DEFAULT: An American Nightmare


My mother used to call it the American Dream: Get married, work hard and buy a house so you’d be in debt for the rest of your working life. In 2005, my husband Cory and I happily bought into that dream when we purchased our first home, a two-bedroom house in Sacramento.

Today, five and a half years later, we’re in danger of losing our home—even though we never missed a single mortgage payment. Just a few months ago, in September, we received a default notice from Coldwell Banker informing us that we were in arrears for nearly $12,000 in delinquent payments that had been accumulating since April.

The letter came as a shock.

That’s because we’d been participating in a trial loan-modification program through HAMP, the government-sponsored Home Affordable Modification Program designed, in the wake of the ongoing subprime-mortgage crisis, to assist distressed homeowners with reduced mortgage payments, forbearance and even permanent principle reductions. We believed the government when it said it could help us.

We needed the help. In the five years since we purchased our home, we’ve been hit hard by the recession—laid off from higher-paying jobs even as our monthly expenses increased. Meanwhile, as the refinance date for the loan approached, the value of our home had shrunk to nearly half of its original value.

I reread the “default” letter several times and thought about the last time I’d spoken to a HAMP representative. Just two weeks prior I’d been assured we were, after nine months in the trial program, finally close to a permanent modification. “The computer shows your modification is just awaiting approval from a treasury underwriter,” a HAMP loan counselor told me. “Should be any day now.”

We were ready for the saga to be over. As a journalist, I’d kept every piece of paperwork and documented every conversation with copious notes—now I wanted to file it all away and finally move on.

But in actuality, we were no closer to a resolution. In fact, thanks to HAMP’s (and the bank’s) horrendous maze of bureaucracy and misinformation, the nightmare had only just begun.

My husband and I aren’t the only ones living this bad dream.

Since its launch in 2009, nearly 1.5 million troubled homeowners have applied for a loan modification through HAMP, according to figures from Making Home Affordable, the larger federal program under which it operates.

According to an October 2010 report, approximately 520,000 of those applicants have been awarded permanent modifications that lowered their monthly mortgage payment to 31 percent of their gross monthly income. Meanwhile, every month, an average of 23,000 new homeowners are put in trial modification.

Those numbers, however, only tell part of the story. MHA doesn’t offer figures on what’s happened to the remaining applicants—those placed into a trial program only to eventually find they’ve been kicked out of the program and right into foreclosure.

Those people, anywhere from 40 to 60 percent of applicants, depending on which reports you read, face ruined credit and the loss of their homes—often without ever receiving an explanation why the government ultimately decided to deny them help.

Holding that default letter in my hands, I suddenly realized that my husband and I might be added to their growing ranks.

If it’s too good to be true …

To put the story in context, it’s necessary to go back five and a half years to the spring of 2005, when Cory and I decided to buy a home. It was the height of the housing market when Sacramento-area homes were selling at exorbitant prices and the median purchase price hovered near the $330,000 mark.

We made good money at the time but still felt dual pangs of anxiety—it was nerve-racking to think about sinking upwards of $300,000 into a house, but we were afraid that if we didn’t, we’d be priced out of the market for good.

We assessed our finances and met with a mortgage broker who immediately advised us to take on an interest-only loan so that we could afford a $500,000-$600,000 home.

“The price will only go up,” he said. “And you’ll either be out of the house in a year—in something better—or you can refinance to a 30-year loan. It’s a win-win situation.”

We considered the option, but when we couldn’t rid ourselves of that nagging “if it’s too good to be true …” feeling, we found another mortgage broker.

Then we started looking in what seemed like a more realistic price range.

We tried to find a house below $300,000, but the longer we looked at those homes, the more run-down they became: crumbling front porches, water-stained ceilings and broken kitchen tiles; tiny ramshackle tract homes in high-crime-rate areas where the neighboring homes were surrounded by chain-link fences and guarded by pit bulls.

In May, we finally settled on a two-bedroom house in Hollywood Park, a 1950s-era neighborhood just southeast of Land Park. The home was modest but replete with just enough charm and practicality to win us over—original yellow counter tile in the kitchen, hardwood floors and a small “bonus” room we could convert into an office.

Rachel and her husband, Cory, seemed perfect candidates for the Home Affordable Modification Program, a government program designed, in the wake of the subprime-mortgage crisis, to assist distressed homeowners with reduced mortgage payments.

