Lingering economic fallout, mortgage servicing violations prolong housing recovery for many Americans


It should come as no surprise that nearly 80 percent of Americans aren’t buying the housing recovery and many of them think the worst is still yet to come.

Protracted problems ranging from economic woes to toxic business-as-usual in the mortgage lending sector has cost many Americans their faith in the American Dream.

A generation of Americans believes they’ve been sold a bill of goods and some critics of the system say it’s past time to jail the offenders.

A new “How Housing Matters Survey” commissioned by the John D. and Catherine T. MacArthur Foundation, found that while financial markets, home sales data and homebuilding suggest the worst of the housing crisis is over, 77 percent of Americans believe the nation remains in financial crisis or the worst is yet to come.

Just walk a mile in their shoes.

Why consumers lack confidence

• Unemployment is a bear. During the downturn, it’s taken four years for unemployment to drop a little more than one percentage point from an average 9.3 percent in 2009 to an average 8.1 percent in 2012, according to U.S. Bureau of Labor Statistics.

It’s virtually impossible to get a mortgage without a job.

In the 10 years prior to 2009, the recent peak year for unemployment, the average unemployment rate was about 5 percent. Moving from 10 years of unemployment at only 5 percent to a rate that’s averaged 9 percent for the past four years, has rocked consumer confidence to the core.

Even the current rate of 7.7 percent in February doesn’t amount to a hill of beans in low income and minority populations where the rate remains well into double digits.

Also, hundreds of thousands of workers are still losing jobs every week. Analysts expected the number of initial claims for unemployment benefits to drop to 345,000, but the U.S. Labor Department reported 385,000 people filed for those initial jobless benefits this week.

• Those who are working are barely keeping up. The U.S. Bureau of Economic Analysis says personal income growth was up 3.5 percent in 2012, while the cost of living, as measured by the Consumer Price index, rose 1.7 percent in 2012, after rising 3 percent in 2011.

Since the end of 2012, the Social Security payroll tax reduction’s expiration cut into any gains workers may have enjoyed for the past two years during the tax reduction.

• The scourge that contributed heavily to the housing crisis continues. Perhaps worst of all, and despite the National Mortgage Settlement (NMS), California’s Homeowner Bill of Rights and the Consumer Financial Protection Bureau’s (CFPB) regulatory overhaul of mortgage lending, lenders and mortgage servicers continue to take struggling homeowners to the cleaners.

The California Reinvestment Coalition’s (CRC) ninth survey of nonprofit housing counselors and legal service providers has once again found major lenders dual tracking, refusing to provide single points of contact, failing to meet deadlines for mortgage modification applications, losing modification documents and otherwise failing miserably at complying with a host of new federal and state regulatory mandates.

Problems housing counselors face

Single points of contact (SPOC) – More than 70 percent of responding counselors reported that SPOCs were “never,” “rarely,” or only “sometimes” accessible, consistent or knowledgeable. New regulatory rules demand single points of contact.

Dual track problems persist
– More than 60 percent of counselors reported that Bank of America, Citibank, JPMorgan Chase and Wells Fargo still dual track “sometimes,” “often,” or “always.” Dual-tracking – a mortgage lender or servicer simultaneously processing a mortgage modification and a foreclosure on a borrower – is legally forbidden.

Timelines are ignored
– Sixty percent or more of counselors said each of the Big 5 Banks “rarely” or “never” made federally mandated loan modification decisions within 30 days of a receiving a complete loan modification application.

Sloppy work is resulting in improperly denied mortgage modifications
– More than 60 percent of counselors felt that each of the Big 5 servicers denied loan modifications to seemingly qualified homeowners, “sometimes,” “often,” or “always,” often because they lost qualifying documents.

Borrowers of color, Limited English Proficient (LEP) homeowners, widows, and disabled borrowers hit hardest – More than 60 percent of counselors said their LEP clients were “never” or only “sometimes” able to speak to their servicer in their native language, or through a translator provided by the servicer.

