Many Distressed Homeowners Are Letting Help Pass Them By
Bank of America representatives clad in red polo shirts manned the entrances to the Marriott's 11th floor in midtown Manhattan on a recent Thursday. Tables were stocked with ballpoint pens and breath mints. Signage in English and Spanish pointed distressed New York City-area homeowners and their families to the registration desk, and onward through a flow of rooms that contained all the resources required to arrange a loan modification, get counseling, or make a plan to transition out of a home they could no longer afford.
Yet relative to the size of the space and the manpower the bank had on site, few homeowners were in attendance. The event was one of 40 that Bank of America (BAC) is holding across the United States in 2011 as part of outreach efforts to help distressed homeowners get loan mods or apply to attempt a short sale. The number of people who need such assistance is huge. But of the 30,000 distressed homeowners invited by mail to the event, representatives from Bank of America said they expected around 1,500 to attend.
Bank of America's experience is not unusual. In the last several years, outreach events by loan servicers, housing organizations and nonprofits have been held all over the country, offering to provide access and resources to distressed homeowners. The Treasury Department, working on behalf of the Obama administration, has sponsored 58 events since June 2009 with an average of 1,000 attendees at each one. In the government's outreach program, participating servicers send out letters to distressed homeowners in the area. Yet the response rate is around 2% to 3%, says Andrea Risotto, a Treasury spokeswoman.
While every homeowner has a different set of circumstances, the mediocre attendance rates underscore the emotional and financial challenges homeowners and banks face in reaching distressed borrowers with their assistance programs. Rebecca Mairone, the national head of outreach for Bank of America, said a common theme she has heard from homeowners was worry over school quality as families face the possibility of moving from an owned home into a rental property. Exhaustion, frustration and fear compound worries over what to do next and how to take action.
"There are lot of homeowners who feel overwhelmed or frozen into place," Risotto said. "If you're delinquent, are you even going to open the letter from [your servicer]? They may be afraid of what will happen."
Faith Schwartz, executive director of mortgage industry/consumer counselor alliance HopeNow, says the group has organized 115 events over the last four years, with varying turnout levels. However, a growing number of independent players have launched outreach events for distressed homeowners, creating confusion about where to go and whom to speak with. Add to that an growing number of scams and dubious offers, and it's easy to see why homeowners find it increasingly difficult to chart a navigable, quality path to assistance, she says.
"All these things make it complicated for a [homeowner] to come out," said Schwartz. "As an industry, we have to do a better job communicating."
Documents, Documents and More Documents
Even as emotional hurdles and questions of trust continue, the material steps involved in getting help remain daunting. The administrative paperstorm presents a vast challenge: On average, a successful mortgage modification application requires around 38 pieces of documentation. Schwartz says the sheer volume impedes many borrowers from accessing potential assistance.
For each borrower listed on a loan, the list is of necessary paperwork is extensive. It can include: utility bills for proof of residence; two years of signed, dated tax returns; bank statements for all accounts; an itemized household budget; homeowner association bills; and pay stubs. All this in addition to the four documents -- a request for modification; IRS form 4506; the Dodd-Frank Certification form; and a letter of hardship -- that comprise the loan-mod application request.
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One Brooklyn homeowner leaving the Bank of America event looked exhausted, saying she was too tired to complete the process and planned to come back on a different day to keep working on it.
Of those who showed up to the Bank of America event with all the documentation necessary, only half were expected to receive an on site-decision for a loan modification, said Mairone. A loan modification could result in the bank resetting the interest rate to as low as 2%, extending the loan's terms, or offering a forbearance period. Subprime loans can qualify for principal reduction as well. Homeowners who don't receive on-site decisions get their answers within 30 days, Bank of America said.
"We take a lot of people to 2%, but a lot need 0%," said Mairone.
Even with all the documentation, additional economic issues hinder the ability of many homeowners to qualify for a loan modification. Any nuance around income -- especially if it can't be documented or is cash income, or if a homeowner is self-employed -- can be a choke point on the road to a successful modification, said Mairone.
Other obstacles that prevent homeowners from getting a loan mod are mounting personal debt and expenses -- from credit card debts to auto loans -- and the total debt to income ratio (DTI) for a household. Bank of America representatives said they -- and the vast majority of their investors -- used HAMP guidelines for affordability and DTI to determine whether a modification was possible. For homeowners, that means calculating a monthly payment of 31% of monthly gross income, and a DTI of less than 60.
The majority of declined modification applications, Mairone said, were turned down because of the borrower's extended unemployment or other significant income reduction, or the expiration of a prior forbearance period.
But there is also the question of putting names to faces. Outreach events add a level of accountability that so many borrowers felt has been missing in the process of getting help.
"There are [many] homeowners who are still frustrated because [servicers] didn't have the processes or staff to assist in crisis," said Risotto. That is changing now. Bank of America alone has more than 35,000 trained staff to work with borrowers who are in default. Beginning in September, all servicers under the HAMP guidelines must assign a single point of contact for each borrower.
And this summer, more options emerged for homeowners, including tapping into Hardest Hit Funds, and other government forebearance programs, says Schwartz.
A Clearer Path to Next Steps
At the Marriott , a young child clambered over chairs while a family-friendly movie played on a projector screen in the waiting room. A man sat in the back row sorting through papers in the empty room as he waited for an answer from the bank. Only steps away in, another room, more red-shirt clad servicers worked on underwriting.
For one homeowner, the event helped him slim down his monthly payment by $500. At a recent Making Home Affordable event in Novi, Mich., another homeowner succeeded in reducing her monthly mortgage payments from from $1,011 to $670 each month, according to the Treasury.
But for others, at least at the BOA event, a transition counseling team awaited to prepare homeowners for less fortunate outcomes. Bank of America has teamed up with United Way and provide information about renting, food stamps and other social services to help homeowners move into new living arrangements. Those who cannot find an affordable way to sustain mortgage payments get $3,000 for relocation assistance from the bank.
Through end of June, Bank of America reports it has completed 128,771 modifications and more than 54,000 short sales and deed-in-lieus in 2011. Between July 2007 and June 2011, HopeNow reported that there were a total of 4,723,618 completed loan modifications in the United States.
Regardless of the borrower's outcome, the outreach events provide something that was missing for too many for too long in the process: human contact and a way to explore all the possibilities.
"Everyone leaves with a clearer idea of next steps," says Risotto.
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