PHOTO BY MIKE IREDALE

The $331,000 price tag was more than we’d ever dreamed of paying, but, as everyone assured us, buying a house was a solid investment even with the five-year adjustable-rate mortgage we needed in order to afford it.

The first year, we were excited about being homeowners. Although the monthly mortgage made for a tight budget, we managed to refinish the hardwood floors, put in new heating and air conditioning, and install custom bookshelves in the office.

Then, in October 2006, the company Cory worked for went bankrupt. Still, when he lost his job as a result, I didn’t worry too much. Sure, the housing market had cooled—but not by much—and he found another job almost right away. That his new salary was significantly less than his previous wasn’t ideal, but with a little budget crunching we were able to adapt. That next year, we replaced portions of our backyard fence destroyed during a particularly brutal winter storm and contemplated converting part of the garage into a kitchen pantry.

By March 2009, however, everything changed when The Sacramento Bee laid me off during a massive round of newsroom cuts and amid the worst housing slump in decades. Plus, our home was now worth less than $200,000.

I called our mortgage company to see if we could refinance for a lower payment.

It took a Coldwell Banker loan officer less than 15 minutes to decide they couldn’t help. Our home’s value had sharply decreased, he told me, and although we’d been paying against the principle for nearly five years, we hadn’t made enough of a dent in the balance to qualify.

“You might want to try contacting HUD,” he said, referring to the U.S. Department of Housing and Urban Development, which governs national policy on home loans.

“Oh, and you might want to get a lawyer,” he added.

I wish we’d listened to that last part.

Instead, I called HAMP, and was connected to a counselor who assured me that our situation most likely qualified us for a permanent adjustment. The paperwork we received several weeks later gave me hope. HAMP pledged aid for homeowners who, due to the enduring recession and depressed housing market, were having difficultly paying their mortgage. Unlike other loan-modification programs, applicants weren’t required to already be in default to qualify.

Of course, there were reams of paperwork to submit: a hardship letter, pay stubs, bank statements, tax returns, and an itemized monthly budget and debt sheet. We mailed them in and waited.

And waited.

Finally, in mid-July, a thin envelope arrived in the mail. Inside was a one-sheet denial letter; the decision, however, was based on our 2008 tax returns—before I lost my job.

I called HAMP and explained the issue; a counselor advised us to reapply. We filled out a new application and included the latest round of financial documents: hardship letter, pay stubs, bank statements, tax returns, and an itemized monthly budget and debt sheet.

And so we waited.

And waited.

In October, a new envelope arrived. This time, we learned with elation, we’d been approved for a four month “trial modification” of our loan that cut our monthly payments by more than $1,000.

If we made every payment on time, the paperwork advised, we could expect to see a permanent modification and possibly a forbearance and principle reduction as well.

“Usually the final modified payment is very close to the trial payment—sometimes it’s even lower,” a HAMP clerk informed me when I called to clarify details.

And what if we were ultimately turned down—would we owe the difference between our original and trial payments?

“Oh no,” she said. “If you’re turned down—and I don’t see why you would be—any outstanding moneys will be added onto the back of your loan.”

The relief we felt was immeasurable. I was now working two part-time jobs—writing for the Sacramento News & Review and teaching at Sacramento City College—but my annual income had been slashed considerably. The latest hit came via the additional $330 a month it cost to add me to my husband’s health insurance, because I didn’t qualify for my own plan.

Now we could afford our monthly payment without raiding our savings account to make ends meet. We could also afford to make crucial repairs; first up: a new bathroom floor to replace the one that had gone soft with dry rot.

We made a list of critical upgrades we could finally consider, including a new roof and a plumbing system to replace the decaying one original to the house.

The local couple never missed a mortgage payment and did exactly what HAMP instructed them to do. Today, more than a year has passed, and they still find themselves faced off against a government bureaucracy and financial institution that doesn’t seem to have a clue.

PHOTO BY MIKE IREDALE

For the next four months, we made each payment on time and awaited word on a permanent modification. By the end of February, however, it became clear this would take longer than initially promised.

“We’re really backlogged on paperwork,” a clerk explained when I called to check on our status. “Just keep making your trial payment every month.”

And so I did, calling in on the first business day of each month to check on the modification. But each month I got the same answer: No update, the modification was still pending.

Occasionally somebody offered a tiny glimmer of hope. In June, a HAMP counselor said the new loan terms were just waiting final approval.

“You’re almost there!” she chirped. “You should expect a final packet of paperwork very soon.”

