Mortgage pact abuses

 Abusive lending practices revealed during the foreclosure crisis led to new rules designed to protect struggling homeowners. New guidelines are sometimes being violated, Attorney General Jack Conway said last week, adding consumers should stay on alert.
The rules are complex — there are 320 guidelines agreed to by five mortgage banks as part of banking reforms that include the $25 billion National Mortgage Settlement — so if you are fighting foreclosure or seeking better terms for a loan, consumer advocates say you should educate yourself about your rights.
“People who are in danger need to know this information,” said Brian Tucker. “These rules can help buy you time.”
New federal rules make sense to Tucker. The steelworker was unemployed with a broken leg when he asked JPMorgan Chase to lower the mortgage payment on his Valley Station home in 2009. The application process stretched over a year, during which Tucker found a job but was still struggling to pay his bills. Before long, Tucker was talking to one arm of the bank still processing his new loan application while also being served with a foreclosure notice by the bank’s collection department.
Now it is illegal for banks to pursue foreclosure while a homeowner is working in good faith to pursue a lower payment via a home loan modification.
“We worked very hard to keep this customer in his home,” Chase spokeswoman Amy Bonitatibus said Thursday. Citing bank privacy policy, she declined further comment on Tucker’s account.
Chase is one of the country’s five largest mortgage banks subject to the new rules. In settling, the banks admitted they violated the law by hastily pursuing foreclosures without verifying facts were correct. They also acknowledged they “routinely” signed foreclosure-related documents outside the presence of a notary public.
Under the new rules, struggling homeowners are supposed to find it easier to seek lower mortgage payments by applying for a loan modification, with clearer guidelines on how much time they have to submit, correct and respond to bank documents. So far, 1,757 Kentucky homeowners who endured foreclosure have received more than $61.1 million in settlement checks or loan modification relief from the five banks — Chase, Ally/GMAC, Citi, Bank of America and Wells Fargo — Attorney General Jack Conway said Tuesday. The deadline has passed for homeowners who lost their homes to foreclosure between 2008 and 2011 to apply for compensation.
But Conway said there is growing concern from states that some of the banks, which make and service 60 percent of all mortgage loans, are not abiding by new rules that give consumers time to try to save their home.
“There have been complaints from consumers that servicers are not meeting their obligations under the settlement,” Conway said. “We are aware of the concerns and are collaborating with other attorneys general about the best way to resolve these complaints to ensure that consumers receive the relief entitled to them.”
New York Attorney General Eric T. Schneiderman recently announced he will file a federal lawsuit accusing Bank of America and Wells Fargo of “repeated and persistent failure to comply” with the new standards.
Whether Kentucky will join that fight remains unclear. Conway said Tuesday his office is fielding similar complaints from homeowners, and he is conferring with attorney general colleagues on whether similar legal action is required.
Bank of America spokesman Richard Simon, responding to the threat of litigation by New York, praised the settlement and said the bank is working to address customer service problems. “This agreement has been good for New York, and we continue using these beneficial programs to assist troubled homeowners in New York and nationally,” he said.
JPMorgan Chase “is complying with every one of the 320 guidelines,” Bonitatibus said. “So far, we have helped 126,000 homeowners stay in their homes.”
Consumers’ new rights include specific time standards. Banks are required to provide borrowers with written notice they have received a loan modification application within three business days of getting it. Banks are also required to notify borrowers of missing documents or deficiencies in their loan modification application in five business days. Banks must give borrowers 30 days to correct problems or submit missing documents.
Banks must have a single point of contact to coordinate communication with a homeowner. And banks must explain in plain language in monthly statements what legal and interest charges are being racked up, and will be due to save the home if the application fails.
The new “servicing standards” have been in place more than a year, having been finalized with the U.S. Department of Justice in early 2012.
Tucker’s odyssey began in 2009 when Chase offered him a loan modification application for the home he bought in 1996 for $50,000. At the time, banks widely marketed loan modifications, under pressure from the federal “Making Home Affordable”
The bank gave Tucker a lower monthly “trial payment” while his application was being considered, reducing his $450 regular monthly payment to around $325. While he made the lower payment, Tucker said he did not know he would be on the hook for his old monthly payment if his loan modification application did not succeed.
The process dragged on for a year, during which the bank claimed his documents were lost several times, leading to faxing and re-faxing previously mailed items, Tucker said. Meanwhile, he found work assembling washers at GE’s Appliance Park for $13 per hour, half his former rate as a union ironworker.
Foreclosure proceedings began, with a Jefferson County sheriff’s deputy serving notice on his front porch, he said. By September 2010, the bank declared his application had been rejected. To save his home, Tucker was informed he would have to reinstate his former mortgage. That totaled a year’s worth of partial mortgage payments and legal fees, all due within 10 days.
 In a scramble, Tucker said, he saved his home by seeking emergency loans from loved ones. The loan’s back due amount, and late fees, came to $5,799 in with bank legal fees bringing the total to $8,000.
“I have dealt with loan sharks more forgiving than these people,” Tucker said. He declined to identify how much money he received, but said it “is a fraction” of the $8,000 required to save his Grafton Hall Road ranch.
Although Tucker did not lose his home, he still won compensation via the Independent Foreclosure Review. That federal program was designed to assist homeowners who suffered financial injury during a foreclosure process in 2009 and 2010, but held onto their homes. The deadline for that relief has passed for most lenders, excepts a handful of banks including GMAC Mortgage.
Foreclosure remains a local threat as wages retreat. One in five local homeowners is still vulnerable to defaulting on a mortgage, according to “Louisville’s Foreclosure Recovery,” a March 2012 report by the nonprofit Metropolitan Housing Coalition.
Incomes are falling in Louisville as many laid-off workers find employment, but often not at lower pay rates than before. Median income per capita is estimated at $42,500 in this year, down 5.2 percent from $44,833 in 2012, according to the latest guidelines for greater Louisville from the federal Department of Housing and Urban Development.
Catastrophic health crises, job loss and divorce continue to be leading causes of consistent foreclosure problems in the region, according to Christie J. McCravy, a spokeswoman for the Louisville Urban League.
By late May, 1,872 mortgage lenders had initiated foreclosure proceedings, an annual rate similar to the foreclosure pace in 2011 and 2012, according to Jefferson Circuit Court. There is evidence, however, that new lending guidelines are being adopted by the finance industry as a result of the National Mortgage Settlement and Independent Foreclosure Review.
 As proof, there is evidence mortgage banks are slowing down in the race to sell homes on the block. In 2011 and 2012, 40 percent and 41 percent, respectively, of all foreclosure cases were canceled or withdrawn by lenders in Louisville. So far this year, the foreclosure cancellation rate is running at 51 percent.
The reduced percentage of homes actually sold in a foreclosure auction suggests banks “are holding off on moving for judgments,” Jefferson County Master Commissioner Edith Halbleib said Thursday.
Consumers can navigate changing mortgage industry standards best via certified, nonprofit housing counselors at agencies like the Louisville Urban League, the Housing Partnership and the Legal Aid Society, housing advocates say.
Home borrowers and homeowners seeking to modify a mortgage “need someone who knows their way around,” said Cathy Hinko, executive director of the Metropolitan Housing Coalition. “Barriers are huge, and having someone walk you through it is really important.”