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I worked for GE until the loan portfolio to which I was assigned was "fixed" and sold to another servicer. Though GE offered me a similar position for a portfolio in California, I found myself out of work with a unique skill set. I had seen foreclosure from both sides of the table. I learned what power the loan servicer had, and saw first-hand how foreclosure and the threat of loss of homeownership devastated families. Unnecessarily.I had learned through experience most mortgage foreclosure were avoidable. Sadly, the real help distressed borrowers needed wasn't available.
As a private, independent fee consultant, I began reaching out to distressed borrowers and offered to help them in their fight against foreclosure to preserve their continued homeownership. There was no shortage of people needing help (then or now) but unfortunately, the very people who most needed help were unable to pay for the indicated services. I often (then and now) found myself working for virtually nothing.
In 1998 my wife, Lynn, a newly certified public accountant, and I decided to form a 501c3 organization (SPOCH) which would solicit grants and contributions to fund socially necessary services to financially distressed homeowners. Persevering night classes, independent study, and work experience for credit, I earned an executive MBA with a concentration in real estate, and certification in non-profit management.
Whew.
So, Dave, I have a much better sense of how your life experience has made you absolutely the right guy at the right time. How is what you're seeing now in foreclosures different from before the economic melt-down on Wall Street?
Well, certainly there are more of them. I think one in every eight homes with a mortgage loan are in some stage of collection or foreclosure. One in eight!
In years past, borrowers with a problem were able to pick up the phone, call their loan servicer, and then speak immediately to a company representative. This representative was able to identify the caller and have the loan info on their computer screen within a couple of minutes. The representative was able to listen to the borrower, classify the borrower's problem, and work to resolve the problem. Depending upon that particular loan's servicing criteria which is imposed by the loans owner, the rep could easily set up a forbearance (suspend payment for awhile), implement a temporary payment plan, waive late fees, or mark the file for a specialist's attention.
Now, it can be a 45-60 minute process just to get through to someone IF the borrower is lucky enough to not have the call disconnected, and reach a live person without winding up in a voice-mail-jail. Getting to the right person - meaning a representative empowered to offer meaningful help can take weeks, months, or in many cases, never.
Picture a funnel. Distressed borrowers making a call into their loan servicer enter the large end of the funnel. To get help one must navigate through the different levels of servicing to get through to the small end. Along the way the borrower must satisfy each level of collection activity before being allowed to proceed to the next level. Miss a call, miss a deadline and the borrower is sent back to the large end of the funnel. There are tens of thousands of people who have called their loan servicer, done everything asked of them by completing applications with financial disclosures, tax returns, pay stubs, bank statements, copies of bills, etc., only to be told "You haven't complied with our request for information. Go back to the end of the line and reapply if you want but the foreclosure continues." Oh yeah, begging for relief doesn't help. Pleas for help fall on deaf, well-trained ears.
In my opinion, this commonplace practice is not the incompetence of an individual clerk or the commonly held excuse the servicer is overworked, overwhelmed or ill-prepared for the volume of work.
It's not incompetence. It's their policy!
Loan securitization and the sub-subcontracting of servicing rights from one "foreclosure shop" to another have made things much, much more difficult for the borrower. A major obstacle for both the borrower and for the country's recovery from this nightmare is this: The loan servicer's interests and the borrower's interests are in conflict. Simplistically, loan servicers are paid more when a loan is delinquent, in default or in foreclosure. It is in the loan servicer's best, financial self-interest to keep loans in perpetual default. They hit the jackpot when they foreclose.
Contrary to what we hear or read, loan servicers drag out the "modification" process as long as possible, then foreclose because they get paid more to do that than modify loans and keep people in their homes.
Loss of equity and tightening of credit is a problem. In years past, when homeowners had equity in their homes (equity is loosely described as the difference between a home's market value and what is owed on the home) and suffered a temporary financial hardship they possibly could refinance (at higher rates), or sell. The devaluation of housing and the tightening of credit have made refinance difficult. Selling a home is tough, too, especially when sellers owe more than their homes are worth. Buyers are cautious, too, since unemployment looms around the corner. Real unemployment levels are about 20%.
To save millions of homes from foreclosure we need to immediately implement specific strategies similar to what Ireland did to avoid its recent mortgage crises.
Let's pause here. When we return, Dave will give practical advise about what to do if you're facing foreclosure. I hope you'll join us.