But we weren’t even close.

The current snapshot

The subprime-mortgage crisis has hit Florida and California the hardest, with the Golden State accounting for about 20 percent of the nation’s foreclosure filings in October 2010, according to data reported by Foreclosures.com. Meanwhile in Sacramento, more than 2,000 properties were going through the foreclosure process during the same time period, as reported by RealtyTrac, an Irvine-based company that analyzes market data.

Those numbers actually reflect a decrease in foreclosure activity, thanks, at least in part, to a recent bank freeze on foreclosure filings amid the uproar about sloppy procedure: so-called “robo-signers” who blindly signed paperwork, missing documents and even reports of homeowners mistakenly losing their homes amid a dizzying labyrinth of rushed proceedings.

Major bankers such Bank of America and JPMorgan Chase initially took much of the heat, but now some of the attention has turned to HAMP and its increasingly apparent failings.

With its Troubled Asset Relief Program, enacted in 2008 under President George W. Bush, the U.S. Treasury Department pledged to pay banks, investors and homeowners for every successful permanent modification. But, according to a late November report from the nonpartisan Congressional Budget Office, the Obama administration is projected to spend just $12 billion out of the program’s $50 billion.

In Sacramento, according to HAMP documentation, nearly 11,000 people have applied for a government modification, approximately 2,500 of those homeowners are in the trial modification period and more than 8,000 loans have been permanently modified.

Impressive until you consider that the numbers aren’t exhaustive but, instead, according to HAMP spokeswoman Andrea Risotto, only represent the program’s “current snapshot” of activity between June and October.

The system has been “overwhelmed” with applicants, Risotto explained in a recent interview from her office in Washington, D.C.

“There were an unprecedented number of homeowners flooding the gates at the onset, and there’s no question the majority of servicers weren’t set up to deal with the volume,” she said. “For some [homeowners] the process may be very, very long.”

Do the math

In the meantime, HAMP data only tells part of the story and provides little clarity as my husband and I try to figure out the frustrating mess that the government and banks have made of our home loan.

Certainly, the letter we receive in September seemed to be in direct conflict with every bit of information previously received.

“The mortgage on your property is in default for the April 1, 2010 payment and is now 6 months past due,” it reads. “At this writing, the TOTAL AMOUNT required to cure your default is $11,640. … In the event that you do not cure the default within THIRTY (30) days from the date of the letter … foreclosure proceedings will be initiated.”

Initially, we reason, it must be the result of a colossal mistake—a huge oversight, a major crossing of wires.

I called Coldwell Banker at 7:30 the next morning. The person at the other end of the call is, to put it mildly, less than helpful.

“No, that’s right—the letter’s not a mistake,” he tells me. “You’re six months late on your payments.”

I point out that I’d made every payment, with proof of each one.

He pauses for a moment and then corrects himself.

This chart depicts how many HAMP “active trials and permanent modifications” are in place, and their locations. The data represents HAMP activity between June and October of 2010. Remember: These numbers only tell part of the story.

SOURCE: U.S. FEDERAL HOUSING ADMINISTRATION

“You haven’t been making the full payment,” he says.

“That’s because we’re enrolled in a HAMP trial modification program,” I say. “We were making the reduced payments—just like we were told to.”

There’s a long silence on the other end of the phone, and I imagine him looking at computer screen, studying its numbers. I stare at the papers on my desk, glancing occasionally at my husband who, awakened by my early-morning arguing, has sleepily joined me in the office.

Finally, the bank clerk speaks again.

“Well, it looks like the problem is that you should have been making your regular mortgage payment in addition to the trial payment.”

I try to keep my composure but hear my voice get louder and more indignant with every word.

“That’s nearly $4,000 a month! If I could afford that I wouldn’t have had to apply for a loan modification to begin with.”

My math skills and logic fail to impress him, and the conversation finally ends when I tell him I’ll call HAMP to straighten it out.

The HAMP loan modification counselors, however, are equally unhelpful.

What transpires next can be described as nothing less than a three-ring circus of absurdity.

During a two-week period, in a mind-boggling display of comical ineptitude and government buffoonery, we speak to no fewer than six people and receive no fewer than six radically different sets of answers and explanations.

One person tells me he has no clue why we’ve received that letter—our modification is still moving through the system. Another person says the default letter is simply “part of the process” and the money we’d been paying is now in a “suspense account” until the modification is made permanent. He can’t, however, tell me exactly what a suspense account is.

