Home loan modification mess
The federal Home Affordable program is falling short on its promise of meaningful mortgage relief for homeowners affected by the economic downturn.
Special to The Seattle Times
Making Home Affordable program: For information, go to makinghomeaffordable.gov/modification_eligibility.html
Foreclosure avoidance: To find a local Foreclosure Avoidance Counselor, go to: www.hud.gov/offices/hsg/sfh/hcc/fc/
ProPublica: To track the progress of the national home-modification program, go to www.propublica.org/ion/loan-mods/item/struggling-homeowners-tell-us-your-story-515
When the recession hit, longshoreman Andrew Zuanic saw his hours at the Port of Seattle cut in half. Soon he began falling behind on the mortgage for the three-bedroom home near South Seattle Community College that he bought in 2007. He approached lender Chase Bank in mid-2008 to ask for a loan modification.
Subsequently, Zuanic endured a frustrating, 20-month slog through red tape as he sought better loan terms under the $75 billion federal Making Home Affordable Program announced in February 2009.
After delays, including nearly nine months in limbo in a modification trial, he was approved for a mortgage payment of $1,600 a month, down from $2,640.
Accumulated unpaid interest from before and during his trial period swelled his loan amount, even as home values fell. As a result, his loan has ballooned to $50,000 more than the home's recently appraised value of $318,000.
Zuanic considered walking away from his home, but for now says he's decided to stay.
"I may never recover anything from it," he says. "I'm probably just overpaying for rent."
In the Puget Sound region and across the country, the Home Affordable program is falling short on its promise of mortgage relief for homeowners affected by the economic downturn.
More than a year later, banks are slow to approve permanent modifications despite the availability of federal funding. At the end of April, the U.S. Treasury Department reported more than 265,000 homeowners were stuck in trial mods for at least six months, twice the intended period.
Chase — Zuanic's bank — has been among the slowest, the nonprofit news organization ProPublica reports. In the Home Affordable program, Chase has approved nearly 230,000 loans but has more than 57,000 loans still in trials and less than 20,000 finalized modifications.
As with Zuanic's situation, the long trials can swell mortgage balances and imperil the success of the modification. As of April, more than 280,000 attempted modifications under the program had been canceled nationwide after the homeowner either failed to make the new payments or simply withdrew.
For its part, Chase spokeswoman Darcy Donahoe-Wilmot notes that though Zuanic's loan balance swelled, the bank cut his monthly payments by nearly $1,000, in part by granting a 2 percent initial interest rate to his adjustable loan, which also cannot rise above 5 percent.
The rate on his original mortgage was 6.5 percent.
"We've found that focusing on the customer's monthly ability to pay is the single most important factor as it relates to keeping families in their homes," Donahoe-Wilmot said in an e-mail response.
The Making Home Affordable Program disclosed in April that only $242 million has been spent of the $75 billion allocated to compensate banks for lost revenue from modified loans.
Of 1.7 million eligible home loans, less than 300,000 had a permanently modified mortgage.
Washington state homeowners have had a fairly typical experience. The state has seen about 2 percent of the nation's Home Affordable mortgage modifications, and had more than 18,000 modifications in the pipeline at the end of April. Of those, only about one-third of the modified loans were finalized.
As the Home Affordable program chugs along, the major banks have been modifying loans without federal assistance.
For instance, Chase has made more than 700,000 loan-modification offers since the beginning of 2009. Of those, less than 230,000 were through Home Affordable.
Roughly half of the remaining loans were modified directly by Chase, the other half with assistance from government-sponsored mortgage buyers Fannie Mae and Freddie Mac.
Likewise, Bank of America reported in May that it had completed 600,000 modifications since January 2008. Only about 56,000 of those were done through the federal program.
One possible advantage of the Home Affordable program — its final modifications do generally have lower monthly payments. The Treasury Department reports the average is about $500 less.
SeaTac homeowner Debby Robinson, whose mortgage was modified outside the Home Affordable program last November, didn't see a reduction in her monthly payments. She sought a modification after her child-support payments stopped and her pay declined after a job change with employer Lowe's.
She was advised by workers at the federal Hope for Homeowners program (which predated the creation of Home Affordable) that based on her circumstances, her adjustable-rate, interest-only loan should be modified from $1,100 a month to around $900.
But when her modification was finalized in April, she ended up with a monthly payment of $1,339.
Bank of America spokesman Richard Simon said in an e-mail response that Robinson didn't qualify for Home Affordable, and that her higher payment was the result of a deficit in her account for impounded taxes and insurance. The bank invited Robinson to reapply for another modification.
Robinson said her income has recovered and she plans to wait and refinance in a couple of years to a traditional fixed-rate mortgage.
"I won't go through the same fiasco again," she said.