Mortgage Mod Hell: Trapped Between Lenders, Collectors

Kate Hanni is no stranger to public advocacy. After she was trapped in a plane on the tarmac for more than nine hours, she formed Flyers Rights, the largest nonprofit advocacy group for airline passengers' rights. The result was the passage of the Airline Passengers Bill of Rights and the three-hour tarmac-delay limit for the flying public.

Now Hanni -- who blogged about her experience for The Huffington Post -- is standing up for another cause that affects her personally: the housing crisis. This time, instead of an airplane, she's trapped in mortgage modification hell. Her complaint? Lenders won't talk to you unless you are behind in your payments, and then once you are, their debt collectors start harassing you with calls asking when you expect to pay up.

Hanni, a real estate agent for 23 years, and her husband, who worked in the wine industry, were doing just fine until the recession dried up both their businesses. Their incomes shrank, along with the value of their Napa Valley, Calif., home. They turned to their savings to stay afloat, running through about 75 percent of their retirement fund and the money they had set aside for their son's college education. And then -- despite all she had read about the frustrations and failures of the loan modification process -- Hanni decided to try for one.

The first thing her lender, Bank of America, told her was that loan modifications were only for those who were behind in their mortgage payments, and since buying the house in 1997, Hanni had always paid on time. So in order to qualify, it became necessary to stop paying her mortgage and start ruining her credit.

The collection calls started coming about three weeks after she was late with her first payment. "These calls just won't stop," Hanni says, despite her attempts to explain that she's only doing what the bank advised her to do. "Bank of America is spending a zillion dollars having people make these calls, and it just makes no sense. Why not have a loan modifier call instead?"

While Hanni's story certainly can't top that of Deborah Crabtree -- the woman in Hawaii who claims in a lawsuit that Bank of America's debt collectors called her up to 48 times a day, including at her husband's wake -- it does represent what a lot of homeowners are experiencing.

Trashing Your Credit to Save Your House

With President Obama about to announce mortgage reforms, we are a nation with crossed fingers, hoping that one of the practices he ends is the one in which lenders refuse to give you the time of day unless you first miss a couple of payments.

Hanni, 51, and her husband, 59, "don't have a whole lot of time to recoup" their spent savings, she says, adding, "every issue facing America is facing my family . . . unemployment, low resources, and being forced to destroy our excellent credit" to apply for a loan modification.

"Forcing Americans out of their homes, removing their real estate residential interest tax credits, and crippling their ability to own again or even to get a decent rental due to a forced, reduced creditworthiness is insane," Hanni says. "The outcome is that the home will still be devalued, drag down values in the neighborhood and create a worse situation for the former homeowner. Depending on their age, they may never recover from this disaster."

Judging from what happened the last time Hanni got passionate about a consumer issue, the banking industry had better watch out.