Finding help in the face of foreclosure can be difficult

PHOTOGRAPHER: Sara Foss

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Better Neighborhoods Inc. in Schenectady prevented 29 foreclosures in the fiscal year that ended in September.

In the vast majority of those cases, people received a loan modification — a permanent change in the terms of their mortgages, resulting in a monthly payment they could afford. But only a couple of those homeowners were approved for the Home Affordable Modification Program, a federal loan modification program created to help distressed homeowners.

“Getting a HAMP modification is a headache,” said Kirsten Keefe, a senior attorney with the Albany-based Empire Justice Center. “It’s a complicated process.”

A HAMP modification is usually the best deal a struggling homeowner is likely to find, but the program is difficult to access, largely because of the amount of documentation it requires and the cumbersome process, Keefe said.

Ellie Pepper, assistant director of Better Neighborhoods, agreed.

“It’s frustrating,” she said. “It’s difficult to get through to the final step.”

The main challenge, she said, is meeting the demands of lenders.

“It’s a matter of getting the documentation together,” she said. “After 60 days, they want more up-to-date information. … Perseverance, that’s what I tell people. The people who get modifications are persistent. They keep calling, faxing and following up.”

“It takes a long time,” said Sue Cotner, executive director of the Affordable Housing Partnership in Albany. “We send out paperwork [to mortgage loan servicers], and we never hear back.”

Last year, 10 of the 137 distressed homeowners AHP met with received loan modifications.

HAMP has been criticized for failing to help homeowners.

As of July, only 390,000 homeowners nationwide had seen their mortgage terms permanently modified through the $50 billion program since it was established in March 2009; original estimates suggested the program would help between 3 million and 4 million people. To qualify, homeowners have to document economic hardship, prove that they live in the home and have a certain debt-to-income ratio. The mortgage loan servicers participating in HAMP do so voluntarily and receive incentive payments if they complete mortgage modifications.

New regulations

In August, the New York State Banking Department issued new regulations for mortgage loan servicers — the companies that collect payments for mortgage owners — and established additional protections for homeowners.

These new regulations require servicers to pursue loss mitigation efforts with homeowners, such as loan modifications, to avoid preventable foreclosures. Servicers are also required to have adequate staffing, written procedures for handling consumer inquiries and complaints and methods for making sure that homeowners are not required to submit multiple copies of required documents. They are also expected to avoid a foreclosure action if a homeowner is being considered for, or currently in, a modification and act “in good faith” with borrowers.

New York’s new mortgage loan servicer requirements are similar to the voluntary guidelines provided by HAMP but enforceable as law by state and federal regulators. Exempt from the new requirements are banks that make their own loans, hold their own loans and do not escrow for taxes and insurance.

When the new regulations were issued, Richard H. Neiman, superintendent of banks for New York, said he hoped they would serve as a model for “national minimum standards that can be enforced across the country.”

This week, a spokesman for the banking department said that one goal of the new regulations is to make it easier for people to get modifications and navigate the HAMP program.

Keefe called the new regulations, which went into effect this month, innovative.

She said that previously mortgage lenders were not required to engage in loss mitigation with borrowers who fell behind on payments, although many did.

“They didn’t have to work with you,” she said. “They didn’t have to see if there were options available to you other than foreclosure.”

Documents in question

The new regulations come at a time when every state in the county has joined forces to investigate allegations that mortgage companies used flawed documents to foreclose on hundreds of thousands of homeowners.

Employees of several major lenders have acknowledged in depositions that they signed thousands of foreclosure documents without reading them, as required by state laws, and banks have begun reviewing foreclosure cases. Bank of American, JP MorganChase and GMAC mortgage have announced that they are temporarily halting pending foreclosures, prompting calls for a nationwide foreclosure moratorium. The Obama administration has said that it opposes a moratorium and that foreclosures with proper paperwork should go forward but that questionable foreclosures should be addressed.

Housing counselors said it’s too early to tell how the investigations will affect them. But they said that people who have already entered the foreclosure process are unlikely to get their homes back.

“This could turn into a big mess,” Pepper said, “especially if people who purchased foreclosed properties find out that those properties weren’t really foreclosed upon.”

Local numbers

Schenectady County had the seventh-highest foreclosure rate in the state during the third quarter of 2010, according to a report by the foreclosure research firm RealtyTrac. The county had 69 houses under notice of foreclosure, meaning the property will be sold at auction under a judge’s order, 53 houses listed as owned by the lender and three listed as under default, for a total of 125 homes.

According to RealtyTrac, one out of every 532 houses in Schenectady County is in foreclosure.

In Albany County, 107 houses were in foreclosure, or one out of every 1,248, according to RealtyTrac. Ten homes were in foreclosure in Fulton County, 23 houses in Montgomery County, 47 houses in Saratoga County and seven houses in Schoharie County.

The number of houses in foreclosure statewide dropped 7 percent in the third quarter; according to RealtyTrac, 11,902 houses, or one house out of 670, were in various states of foreclosure.

Pepper said homeowners seek housing relief due to a combination of factors.

Some of them are saddled with subprime mortgages — loans often made to people with shaky credit scores that require no money down and have “teaser” low interest rates that quickly rise. Mortgage defaults among people with subprime loans were one of the main factors contributing to the collapse of the economy in 2008.

But many more homeowners are struggling because of a loss of job or income or medical bills. In some cases, people are dealing with both a costly subprime mortgage and unemployment.

Better Neighborhoods counseled 90 homeowners between October 2009 and September 2010.

The Affordable Housing Partnership in Albany recently began mailing letters to people who are considered pre-foreclosure — at least 90 days behind on their mortgage payments — to make them aware that help is available. This is part of a new, statewide effort to assist people who are on the verge of entering foreclosure; a total of 134,000 pre-foreclosure notices have been sent to New York homeowners since Feb. 13.