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Foreclosures stack up: Frustrated borrowers who lenders to try to work things out say it's a fruitless ordeal
[September 02, 2007]

Foreclosures stack up: Frustrated borrowers who lenders to try to work things out say it's a fruitless ordeal

(Sacramento Bee, The (CA) (KRT) Via Thomson Dialog NewsEdge) Sep. 2--Tracy Trammell sold the boat, the extra vehicles and tried everything to "find a way to refinance, or do what I could not to lose the house for my children."

She is in a bind all too common in Sacramento: a home losing value and an adjustable-rate mortgage with payments that jumped $1,000 a month in June.

Thirty days ago, Trammell, a widow and working mother with two daughters, skipped her first payment to Countrywide Financial Corp., a company deep in its own crisis amid a pileup of hardship cases. This month, Trammell will miss a second payment on a refinance loan her late husband handled at the peak of the housing boom in 2005.

Bottom line: Neither Trammel nor Calabasas-based Countrywide has yet been able to work out a deal to spare her small house in Citrus Heights from foreclosure. There are no loan modifications. No refinance options. No waiving of a pre-payment penalty that stings a borrower for thousands of dollars to get out of trouble.

"I asked, 'What's your solution? Give me some ways I can keep this from happening,' " says Trammell of her dealings with the nation's leading lender. "They said, 'Get a roommate.' That's what she told me. I said, 'OK. Well, I guess we're done talking.' "

The ceaseless multiplication of this joint impasse helps explain the 617,000 foreclosures during the first seven months of this year in the United States, according to Fair Oaks-based, a Web site for real estate investors. Behind those numbers -- including 3,756 foreclosures in the Sacramento region during the first six months of 2007, according to DataQuick Informations System -- is the often- unbridgeable divide between mortgage lenders and their growing ranks of distressed borrowers.

Lenders have said for months they don't want to be in the business of owning property. They say they commonly urge people to call at the first sign of trouble to try and work things out.

Industry statistics show that half of troubled borrowers never make that call. But among those who do, many call it a frustrating ordeal that too often proves fruitless.

"It's not something you would want to wish on anybody," said Janice Kelley of Carmichael.

Kelley lost her house to foreclosure this summer after months of go-around, also with Countrywide. Initially, Countrywide suspended three months of payments as the newly divorced homeowner tried to find a new job. When she didn't find one in time, the lender wanted $8,800 in back payments, she said. Then, as Sacramento's market continued to decline, the firm wouldn't accept sales offers for the house that it considered too low, she said.

Countrywide, which in the past has declined to discuss specific cases, did not return calls seeking comment.

"It was a pretty frustrating process for us," Kelley said. "This is not what we wanted."

Lenders tout a willingness to work out troubled loans with a variety of options to keep people in houses, including a temporary suspension of payments, extending the loan for a longer period with lower payments or placing missed payments at the end of a loan to make up later.

Yet some observers say the numbers speak louder than words.

"The statistics don't bear it out," said Martha Lucey, president of a statewide nonprofit loan counseling service, By Design Financial Solutions. "The foreclosures are rising. The workout options just aren't there."

Recently, a prominent lending industry group urged banks and mortgage firms -- and the secondary market that bought mortgages from them -- to be helpful.

"We tell people to call at the first sign of trouble. But the feedback we're getting from homeowners is they're non-responsive to the call," said Ed Smith, government affairs chief for the California Association of Mortgage Brokers.

Smith, in a recent conference call from Long Beach, said, "We're asking the secondary market and servicers to put a human face on this call. People want someone who is empathetic, sympathetic and responsive."

Troubled borrowers and their advocates say contacting their lenders can be an ordeal just trying to find the right person. They tell of holding 45 minutes on the phone, getting dropped during transfers or trying to leave messages on voice mail that is full. Several have told The Bee in recent months that lender reps told them to quit calling while they were still current on payments.

Lenders like Wells Fargo and Bank of America say they're trying and that the industry is improving. Seattle-based Washington Mutual recently told state lawmakers it has set aside $2 billion to help modify problem loans. Many financial institutions are boosting the number of loan workout negotiators.

"They have been adding staff, but there is a training function that has to take place," said Doug Duncan, chief economist for the Mortgage Bankers Association. "There aren't all kinds of people who have this knowledge looking for a job. You have to hire people, and you have to train them."

Duncan said history shows about half of borrowers who have their loans restructured are successful in keeping their homes.

Patrick Carey, a senior executive for default and retention operations at San Francisco-based Wells Fargo & Co., declined to speculate about the percentage of defaulting borrowers getting workout solutions. But he said the bank is "very successful for the vast majority of people who contact us."

"We may not be exactly where we need to be, but as an industry, we've come a long way," Carey said.

As many attempts at solutions fail and foreclosures rise, arguments abound about who bears responsibility. Consumer advocates say lenders freely gave cash to people with risky profiles and now owe them waivers of prepayment penalties and options to restructure loans.

Lenders, for their part, say it's a two-way street. Staffers often find people unwilling to give up cell phone service or satellite TV to finance strategies to save their houses, Ed Delgado, a senior Wells Fargo executive, told the California Senate Committee on Banking, Finance and Insurance last month.

Meanwhile, it's become harder for lenders to change borrowers' loan terms under the new rules of globalization. Many mortgages were sold into secondary markets and are owned by investors in Hong Kong, Germany and elsewhere. The majority of so-called subprime loans now experiencing the highest default rates were sold into these markets, analysts report.

Wells Fargo's Carey said lenders have more clarity than six months ago about what can be done to resolve problems with those loans.

Finally, many of those now struggling used 100 percent financing to buy homes at the peak of the market. Now their houses are worth less than their loan amount -- leaving them no equity with which to refinance. Worse, tightened credit rules have closed off more refinancing options.

Scott Thompson, a Sacramento-area real estate agent who specializes in "short sales" -- where lenders accept less than than the value of the loan to stave off the higher costs of foreclosure -- has been particularly critical of lender response to stressed borrowers. But he said some institutions, particularly Countrywide, are improving as the number of defaults rises.

"On the servicing side, they are busting their fanny to get better," said Thompson, a partner in Mortgage Resolution Services in Carmichael.

Thompson said he attended a mortgage servicers convention last month in Las Vegas, where industry representatives acknowledged "they are late to the party. Nobody was quite prepared for it being as significantly bad as it has been," he said.

In Citrus Heights, Tracy Trammell said she knew she might have trouble with refinancing the loan her husband took out in 2005. But a Countrywide representative told her early this year not to worry -- her loan would only go up a little.

As June approached, she called again. This time a different representative said she faced a major reset on her two-year adjustable loan -- the payment would rise $1,000 a month.

"I called the original girl and said, 'I need to know what's going on,' " Trammell said. "She said, 'Fax me the stuff, and I'll get back to you.' Then her first words were, 'Oops, I missed that part.' I said, 'What do you mean, oops? This is my home.' "

Trammel made her new $3,000 payment in June. She made another in July. Then she considered reality. She is bound to lose the house with this loan, a loan with one more year before its pre-payment penalty expires.

When Countrywide suggested a roommate, Trammell felt insulted. She skipped a payment. It is one more foreclosure now in motion.

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