New Hope for Mortgage Relief

In a twisted bit of irony, former loan officer Melvina Bogan and her husband, Richard, are fighting to save their Los Angeles home. The couple, now retired, bought the property for $145,000 in 1998, making a 20% down payment, or $29,000, leaving a balance of $116,000. The property is a two-unit home; the Bogans occupy one of them. “We purchased the property thinking it would take care of itself because the back unit would generate income to make the mortgage payment,” says Melvina. In the wake of California’s housing bubble, the Bogans saw their property rise to as much as $670,000 in 2006. So they refinanced, taking $200,000 in cash out of their fixer-upper to renovate both units, putting in new plumbing, roofing, and electrical wiring. Both the primary mortgage and a $50,000 home equity line of credit have an adjustable rate, meaning the interest can rise or fall according to the market.

The property is now worth $350,000 and the 30-year mortgage is $376,000. The Bogans have lost half the market value of their home. “When the economy took a turn for the worse, we, like so many other homeowners across the nation, began to realize that our property had gone down in value and that we were seriously underwater,” Melvina says.

The couple now fears that their $1,658 monthly mortgage payments (including taxes and insurance), plus the $187 a month to repay the home equity line of credit, will soon become unmanageable. (Both are due to reset later this year.) Melvina agreed to the terms because she was earning a good income and was told that she could later refinance at more favorable terms. “We’re trying to keep the payments affordable. But the

way it’s set up, the rate keeps adjusting and will get to the point where we can’t afford it and will lose our home,” Melvina says. “Sometimes I think the banks are trying to turn the U.S. into a nation of renters instead of homeowners,” she continues, echoing the sentiment of many who feel mortgage lenders are reluctant to work with homeowners to modify or refinance their mortgages.

Early on, the couple did their homework and discovered they were eligible to participate in the Home Affordable Modification Program, or HAMP, which is designed to help struggling borrowers reduce their monthly mortgage payments. But the couple’s mortgage lender denied the modification.

When the housing bubble burst during what has become known as the Great Recession, the American dream of homeownership became a nightmare for millions of African Americans. Many have experienced a disproportionately high level of foreclosure.

According to a 2010 study by the Center for Responsible Lending, 4.5% of white borrowers lost their homes to foreclosure between 2007 and 2009, but black and Latino borrowers had foreclosure rates of 7.9% and 7.7%, respectively, making them more than 70% more likely to lose their homes to foreclosure during that period.

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While the Bogans were unsuccessful, to date a little more than 1 million homeowners have received a permanent HAMP loan modification on their mortgages. In fact, since 2007 the industry has completed more than 6.43 million permanent solutions outside of foreclosure, including non-HAMP loan modifications and short sales, reports Hope Now, a Washington, D.C., group composed of counselors, mortgage companies, and investors.

“This figure compares to 4.5 million foreclosure sales in the same period of time and shows that real progress has been made by the industry, nonprofits, and government on behalf of at-risk homeowners since the housing crisis began,” states Hope Now Executive Director Faith Schwartz.

Recent changes have been made to HAMP in an effort to increase the number of eligible homeowners in the hopes of preventing future foreclosures. Effective June 2012, HAMP Tier 2 expanded the qualifications for a loan modification and other relief through the Home Affordable Unemployment Program, the Home Affordable Foreclosure Alternatives Program, and the Second Lien Modification Program.

The revised HAMP program is an outgrowth of the foreclosure settlement reached in February. Prompted by homeowners’ complaints and following a series of extensive investigations conducted by attorneys general around the nation and a coalition of federal agencies, federal and state officials announced a $25 billion deal with the nation’s top five lenders–Bank of America, Wells Fargo, JP Morgan Chase, Citigroup, and Ally Financial–to settle fraudulent and abusive mortgage and foreclosure practices.

The settlement seeks to resolve violations of state and federal laws, which were outlined by the Department of Justice: the use of robo-signed (routine electronic sign-off) affidavits in foreclosure proceedings, deceptive offers of loan modification, failures to offer loan modifications and non-foreclosure alternatives before foreclosing on federally insured mortgage, and filing improper court documentation in federal bankruptcy court.

“Under the terms of this settlement, America’s biggest banks, banks that were rescued by taxpayer dollars, will be required to right these wrongs. That means more than just paying a fee,” President Obama said in a statement. “These banks will put billions of dollars toward relief for families across the nation. They’ll provide refinancing for borrowers that are stuck in high interest rate mortgages [the national average for a 30-year fixed-rate mortgage is around 4%].

They’ll reduce loans for families who owe more on their homes than they’re worth [referred to as underwater]. And they will deliver some measure of justice for families that have already been victims of abusive practices.”

Underwater homeowners who are behind on payments can now get help in getting their principal balances negotiated down. And homeowners who are not behind on their mortgage payments can refinance–allowing them to save roughly $3,000 a year. Also, roughly 750,000 former homeowners, who were improperly foreclosed upon between September 2008 and December 2011, are eligible to receive one-time restitution payments of about $2,000. The settlement prohibits banks from foreclosing on homeowners while the banks review their loans.

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About 2 million homeowners are reportedly expected to benefit from the settlement. The Bogans hope to be in that number. The couple is now a member of the advocacy organization Alliance of Californians for Community Empowerment, which introduced them to counselors at Operation Hope. “They have been very inspirational in supporting us with encouragement and information on what our rights are as homeowners,” Melvina says.

In addition to seeking counsel from the local homeowner’s advocacy group, the Bogans have filed a complaint with the Office of the Comptroller of the Currency and the office of California Sen. Barbara Boxer. The senator’s staff believes Richard and Melvina are eligible for a principal write-down under the settlement and have promised to assist. “I’m thinking that we’ve finally gotten to someone who can help us. I believe in fighting and keeping what belongs to you,” says Melvina, who is determined to work with her lender to modify the mortgage.

The foreclosure settlement and HAMP Tier 2 will help many African American homeowners.

But not enough, says Rep. Elijah Cummings, (D-Md.) ranking Democrat on the House Committee on Oversight and Government Reform. “Eighty percent of mortgages are financed by either Fannie Mae or Freddie Mac.” The Federal Housing Finance Agency, or FHFA, blocked Fannie and Freddie from joining the principal reduction programs implemented in the multistate settlement or participating in HAMP. So, those homeowners who have mortgages privately held by the five big banks will likely benefit the most.

Because of the complexity of the mortgage market and the agreement, which will be executed over a three-year period, borrowers will not know right away if they are eligible for relief, Cummings says. Homeowners who need manageable mortgage payments should contact their bank directly to see if they qualify, Cummings suggests, since the settlement requires banks to provide up to $17 billion in principal reductions on first and second mortgages and other forms of loan modifications. An outspoken housing advocate, the congressman recently introduced legislation (the Military Family Home Protection Act) to protect deployed military members from losing their homes.

On the heels of the settlement, Bank of America announced it would forgive a portion of the principal balance on the mortgages of as many as 200,000 underwater homeowners by as much as $100,000 or more. The reduction for qualifying homeowners could amount to monthly savings of up to 30% on mortgage payments.

Those who are current on mortgage payments but underwater should see if they qualify for any of the $3 billion allocated for refinancing at lower interest rates. If you believe you’re eligible for cash back, contact your bank and your state Attorney General via www.naag.org. For more info, go to NationalMortgageSettlement.com or visit HOPE NOW.