The Great American Foreclosure Story: The Struggle for Justice and a Place to Call Home
The story of how one woman went from a three-bedroom home to a tent is the story of how America ended up in a foreclosure crisis that still drags down the economy.
"We have a faxing problem"
When HAMP was launched, Chris Wyatt was an employee at a company similar to Wilshire: Litton Loan Servicing, another small subprime servicer bought by a Wall Street bank, in this case Goldman Sachs. As at Wilshire, there was constant pressure to keep costs low.
HAMP initially seemed attractive for the servicer, he says, because of the taxpayer subsidies it offered, such as the $1,000 that government officials guessed might be enough. Litton deliberately delayed dealing with some delinquent homeowners until the program was launched, Wyatt recalls, in order to put them into HAMP modifications and collect the incentive payments.
In the first few months of its participation in the program, Litton put tens of thousands of homeowners into trial modifications. That was easy, because nothing had to be documented. Under the agreements, if the borrower made the lowered payments for the three-month trial period, they'd receive permanent modifications.
The hard part was for Litton to collect the borrowers' papers and crunch the numbers to verify the terms of the permanent modifications. That, he says, "turned out to be a total disaster."
Wyatt led Litton's "Executive Response Team," which was charged with handling customer complaints. Litton employees, overwhelmed and undertrained, frequently made basic errors when calculating a homeowner's income, he says. HAMP guidelines often weren't followed, because Litton was "way understaffed" and couldn't keep up, he recalls. But the worst part was the way Litton dealt with homeowners' documents, he says.
When homeowners faxed their documents, they didn't go to Litton, Wyatt says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.
In a process internally referred to as a "denial sweep," Litton's computers would automatically generate denial letters for every homeowner who, according to Litton's records, hadn't sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.
In general, Wyatt recalls, Litton was much more careful about granting modifications than denying them. Yes, HAMP gave financial incentives for each modification Litton and other servicers made, but modifications also meant closer scrutiny from the program's auditors.
As of the end of 2010, fewer than 12 percent of the borrowers who'd applied for a HAMP modification with Litton were granted one. The vast majority of those denials, Wyatt says, were not legitimate. Goldman Sachs' emphasis on maximizing profits rather than preventing foreclosures is typical of the servicing industry, he says, particularly the larger banks.
"They could have addressed the crisis way earlier. Had companies changed their philosophy and said, ‘You know what? We're not going to beef up our collections staff; we're going to beef up our loss mitigation staff.' Had they done that and come up with loan modification scenarios that were reasonable and put people into more affordable payments early on, we wouldn't be where we are now."
A spokesman for Goldman Sachs said the company disagreed with Wyatt's account but offered no specifics.
At Bank of America, by far the country's largest servicer, an employee who works in one of the bank's many call centers finds the process as mystifying as do the borrowers to whom he speaks every day.
The employee says homeowners have been regularly routed to him after being rejected from HAMP for unclear reasons. Sometimes it's news to them they'd been denied at all.
He says he's learned not to put any stock in those previous denials — the income information in Bank of America's system entered by some other employee in another department is often incorrect. The best he can do, he says, is to persuade the homeowner to start over with him.
Of course, homeowners are typically weary after months of mistakes, denials and lost documents. A little more than a year after HAMP was launched, ProPublica surveyed almost 400 homeowners. The average respondent had been seeking a modification for more than a year, sent in the same documents six times and spent several hours each month on the effort. So, when the Bank of America employee asked such homeowners to start all over again, well, it took some coaxing.
"I would say to them, ‘Listen, I've gotta get some documents.' They'd be like, ‘Oh no, please don't ask me for documents.' I'm like, 'Listen, I know what you've been through. We all know we have a faxing problem here. Just resend them. I'll look for them in three days,'" he says. If they weren't in his system, he'd ask the homeowner to resend them, he says. Three days later, he'd look again. "Usually by the third time, I'd get it."
Why does this employee wait three full days to look for a fax instead of just walking over to the machine? Because Bank of America, like Litton, uses a company in India to scan and file documents that borrowers send. Those papers get lost all the time, he says.
"The whole documentation collection thing has got to be purposely not funded. Like, I can't get a fax. I work for a huge bank that has tons of money, and you're telling me that I can't get a fax?"
The disorganization provides numerous opportunities for borrowers to be denied a modification. And because it's so much easier to decline than approve a modification, many employees have taken advantage of those opportunities. As he recalls one of his colleagues putting it to him, "I'm in the declining business."
Bank of America did not respond to questions about the employee's account.
The wave hits prime borrowers
As the economy collapsed, hundreds of thousands of Americans lost their jobs, and suddenly, it wasn't just subprime borrowers like Ramos whose homes were in jeopardy but homeowners with prime mortgages, those given to borrowers with good credit. Today, nearly twice as many prime as subprime borrowers face foreclosure.
Thomas Sanderson of Chicago was among the hundreds of thousands of prime borrowers calling his servicer in the first months of 2009. A civil engineer who ran his own consultancy, he has a college degree and far more financial and legal sophistication than Ramos. But the recession dealt a mortal blow to his business, and he'd fallen a couple payments behind before he found another job.
Modifying Sanderson's loan should have been an easy call, saving investors far more than a foreclosure would cost them. After all, he had a new job and could make his monthly payments again. He just couldn't catch up on the back payments, he says.
Banks and the government have fallen short in helping homeowners in danger of foreclosure.
The Story So Far
Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.
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