Also, 44 percent of counselors said servicers “always” or “almost always” refuse to discuss loan modifications with widowed clients who are not on the original loan.

More than 25 percent of counselors said clients with disabilities “always” or “almost always” report difficulties receiving reasonable accommodations.

The regulatory mandates are designed to prevent a repeat of the Great Recession and so far, they don’t appear to be working very well – during the beginning of another boom.

Troubled mortgage system

Minorities are getting hit hardest and critics are demanding action for a broken system.

“It is a travesty that the same people who lost the most on the bad loans still continue to lose and the reality of it is that the system is designed for people to fail,” says Mark K. Hicks, broker owner of the Seabrooke Group in San Jose, CA.

“They operate without repercussions. Someone needs to go to jail,” Hicks added.

If recent action against mortgage insurers is any indication, the feds and California could well put mortgage lenders’ and servicers’ feet to the fire.

We can only hope.

“What should start happening is to start holding the bosses of these banks accountable by prosecuting them for committing fraud, for defrauding the American people and for disobeying the laws that are put into place,” says San Jose, CA-based Robert Aldana of Let’s Talk Real Estate.

“Until that happens, all we will hear is the same intelligence-insulting rhetoric” from mortgage lenders,” says Aldana, also a real estate agent with Intero Real Estate.

The Mortgage Bankers Association denounced the report as unscientific.

“This report is based on a small sample of nonverified anecdotal information and is not representative of the servicing environment where more than 5 million homeowners have received a loan modification in the last five years,” it said in an emailed statement.

However, the association’s characterization of the study may be off-base, according to Joseph A. Smith Jr., the government-appointed monitor for the $26-billion national mortgage settlement.

Smith told the LA Times the CRC’s survey findings are similar to what mortgage counselors and other professionals have told him over the past year, especially when it comes to dual tracking and single points of contact.

Mortgage lenders’ continued fiddling burns homeowners

In “Chasm Between Words and Deeds IX: Bank Violations Hurt Hardest Hit Communities,” CRC says 84 counselors and lawyers who represent hundreds of thousands of homeowners responded to it’s latest survey in February and March 2013.

The California Homeowners Bill of Rights went into effect on January 1, 2013, and all NMS servicing guidelines were effective on October 1, 2012. CFPB regulations effectively codify NMS guidelines as federal law.

Consumers must play hardball

CRC’s study is prompting some mortgage industry critics to remind borrowers, regulatory overhaul or not, consumers also have to play a hard-nosed role to keep lenders and servicers in line.

“Best practices have always been a problem with borrowers and their ability to communicate with lenders and services. Unfortunately, the mandate created by the settlement is only as good as the processes of the banks,” says Shawneequa Badger, a San Jose,CA-based sales manager at Catalyst Real Estate Professionals.

“I always recommend maintaining a log of date, time and who you spoke with when making calls. If you come upon an instance where your documents have been lost you at least have a historical document you can reference in the event there is a dispute about a action or conversation,” Badger said.

“Also, never be afraid to escalate your concerns. You can always walk into a bank or ask a servicer for their management’s information so your issue can be resolved at the appropriate levels. Last resort is to file a complaint against the lender/servicer with your State’s Department of Justice to get the resolution your file deserves,” she added.

Ironically, California’s Attorney General Kamala D. Harris recently announced a $1 million grant to The National Housing Law Project to put some teeth into California’s HBOR.

Let’s see if it bites.

About the author

DeadlineNews.Com's Publisher, Executive Editor and Founder, Broderick Perkins, was the first real estate journalist to manage a daily newspaper's online real estate section. He parlayed more than 30 years of old-school journalism into a digital real estate news service offering "News that really hits home!" -- the Silicon Valley bootstrap, DeadlineNews.Com. Network with Broderick Perkins on LinkedIn, FaceBook, Twitter, Google+ and the Bloomberg Business Exchange.

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