Times’s Solid Report on Failed Mortgage Rescue Programs

An economic calamity and its human faces

A must-read A1 story in The New York Times today digs into the multi-level failings of President Obama’s foreclosure rescue plans. As the country preps for a budget slice-and-dice that will target discretionary spending—or a government shutdown in lieu of that—Michael Powell and Andrew Martin’s piece, “Foreclosure Aid Fell Short, and Is Fading,” shows the importance of government spending under threat as well as how ineffectual some of that money can be.

How’s this for a KO lede?

Last summer, as President Obama’s premier plan to save millions of Americans from foreclosure foundered, the administration tossed a new life preserver to homeowners.

Officials unveiled a $1 billion program to offer loans to help the jobless pay their mortgages until they could find work again. It was supposed to take effect before the end of the year, but as of today, the program has yet to accept any applications.

But that’s not the only plan that’s failed, the reporters explain. The problem with the administration’s overall foreclosure prevention strategy is that people are still waiting for the strategy to be fully and competently enacted; Powell and Martin write, “as tens of billions of dollars remain unspent and hundreds of thousands of homeowners have been rejected.”

And, we are informed, the Home Assistance Modification Program, the main program among the administration’s many programs targeted at plugging the flow of foreclosures, is under threat. The House passed a bill yesterday to kill it and while there is support in the Senate, its survival is no sure bet.

The reporting, as laid out in the report, is comprehensive. Powell and Martin examined federal documents and lawsuits and interviewed lawmakers, state attorneys general, housing advocates and regulators, and many homeowners. They were also able to nab some candid comments from bank employees, who chose to remain anonymous, which reveal how grindingly slowly a modification application can move through this very unsystematic system.

Bank of America, these employees say, routinely loses documents. One department does not talk to another. Applications drag on for more than a year. Sometimes the bank forecloses while homeowners are paying modified loans. And homeowners who are denied face an imposing bundle of late fees and back-payments.

A bank employee says she often advises homeowners not to apply, given the slim chances for success.

“Many of these people are losing their homes,” she said. “The paperwork that sets them up is not detailed enough. It does not tell the customer the consequences of going forward with this.”

The reporters list three key and more overarching findings from their investigation high up in the piece that form the crux of the report:

¶Congress set aside $50 billion for foreclosure prevention, amid administration projections that three million to four million homeowners would benefit from modifications. So far, the Treasury Department, which oversees the program, has spent slightly more than $1 billion, and just 607,000 homeowners have received permanent loan modifications (of those, 11 percent have defaulted).

¶The companies that service mortgages, typically large banks, continually lose homeowner paperwork and incorrectly tell homeowners that they must be delinquent to qualify.

¶Treasury officials have not fined any servicers, and the government-controlled company hired by the Treasury to oversee the program has expressed reluctance to crack down on banks.

The piece is a smart and well contextualized: the reporters do a fine sketch of the beginnings of Obama’s housing rescue plan in early 2009, and show how a quick-trigger rush to act—and failure to include provisions forcing mortgage servicers to participate and be held accountable for poor service—may have impacted on the program’s inadequacies and the unfortunately high expectations it set for drowning homeowners.

But the story’s strength is in its elongated kicker. Powell (a teacher of mine while at Columbia) has a knack for finding human faces to near perfectly encapsulate the nation’s broader economic calamities. This time, he and Martin find Staten Island couple Eric and Annette Padilla. Their move through the mortgage rescue system highlights its necessity and its failings.

Eric and Annette Padilla bought their home in 2003. Then Mr. Padilla fell ill and Ms. Padilla quit her job to care for him, and the couple fell behind on their mortgage in 2009. (Their income dropped to less than $60,000, from $96,000.)

They applied for the program through their bank, HSBC, and received a three-month modification. They made the payments on time. In August 2009, they requested a permanent modification.

The Padillas called the bank every week. One representative said their file was incomplete, another asked for more documents, a third said the documents were there all along.

In September, the bank said their documents had “become stale” and told them to resubmit. Eventually, they were given a new temporary modification. Once again they made every payment on time. In January 2010, they sought another permanent modification. Then they heard back from HSBC: denied. The reason? The couple had overpaid one month.

Last summer, HSBC filed papers to foreclose against the Padillas. For Mr. Padilla, 41, the house was his step out of the housing projects; he has no intention of surrendering.

“I ask myself sometimes, why is this happening?” he says. “Wasn’t this program set up for hard-working people like us?”

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Joel Meares is a former CJR assistant editor. Tags: , , , , ,