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Last week, wearing shorts in the July heat, Adil Zakaria signed papers to agree to a reduced monthly mortgage payment, the culmination of a process begun before Halloween.
Zakaria’s trial-period loan modification for his Spring Valley home finally came through, thanks in large part to an Obama administration push to stem foreclosures by paying banks a few thousand dollars for every modification they make.
It wasn’t easy to get to this point. Zakaria kept at it for the better part of a year after being initially denied. He wrote a letter to the bank in October, detailing how the economy sapped 30 percent of his income at his Hole in the Wall Pizza Shoppe in El Cajon, and how his son was injured in an accident and rendered unable to help with the family’s monthly expenses.
Now Zakaria, who also teaches physical fitness for seniors and ESL classes for Iraqi immigrants, has been granted a trial monthly payment of $2,403.02 for all his housing costs — about 31 percent of Zakaria’s gross income. That’s down from $3,846.
If he makes the payments on time for three months, Bank of America will likely extend a similar modification for the rest of his loan, adjusting interest rates and years to pay the loan back in order to make that payment possible.
The process of wrangling giant loan companies to lower mortgage payments for troubled homeowners has been getting a bit easier in the last few months. Still, the task is a slog, characterized by complicated rules, confusing notifications and a whole lot of waiting. About 18 percent of the applications submitted by the San Diego nonprofits working with homeowners are being accepted. Many others are falling into foreclosure. Still more are in limbo.
Zakaria only got his modification after he enlisted the help of former mortgage professionals-turned-counselors at Community HousingWorks, a nonprofit on the front lines of the loan mod effort here.
“The workouts are there; the problem is the process,” said Ali Tarzi, director of Community HousingWorks’ team of counselors and negotiators. “It’s like we’re guiding (the consumers) through a maze, and there are many dead ends.”
Advocates fear that homeowners who should qualify for the program aren’t getting through before their homes fall into foreclosure. But banks say they’re still ramping up their programs, implementing the staff and systems that are needed to make the process work. Some temporarily halted their foreclosure processes for all homeowners to determine which ones might qualify for help under the plan.
“We have to change every single thing in our process,” said Jumana Bauwens, Bank of America spokeswoman.
What’s at stake in the meantime is more than each single family forced into foreclosure.
The implementation of loan modifications has long been touted as among the biggest hopes that the foreclosure flood will subside in San Diego County. Analysts look at a rocky economy and risky mortgages and forecast more foreclosures ahead. Their caveat: the force may be blunted by an effective, successful loan modification program. Analysts have yet to be convinced that the plan will work or help, even if implemented across the board.
Even with the new plan, for every success story like Zakaria’s, the nonprofits see four homeowners who don’t get the modification.
“That’s not enough,” said Leonard Baron, real estate professor at San Diego State University. “I think the modifications will definitely help, but again we don’t know how many are going to get done.”
Mary Ann Erickson is a former senior mortgage underwriter whose 28 year career ended with a pink slip in the credit crunch. Now, she fights through the back tunnels of the lending ecosystem to help homeowners take advantage of the adjustments, all the while pursuing a modification for her own loan — her income’s been halved.
Erickson works in the City Heights offices of Community HousingWorks. She keeps a spreadsheet of the 900-some families the agency is working loan modifications for and color codes each one — green for a loan modification, yellow for a house lost to foreclosure, and white for limbo.
The spreadsheet is getting more greens these days, including one for Zakaria, who signed and read through his papers with Erickson last week.
Homeowners are getting lowered interest rates; lower payments for several years before adjusting into increased payments on a fixed scheduled; and 30-year loans extended to 40 years. In a very slim number of cases, the bank will reduce the amount the borrower owes.
Erickson says there’s a disconnect between what banks have promised and what they can perform. Some are using outdated computer programs that don’t jive with the rules of the Obama plan that she has in a laminated book on her desk. Denial letters don’t always mean the homeowner doesn’t qualify.
It’s rare to call the servicer and get the same person a homeowner talked with last time.
Chris Martin is a construction contractor who used an $800,000 mortgage to buy a $1.5 million house in Vista in 2005. He spent hours listening to tinny hold music in the course of making 60 calls in the last four months, dealing with a different representative each time. He was recently denied his modification because the investors who owned his mortgage were not willing to change his terms, he said. He thinks the bank will be able to sell it as a foreclosure for $550,000.
“It’s taken sometimes as long as 40 minutes to get a hold of a human, you know the ‘We’re experiencing a high volume of calls, blah blah blah,’” he said. “And then when you do get through, one person says, ‘Oh yeah, you’ve sent in all of the information. The next time you call, another person says, ‘Can you send your file again?’”
Some files like Zakaria’s have been open for nine, 10 months. One homeowner signed a modification on Wednesday after first making a phone call to the lender in July 2008.
For the people who are drastically underwater, some analysts question whether a plan can work that doesn’t account for the extreme value fluctuations in the home.
“If you’re negative on a property, what’s the long-term realistic prospect that you’re going to stay in that house and keep paying on that mortgage?” Baron said.
Tarzi of Community HousingWorks agrees it’s unclear, but says the more important question is whether the borrower is establishing some stability. By agreeing to a modification now, a homeowner is swapping a bad loan situation for a reliable loan in the future, he said.
“I think we lack a better alternative,” Tarzi said. “To a degree, we are kicking the can down the road. But in the meantime, interest rates can double or triple. Either way you look at it, there are pros and cons.”
Zakaria has refinanced twice since he bought the house 10 years ago. He owes about $580,000, and thinks he could sell for maybe $450,000. He didn’t consider leaving the house, the first one he’s owned in the United States after growing up in Iraq. He and his wife raised their three sons there and had two sons’ weddings there.
“I know how much I put in my house,” he said. “All of my memories are there.”
Under the national program, more than 270,000 loan modification offers have been extended to borrowers, according to the Department of the Treasury. Twenty-five servicers have signed on to the plan, meaning that 80 percent of the loans in the country are with companies trying to complete these types of workouts with borrowers.
Many big banks said they’ve seen issues and hurdles in the implementation of the plan.
Bauwens said Bank of America has offered 51,000 trial loan modifications, like Zakaria’s. So far, 17,800 homeowners have agreed to the terms and sent in their first payment.
Debora Blume, spokeswoman for Wells Fargo Home Mortgage, said that bank began working borrowers through the program 10 days after the final rules were announced. “Speed of execution was complicated by the fact that there are multiple versions of the programs, each with unique contract requirements,” she said in a statement.
A Chase press release two weeks ago acknowledged that it has taken time to allocate staff and training to deal with the “extraordinary customer demand during this crisis.” Chase has given 87,100 trial modifications under Making Home Affordable since the beginning of April, and 44,100 homeowners have so far made their first payment, according to the release.
Please contact Kelly Bennett directly at kelly.bennett@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.