Confusion, Frustration Mark Mortgage Modification Program


WASHINGTON (October 29, 2010)—When Wells Fargo called Baltimore salesman David Devaney in July 2009 to tell him he qualified for a loan modification, medical bills were mounting for his daughter, who was born prematurely, and he'd been forced to take a lower-paying job when his company was bought out.

For David, 33, and his wife, Laura, 27, the federal Home Affordability Modification Program seemed like a welcome relief. But although they were solicited for the program, and followed their bank's directions for nearly a year, the Devaneys didn't qualify for the program, saw their credit rating drop and the experience has left them frustrated and disillusioned.

Unfortunately, these problems are typical for many seeking a modification through HAMP.

"There are enormous problems with HAMP," said Ira Rheingold, executive director and general counsel for the National Association of Consumer Advocates. "It's not helping nearly enough people," and for those who are able to get a HAMP modification, "the help offered isn't sufficient."

HAMP was created by the 2008 Emergency Economic Stability Act, which also enacted the Troubled Asset Relief Program. It's supposed to help homeowners who are either behind on or struggling to keep up with their mortgage by providing incentives to banks to modify home loans and help owners avoid foreclosure.

Loan modification is supposed to lower the monthly payment to 31 percent of the owner's monthly income with the interest rates modified to as low as 2 percent.

The Maryland General Assembly reinforced HAMP in July 2010 with a foreclosure mediation law requiring lenders to be more responsive to homeowners seeking alternatives to foreclosure, including loan modification.

Despite the state and federal efforts, as of September more than one in 10 mortgages was 60 or more days delinquent in Maryland and fewer than 2 percent of Maryland homeowners with a mortgage have received a permanent loan modification, according to the U.S. Treasury. The latest figures from the Federal Reserve and Mortgage Bankers Association show the combined rate of foreclosures and 90-day mortgage delinquencies in Maryland remained at 8 to 9 percent in July 2010.

Talk to homeowners and they'll tell you why foreclosure rates remain high and modifications low: Their lender loses paperwork, they can never talk to the same bank representative twice and they are often misinformed by lenders about what they should be doing. The problems have kept many Maryland homeowners from achieving a loan modification, caused stress and forced some into foreclosure and sometimes bankruptcy.

Demand for the services of foreclosure prevention agencies is overwhelming, a recent Urban Institute survey showed. The agencies were offered foreclosure prevention counseling to 20,000 clients in 2009, but 148,000 mortgages in the Washington region were delinquent or in foreclosure.

Banks have perceived the need and are offering alternative modification programs, but there are problems with that, too.

"Typically they're not as good as HAMP," said Rheingold, "and HAMP isn't the greatest thing since sliced bread either."

He wouldn't encourage a client to sign one of these alternative programs because many ask homeowners to sign away many of their rights, but fail to decrease their mortgage, Rheingold said.

The Devaneys spent five months in what they thought was HAMP, when in fact what Wells Fargo had enrolled them in was a forbearance agreement. The temporarily lowered payment made them think all along that they were in the trial period for HAMP, they said.

Because of this, when the Devaneys were rejected for HAMP, the difference between their original mortgage payment and their modified payment was due immediately, not at the end of their loan as they'd originally been told, and as it would have been under HAMP.

"This can be a confusing process," Wells Fargo representative, Tom Goyda said, "I understand how it cannot always be clear."

They were also reported 30-to-60 days late on their mortgage during this time, despite the fact that Laura Devaney said Wells Fargo had assured her that the process would not damage their credit.

"I understand that it's a loophole. We were paying less during those months. But, we were doing what our mortgage company told us to do," she said.

Laura Devaney is a 2005 graduate of the University of Maryland's Merrill College of Journalism, which publishes Capital News Service. Her contact information was provided by, which is not affiliated with the college.

Bowie resident Rosemary Johnson is still confused about her mortgage modification situation. She's not sure if the modification she was offered was HAMP or one of the alternative programs through PNC Bank.

For Johnson, seeking a loan modification began when her escrow account payment more than doubled, and the price of her home plummeted, preventing her from refinancing.

She was denied a HAMP modification, after making all three trial modification payments, which reduced her monthly payment by $3,000, because PNC needed proof that she was paying her homeowners' association dues of less than $50 a month, she said.

Johnson said she provided the documentation, but she said PNC bank told her they never received it. She later was offered another loan modification that does not decrease her payment as substantially.

Even then, she said, her income was miscalculated in the second offer. All that has left her uncertain about what modification program she is being offered.

The documents containing the second offer bear the "Making Homes Affordable" logo, but do not mention the federal program. After a reporter contacted the Treasury Department, it does appear that the offer is part of the HAMP program.

Johnson's doubts and the higher payment led her to refuse the second modification, and she is now in touch with Fannie Mae. She reapplied to the program on Oct. 20. She has now been trying to obtain a loan modification for a full year.

Without a permanent loan modification, Johnson said she will lose her house.

Johnson's contact information also was provided by

PNC Bank spokesman Fred Soloman said the bank cannot comment on specific cases.

The many problems surrounding modification programs have spawned many lawsuits, Rheingold said.

"Clearly this is not what should be done," Rheingold said. "Every story you can tell me, they're really just examples of the extent of the systemic problem that exists."

Rep. C.A. Dutch Ruppersberger, D-Timonium, said a lot of people call his office about loan modifications.

"The people that call are hurting," he said. "The biggest problem is lack of communication with the banks," something he's been trying to address with workshops that bring together homeowners and banks. Ruppersberger said this has kept 200 homes from foreclosure in his district.

Nationally, complaints of errors and disorganization delaying and foiling loan modifications are now compounded by evidence showing that paperwork errors may have led to unfair foreclosures.

The problems have prompted Ruppersberger, along with Gov. Martin O'Malley, Baltimore Democratic Rep. Elijah Cummings and other Maryland leaders to call for a 30-to-60-day halt of foreclosures in Maryland. Bank of America has complied with the request.

"We're concerned," said O'Malley spokesman Shaun Adamec when asked if these errors could be more widespread and could be effecting loan modifications. Banks and mortgage companies have "circumvented laws meant to protect homeowners."

Loan modification laws could be at risk as well, he said.

"What's most disturbing is that there are protections in place nationally that protect against 'robo-closures' (the practice that may have allowed illegal foreclosures to happen), and yet those laws were circumvented," Adamec said. "We want to make sure that homeowners are being treated fairly in Maryland."

While the Devaneys are not facing foreclosure, they don't think they were treated fairly and know others have had similar problems.

"My husband and I weren't the only ones who thought we could trust our mortgage company and got screwed."

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