Michaels said she has had to fax the same earnings statements from the local library to a bank office in Iowa several times. Each time she calls to discuss her application, she talks to a different agent. When she returns calls, she is not allowed to talk to the same bank officials who phoned her in the first place.

Michaels has received several notices from the bank complaining that she does not return phone calls, but she claims she never received them.

Without her permission, Michaels said, her home fell into "short sale," a condition under which the homeowner will sell a house to pay a lender less than what is owed.

And as Michaels negotiates, her situation gets worse.

She is now in arrears by more than $18,000 - $6,000 of which stems from bank fees - and her credit is shot. The bank started foreclosure proceedings in May.

On Friday, a bank representative told Michaels her loan modification application had been denied, but she could refile. Michaels, who hired a lawyer to help her work with the bank, said Wells Fargo denied her application for "failure to communicate."

"I can't stand the stress anymore," Michaels said, putting her head in her hands. "Some days I'm like, 'It's all right everything is fine, so what if I move and live in a two-room apartment?' But on other days I think, 'My credit is shot, who would rent to me? What if I lost everything?'

"Denial comes in handy sometimes," Michaels said with a sigh. "I keep trying to look for more work."

Affordable homes?

Although the Obama administration's Making Home Affordable program was enacted in March, banks have been slow to provide the modifications facilitated through the legislation. Through the program, banks receive $1,000 for every loan modification they perform in addition to other incentives.

As of September, the banking industry has provided 487,081 loan modifications nationwide, according to the U.S. Treasury. The Making Home Affordable program was created to help 3 million to 4 million at-risk homeowners avoid foreclosure. The program expires in December 2012.

"It got off to a slow start," Robert H. Wilson, a University of Massachusetts Isenberg School of Management professor, said of the program.

Wilson said banks are wary of providing loan modifications only to have the homeowner default on the new loan structure. Depending on the level by which the monthly payment was reduced, 34 to 50 percent of people who had received a loan modification in 2008 defaulted on their adjusted loans within 12 months of the new agreement, according to the Office of the Comptroller of the Currency, Administrator of National Banks.

"There needs to be adequate income that the borrower has, to still pay the reduced amount, and that's not always the case," Wilson said.

In Michaels' case, Wells Fargo had its doubts she would be able to make a reduced payment.

Debora Blume, a spokeswoman for Wells Fargo, did not answer specific questions, but after reviewing Michaels' case offered the explanation that if a person cannot demonstrate she will be able to pay her mortgage with a modification, there is no incentive for the bank to provide one.

"During a time of financial hardship, we work with our customers on possible workout options available to them. The workout options are based on the customer's financial ability to repay their debt and investor guidelines," Blume said in an email. "If a borrower can't demonstrate financial ability to afford the loan modification under these guidelines, Wells Fargo is unable to extend a workout option to them."

Of the 27 major banks surveyed by the U.S. Treasury, Wells Fargo has provided the eighth-most loan modifications, with almost 63,000 provided nationwide.

Also thwarting the banking industry's ability to provide loan modifications is the standard practice of selling bundled loans to investors, Wilson said. The loans are packaged and sold to provide banks with more capital, which allows them to provide even more loans. With investors in control of the loans it becomes harder for banks, especially large banks, to negotiate a modification, Wilson said.

Banks "can have limited control over making actual decisions about the loan itself as far as modifying the terms," Wilson said. "The loans have been split and cut up into different pieces."

Jennifer Kinsman, program manager for the Western Massachusetts Foreclosure Prevention Center, said banks were not prepared for the high volume of people seeking modifications. As of Sept. 30, 2.48 million people have sought information about the Making Home Affordable program, according to the U.S. Treasury.

"For lenders it's a new department," Kinsman said. She said there are some loan modification applications that "turn around in a couple of weeks and others that are taking months and months. There are people still waiting to hear about an application they submitted toward the beginning of the program. That's a long time to wait."

The Western Massachusetts Foreclosure Prevention Center opened in May 2008. It has served almost 2,000 people, Kinsman said.

One woman's story

In December, Michaels saw her financial hardships on the horizon.

In the throes of the recession, her clientele had dropped off. Michaels estimates she now earn $1,300 to $1,500 less per month than before the recession hit. She said she also lost income following a divorce.

Michaels said she called Wells Fargo to notify the bank that she would soon be unable to make her mortgage payments. She asked if she could apply for a loan modification and requested financial advice. She received little help. Not yet in arrears, there was nothing the bank could do for her, Michaels said.

Michaels missed her first $1,705 mortgage payment in February.

She missed March and April, too.

In April, Michaels received an infusion of cash through a court order. However, when she received the money, she did not make a payment to the bank. Michaels said she was advised by a credit counselor not to pay.

"I got some bad advice," Michaels acknowledged. "They told me not to pay, that it would demonstrate I could pay and it would ruin my chances of getting a modification.

"So I spent it on other bills and food," she said.

In May, she attempted to make a mortgage payment, but the money was refused, she said. When she called the bank to inquire how to keep her home out of foreclosure, she was told her house was in short sale. Michaels had not agreed to a short sale, she said, and spent months fighting with the bank to pull her home out of the sale.

But in June, her home went into foreclosure.

With financial assistance from her friends, Michaels hired a lawyer to help her convince Wells Fargo to approve her application for a modification.

With her home out of short sale, Michaels made mortgage payments in September and October. She got a part-time job through the U.S. Census Bureau checking residential housing for an accurate count and still held out hope for a modification.

However, her hopes were dashed last week when her application for a loan modification was denied. Michaels is now unsure what her next move will be. She still can't make her full mortgage payments with any regularity and she is unsure who will rent an apartment to a single mother with two dogs and a foreclosure on her credit history.

"I don't know what to do," Michaels said. "In some way I wish I walked away from my home in February and focused on finding a place to live and spent the time I spent with the bank finding more work. I need to rebuild my practice. I don't have money to retrain."

Michaels believes that if she had received a loan modification last spring, her home would not be in foreclosure today.

"It makes me very angry that the banks can pay their officers huge sums of money and yet not use the money that the government has given them for the purposes of helping homeowners modify their loans," she said.