Another loan counselor explains that the money we owe Coldwell Banker amounts to the six-month difference between our regular monthly payment and the trial payment.

When I point out that the math doesn’t add up—by those calculations we owe only $6,102 instead of $11,640—he changes the subject and eventually transfers me to his supervisor.

“I’ve never missed a payment,” I say. “Now I’m reluctant to give you any more money until you can show me the numbers and tell me where my money went.”

“Oh, that’s OK,” she says. “They probably won’t accept any more money from you anyway until you pay the default amount in full.”

I bite my lip to stop from yelling or crying, hang up the phone and impose a temporary moratorium on all things house-related. I’m so tired of talking about the house. I’m so tired of feeling as though I’m being forced to defend myself in this court of insanity.

At first Cory and I confide in only our closest of friends. The ordeal seems embarrassing—shameful even, as though we’ve done something wrong, as if we’ve stupidly expected too much.

The longer it drags on, however, the more we open up—to friends, to family, to co-workers—all whom assure us that we shouldn’t blame ourselves or allow ourselves to be stigmatized by the government’s shortcomings.

Easier said than done, of course—all the support and personal resolve in the world won’t sort out the mess, and in early October we get our first call from Coldwell Banker’s collections office. The pleasant-sounding agent on the other end of the phone inquires about our missed payments.

According to their information, she says, we owe them approximately $7,000.

“Wow—that’s nearly $4,000 less than the amount given in the letter you sent me,” I say and then, for what feels like the millionth time in less than a month, repeat every detail of our story.

As I reach the end of the saga, I feel my voice break.

“I know you’re just doing your job, but please try to put yourself in my shoes,” I say. “Every single person I’ve spoken with, including you, has given me different information. Nobody can get the story or the figures straight. Nobody can tell me why this is happening even though we never missed a payment and always did everything we were told to do. Nobody can explain to me why we were never told that entering into a trial modification would result in getting a default notice.”

Given the recession and the subprime-mortgage crisis, it’s no surprise that an unprecedented number of homeowners have applied formodified mortgage payments.

She’s quiet for a moment and then finally speaks.

“It sounds like something isn’t right,” she says. “We’ll look into it on our end, but in the meantime, I have to tell you that you’ll probably receive more calls from collection—I’m sorry, I really am. We’re not trying to harass you.”

I try to picture this woman at work—daily going about her business ensconced in a sprawling labyrinth where, amazingly, the path of one department never meets up with the path of another.

The politicians and government officials investigating the foreclosure crisis have a name for these parallel paths.

The so-called “dual track” procedure is a road to nowhere on which homeowners are advised to make reduced mortgage payments (or skip them altogether) as part of a trial loan modification—only to eventually learn that, as a result, the banks have levied them with hefty fees and accelerated foreclosure threats.

On December 2, the Senate Committee on Banking, Housing and Urban Affairs met on Capitol Hill, where John Walsh, acting comptroller of the currency, decried the dual-track process as “unnecessarily confusing for distressed homeowners.”

But representatives from the government-controlled mortgage guarantors Fannie Mae and Freddie Mac defended dual tracking as a way to speed up the system.

“It’s not in the borrower’s interest for the process to drag on indefinitely,” explained Freddie Mac executive vice president Donald Bisenius. “The longer the borrower’s delinquency goes uncured, the farther behind he or she gets.”

Sen. Robert Menendez, D-New Jersey, disagreed. “Countless constituents have told us stories of being stonewalled by banks for very long periods of time, of not being told the reasons for their rejection of their modification request, of significant delays caused by banks losing their paperwork and trial modifications canceled with no rationale,” Menendez said.

No rationale and no sign of resolve.

But according to Risotto, the dual-track process is necessary for those who’ve previously missed payments or are already in foreclosure.

And while this reasoning, of course, doesn’t explain why my husband and I were sent down these tracks before or during the trial program, Risotto added that participating banks are “required to exhaust all options” before initiating foreclosure proceedings.

Furthermore, she said, homeowners turned down during the trial modification are legally entitled to see “a reason in writing” and have a 30-day appeal window.

“There are clear rules, and we [demand] strong compliance [from banks],” she said.

