Streamlined loan modification rules meet with skepticism

Amid criticism that loan modification programs aren't working, the federal government is pushing lenders to streamline efforts to lower mortgage payments for troubled borrowers.

Frustrated homeowners, however, fear new documentation requirements won't address their concerns and may add to the headaches of trying to obtain a modified loan.

"We need help," said Steve White, a Tampa homeowner who has been trying to get his loan modified since May. "I can't get anyone on the phone, and when I do, 10 different people tell me 10 different things."

The demand for modified mortgages is great in Florida and the Tampa Bay area, which are among the nation's highest areas with foreclosures. Homeowner frustration is backed up by the low number of modifications - less than 10 percent of proposed trial adjustments in Tampa have been made permanent.

The recent rules are supposed to change that.

The Obama administration said last week that starting June 1 borrowers will have to prove they qualify for the modification up front.

Currently, borrowers are prequalified on the phone and placed into a three-month trial period. During that period, the lender collects paperwork and financial information from the borrower. Under the new requirements, two pay stubs and other paperwork must be submitted before payments can be lowered.

The change follows a recent Treasury Department report showing nearly 300,000 homeowners could lose their modified mortgage agreement because paperwork wasn't turned in or showed they no longer qualified.

The report also showed that just 4 percent of the nation's applicants under the government's foreclosure-prevention program have received permanent help.

The government's program aims to keep more homeowners in their homes, but borrowers and housing counselors say the modification process is as cumbersome as ever. It can take months to get a response from the lender, they say, and lenders routinely misplace paperwork, don't return calls and don't explain rejections.

"No one really knows why this happens at banks, whether it's a book keeping error or it's intentional to shake down borrowers," said Shari Olefson, a real estate lawyer with Fowler, White and Boggs, noting that she consistently hears that lenders lose paperwork.

One thing is for sure, though, she said: "These new numbers show that the government's program isn't a solution that's working."

Some borrowers have even received modifications only to have the offer rescinded later.

Jeffery Feig, of Sarasota, sought a modification for five months and was approved last March. His payment was cut in half, but Bank of America called two months later to say it changed its mind. The only explanation was that he hadn't sent necessary financial paperwork, something he disputes.

"They wouldn't have approved me in the first place if they had not received all the paperwork," Feig said. "Since then, I've sent the paperwork again, and my attorney has sent the paperwork. They always say they didn't receive it."

Feig's story was recently published in The Tampa Tribune, and his attorney, Ryan Snyder of Sarasota, said he has since received nearly 50 phone calls from homeowners in similar situations.

In Tampa, Jeff Kops said his lender, also Bank of America, sent him a loan modification packet offering a lower payment. He agreed, sent the paperwork back and started paying the lower amount. But a few months later, the bank said it could no longer honor the modification because of a problem with the notary on the paperwork.

Kops said the lender looked at the paperwork again and offered him a monthly payment that was $500 higher than the previous offer.

At least 12,044 active trial adjustments have been granted in the Tampa-St. Petersburg-Clearwater area. But only 1,159 homeowners have received a permanent modification.

Anthony DiMarco, an executive vice president at the Florida Bankers Association, said lenders want to help borrowers avoid foreclosure but that they are overwhelmed and are "learning as they go along."

Sylvia Alayon, a vice president with Ft. Lauderdale-based Consumer Mortgage Audit Center, said the government's changes are a move in the right direction and could help more people in trial modification receive permanent help.

"This is good because it won't give as many people false hope," she said. "In the past, lenders placed people in the three-month trial period and then told them later they don't qualify."

Homeowner Rachelle Roach, of Carrollwood, isn't as optimistic. She said she's thankful that the government is taking a closer look at the modification program's failures but doesn't think the new changes will help borrowers like her.

Roach tried to modify her loan with Well Fargo last year and said it was a "paperwork nightmare." She said the bank always ended up misplacing paperwork, requesting more and then denying her requests.

Roach lost her job as a nutritionist and now makes less than half her former salary. Her home is now worth less than half what she paid in 2006. She said she's depleted her savings and sold some of her belongings to pay mortgage payments.

"I was rejected twice, and I think it's because I'm not behind on my mortgage," she said. "I'm being penalized for trying to do the right thing. This is why so many people just walk away."