Laws in California and with the recent ruling on Mabry v. Superior Court Docket Sup.Ct. Docket Mabry on June 2,201o and other states requiring mortgage companies to talk to troubled homeowners before foreclosing on them are toothless, according to a study released Wednesday.
The National Consumer Law Center, which analyzed programs in 14 states, said they have failed to help homeowners stave off foreclosure because they lack sanctions or accountability for banks.
“There is as yet no data to confirm that foreclosure-mediation programs anywhere have led to a substantial number of affordable and sustainable loan modifications,” the report said. “The existing programs routinely fail to impose significant obligations on mortgage servicers (without which) it is unlikely that mediations will lead to fewer foreclosures.”
Geoff Walsh, a staff attorney at the Boston law center who wrote the report, said in a conference call that the programs’ potential is in jeopardy.
“While these programs could provide significant help to homeowners, they suffer from the same lack of industry accountability that has plagued the voluntary federal programs that have sought to encourage large-scale modifications over the past two years,” he said.
California’s foreclosure-mediation law says mortgage servicers cannot file a notice of default until 30 days after they have contacted delinquent borrowers by phone, in person or via certified letter “to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.”
The law took effect in September 2008 and immediately slowed down the foreclosure process. However, once the system was in place, the number of foreclosures returned to previous levels, according to public records.
Other states have enacted similar requirements as scores of borrowers nationwide have fallen behind on mortgage payments. In August, 7.58 percent of American mortgage holders were at least 30 days delinquent on their home loans.
Walsh laid out some changes that he said would make state programs more effective. They included: requiring banks to show the cost of a foreclosure versus the cost of a loan modification; requiring proof of who actually owns the loan; imposing sanctions on banks that don’t negotiate in good faith; and requiring banks to prove they considered alternatives to foreclosure such as loan modifications, short sales and government-assistance programs. The report recommended that a mediator or court certify bank compliance with those requirements before allowing a foreclosure to proceed.
‘Everything we can’
Jason Menke, a spokesman for Wells Fargo, declined to comment directly on the report, but said: “We’re doing everything we can to reach out to customers very early in delinquency proactively.” Walsh characterized the implementation of loan-modification efforts, including the government’s Home Affordable Modification Program, as haphazard and chaotic, and said homeowners “have been confused and rebuffed in their efforts to talk to individuals who are authorized” to help with loan modifications.
Graeme Card of San Pablo said he experienced frequent rebuffs in his efforts to contact Wells Fargo about the mortgage on his condo. He paid $402,000 for the unit and owes $381,000, though it is now worth about $200,000. His loan payments will go up next year, and because of medical expenses from an injury, he’s already cash-strapped.
Card, 38, a scientist at the SLAC National Accelerator Laboratory in Menlo Park, said that in January, he started to call, fax and write Wells seeking a loan modification or short sale. “I got fed up with the delaying tactics of the bank, (which) refused to give me an answer, despite numerous documented promises,” he said.
In May, he stopped paying his mortgage.
“When I couldn’t get any traction with the bank, I said I’ll stop paying and it will make them sit up and take notice,” he said.
Better to walk away?
Like an increasing number of borrowers, he also made the calculation that he’s so far upside-down that he may be better off walking away unless his loan principal is reduced in line with his home’s current value.
“I’m paying into a massive hole of the $200,000 that it is underwater,” he said. “No matter how much I paid, I could never make any headway on that. I worked out it would be maybe 14 or 15 years to get back to the price at which I bought it ($401,000).”
Regarding Card, Wells’ Menke said: “It’s clearly a difficult situation, similar to what a number of our customers are facing. We understand that, that’s why we want to make sure we exhaust every option we can before we look at liquidation.”
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