According to a congressional report released on December 14, only an estimated 750,000 households are expected to be aided by HAMP during the entirety of its run—far less than the 3 million to 4 million once envisioned. The new report, released by the Congressional Oversight Panel, blames banks for the program’s failure. Why? There are no penalties if they refuse to participate in HAMP, and they usually find it’s more lucrative to foreclose on a home. Furthermore, those banks that do participate in the program likely find it’s easy to rewrite the rules. To date, no banks have been fined for failure to comply with HAMP regulations, according to the U.S. Treasury Department.

While there are no current figures for the number of people in Sacramento forced into foreclosure thanks to HAMP, it seems the process has hurt as much—if not more—than it’s actually helped.

David Mandel, an attorney with Legal Services of Northern California Senior Legal Hotline, says his office has worked on “hundreds” of HAMP modifications, but only a select group of applicants have ultimately qualified for a permanent modification.

“The successful [modifications] seem to be for those who have the right income level, their houses are only moderately underwater and they have a really good hardship story.”

And everybody else?

“Typically, the homeowner is [put into] the trial program and then they’re denied and they owe money,” Mandel said. “Then they offered new terms [from the bank] that are worse than they were before—by that time, they’re even further behind on their payments and their credit has suffered.”

Before HAMP, Mandel added, banks were more willing to customize modifications on a “case-by-case basis.”

“Now they try to make it all fit into the box and they ignore everything else.”

Tragicomedy of errors

In mid-October, a month after we received the scary “default” letter, a HAMP counselor informs me we weren’t turned down for HAMP, after all—in fact, we’re “95 percent approved” for a permanent modification.

Rachel, seen here with her cat Zoey, refuses to fall prey to the “blame the victim” way of thinking. “We refuse to be stigmatized by their mishandlings and errors,” she said.

PHOTO BY MIKE IREDALE

“Just hold tight,” she says. “This will all be resolved soon.”

By the next morning when I call again, the story has, of course, changed again.

This time, a different counselor explains that our modification was rejected on September 13—a denial letter is on the way.

But, good news, she adds, we’re now under consideration for a Coldwell Banker in-house modification.

“You’ll get a new packet soon, and it will have the paperwork detailing why you were turned down,” she says.

Our bank never sends a new offer in late October; they mail us a check for $2,516.

“The money is being returned because your loan is in default and may be referred to our foreclosure department for further review.”

So, to recap:

One department at Coldwell Banker claims we owe them $11,640.

Another department puts that figure closer to $7,000.

Meanwhile, a third department has mailed us a check for $2,516.

Talk about a tragicomedy of errors—if my home wasn’t on the line, I’d find this saga hilarious.

But it’s not. A week after sending in another round of financial documents, we finally receive new trial modification packet—from HAMP.

Aside from the terms for the monthly payment—nearly $600 more than the previous trial—it’s identical to the first offer.

Confused, I call HAMP and learn that the new figure is, apparently, based on our gross monthly income.

“But my monthly income hasn’t changed since last October when we started the first trial program,” I say.

The counselor doesn’t have an answer for this. Ultimately, he can’t answer most of my questions—why the monthly payment is higher, what happened to the previous payments we’ve made or why this latest offer is from HAMP and not our bank.

The only answer he does offer is, at best, unsettling.

“What if we can’t afford this new payment?” I ask, staring at the alarmingly high figure on the piece of paper before me.

“Then you’ll have 30 days to cure the default amount, or your house will go into foreclosure.”

Now it seems like we’re embroiled in an illogical game of cat-and-mouse. Foreclosure proceedings have, according to the modification counselors, been temporarily halted and the collection officers have stopped calling—but the clock is quickly ticking down.

Whatever happens next, the path out of this mess remains long, winding and rocky. We’re talking to a lawyer to help us better navigate the journey. In the meantime, our conversations have shifted from topics revolving around “When will the modification go through?” to “What happens if we have to find a new place to live?”

Perhaps I shouldn’t have expected a government bailout—but certainly I didn’t expect that if we took the help that was offered, it’d make our situation even worse.

Meanwhile, Cory and I refuse to fall prey to the “blame the victim” way of thinking. We did exactly what the government told us to do. We did nothing wrong. We refuse to be stigmatized by their mishandlings and errors.

We refuse to feel ashamed.

And so we comb through the stacks of documents, looking for clues to what went wrong. We scour the Internet for news, information and similar stories. We scan Craigslist for local rentals, wondering what will become of us—how long can we stay in our home before they kick us out?

How long before we finally wake up from this never-ending American Dream?

By Rachel Leibrock/Sacramento News and Review