What most of them didn’t expect was how much time, effort and paperwork would be involved, and how difficult it would be to qualify for many government assistance programs.
That’s where foreclosure intervention counselors come in. They help troubled borrowers understand their options, assemble their documents and negotiate with lenders, with a goal of getting loans modified. Best of all for the borrowers, the help is free.
“We [serve as] a negotiator with their lender or their servicer,” said Devonna McLaughlin, director of Bothands, Inc. in Flagstaff. “We help them to craft their hardship letter and get their packet together for the lender.”
Bothands has about 100 clients from Coconino, Yavapai and Mohave counties in its intervention program at any given time. With just two counselors to work on foreclosures, the organization has had to take only clients making $100,000 a year or less.
Banks require borrowers seeking relief to submit a “hardship letter” explaining why they are unable to make their existing mortgage payments, documents proving income, application forms and budgets.
“A lot of people just get overwhelmed with the paperwork. There is a lot people have to do to apply,” said Susan Bardsley, the Winslow- based foreclosure intervention specialist for Northern Arizona Council of Governments (NACOG), which helps borrowers in Navajo and Apache counties. “The outcome could be worth their time and effort. We can’t help them if they don’t apply.”
There’s no guarantee that any applicant will get a loan modification. With nothing in the federal program to force banks to modify loans, it’s entirely at their discretion.
When clients call because they have received auction notices from their banks, Bothands kicks into high gear to get modification applications submitted and try to stop the sale. But they may have to do it several times during the negotiation period, because each stop only lasts 30 days, while the modification process may take more than a year.
“Clients consider it being held hostage. They can’t move on with their lives. They can’t change jobs, they can’t move. They are frozen until the lender makes a decision,” said Cher Ferry, foreclosure mitigation counseling program manager at Bothands. “Buy a birthday present? They don’t do it. They don’t do anything until the lender says its okay to do it.”
Some of the problem is that banks just don’t have enough staff devoted to modifications. Departments within banks may not be communicating efficiently, either.
“People can’t get through to the lenders. Phone numbers change. People don’t know which department to send you to. And sometimes there is a language barrier. Some calls go to call centers in India and people don’t understand each other,” Bardsley said.
In addition, Ferry says, hold times are increasing. She routinely waits on hold for 45 to 90 minutes just trying to reach bankers. And when she does, their demands can seem heartless.
“Sometimes the lenders’ demands are getting pretty extreme,” she said. “I had a client, I set up a budget for him. The man has cut everything out of his life but what he needs to survive. I had a [bank] processor call me wanting to go over his budget. He wanted to know what else could be cut.
“I told him there was nothing left to cut but food,” Ferry said. “He said, ‘That’s why I’m calling. He works at a restaurant. Can’t he eat at the restaurant and cut out his budget for food?’”
Another client, an elderly woman in Cottonwood, will lose her home despite keeping her heat off and sitting on an electric blanket to save money. She just couldn’t save enough to satisfy the bank.
Many borrowers won’t qualify for federal programs, but banks have their own modification programs that are often less publicized.
“Often it’s better to try for a lender’s in-house modification than the government program,” Ferry said.
Even the new Save My Home AZ program has tight requirements: The loan value can’t be more than $50,000, and the loan can’t have been an adjustable rate mortgage (ARM) or flexible payment mortgage. Anyone who took cash out in a refinance is ineligible. And even for borrowers who qualify, there’s not much money for Northern Arizona.
“The vast majority of people that will be helped will be in Maricopa, Pinal and Pima counties,” Ferry said. “It’s a very small box. The ones that we need to help are the adjust- able and option ARMs. We don’t get a lot of people with fixed-rate loans.”
That’s not the only hitch, Mclaughlin points out. The most difficult sell may be the two words likely to make a lender wash your mouth out with soap: “principal reduction.”
“You have to have a lender who’s willing to play, lenders who will do principal reductions,” she said. “In order to get the state’s money, your lender has to match the principal reduction.”
If all efforts fail to get a loan modified, Bothands and NACOG try to help the borrower get back on his feet.
“I can’t guarantee that they will get a modification through. If they don’t, we refer them to other agencies that can help them with transitional housing and help with utilities,” Bardsley said. “The frustrating part of my job is that I can’t help more people. People who should qualify don’t.”
Even with all the pitfalls, the agencies encourage troubled borrowers to try, and the sooner the better.
“The first step everyone should do when they are in trouble is call their lender, and then call me,” Bardsley said. “A lot of people don’t realize that there is a chance to work things out. A lot of it is denial. But 90 percent of it is, especially if they are unemployed, they don’t think there is any hope. With the stress level, a lot of people just ignore it until it’s too late. That makes it harder for me or the bank to help them.” FBN