Asbury Park Press

Mortgage Modification Meant Higher Monthly Payment For Brick Homeowner

Despite hopes, mortgage modifications have had limited success

Asbury Park Press — Sunday, June 24, 2012

Written by
Michael L. Diamond

Robert Pollando spent two years working with Bank of America to modify the mortgage on his home in Brick, when a letter arrived in the mail one day last April, telling him he finally was approved.

Just as he exhaled at the prospect of financial relief, he noticed that his new monthly mortgage payment was $2,757.81, or $300 more than his old payment.

"I thought it was a joke. I thought it was a misprint," Pollando, 38, said. "I called and spoke to (the representative). He told me it wasn't a joke."

It's been more than four years since the federal government first took steps to help homeowners who were caught in the collapse of the housing bubble and at risk of foreclosure, and still, experts say, stories such as Pollando's aren't uncommon.

In hindsight, it shouldn't have been a surprise. By 2008, homeowners owed far more than their incomes could pay. Banks couldn't deliver the government's offer of a lifeline. And what began as a subprime loan crisis ballooned into the worst downturn since the Great Depression.

Consumer advocates say banks have taken steps to work with homeowners since they settled a lawsuit in February. But in New Jersey, more than 8 percent of mortgages are in foreclosure and nearly 8 percent more have payments past due, according to a trade group.

"It's really a tricky issue for families," said Roberto Quercia, director of the Center for Community Capital at the University of North Carolina. "Once you start in that spiral, how can you come out of it?"

Pollando lives with his wife, Lisa; daughter, Ava, 6; and son, Giovanni, 4; in a home they bought in May 2007 for $314,000.

They went to Countrywide Home Loans and were approved for a mortgage insured by the Federal Housing Administration that allowed them to put little money down. They received a 30-year loan with a fixed interest rate of 6.25 percent.

It left them with a monthly payment of $2,467, taxes included, but they both had solidly middle-class jobs; Robert was a technician for the New Jersey Turnpike Authority, Lisa managed a doctor's office.

Medical troubles

Robert Pollando in 2009 went in for back surgery to repair a herniated disk. When he awoke, he couldn't feel his body from the waist down. He faced months of rehabilitation, and eventually doctors' bills of nearly $100,000, he said.

The Pollandos thought they could get relief through a federal program in which banks would voluntarily make mortgages more affordable for homeowners who could reasonably pay them back.

He called Bank of America, which purchased Countrywide in 2008. He was sent to different representatives, each of whom asked him to send the same information - paychecks, tax returns - over and over.

"They tell you they lost it, they can't find it, they only got half the stuff," he said. "It's mind-boggling."

As he fell further behind, his rehabilitation continued. He was reassigned to a clerk's job that cut his salary by more than 30 percent. And one day, the elevator at work stopped higher than the floor. He stepped off, dropped, fractured his ankle and is on workers' compensation, he said.

He thought his luck might turn with the April letter. He was approved for a 30-year mortgage at 5.125 percent. His loan was modified - to a higher payment.

The first foreclosure notice arrived two weeks ago.

Bank of America spokeswoman Kelly Sapp said the money still owed was added to the balance and spread out over 30 years.

"This may result in the monthly payments actually increasing, despite a lower interest rate; however the homeowner still gains the advantage of a fresh start without paying the arrears to bring the loan current in a lump sum," she said.

Multiple problems

Pollando's predicament is emblematic of a program that has caused headaches. Among the wrong turns:

Square peg, round hole. Borrowers were approved for loans based more on the rising values of homes rather than their income. When prices began to slow, borrowers didn't have the money to keep up. And any attempt to bring the two sides together without anyone taking a hit defied the basic laws of economics.

The modification program was "one that was humane, but not an economically rational one," said Patrick J. O'Keefe, director of economic research for J.H. Cohn, a Roseland-based accounting firm.

Play ball. Lenders often sold the original payment to investors in a secondary market and then became servicers; their job was to collect debt. And they were ill-equipped to handle the torrent of homeowners asking for modifications, said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C.

One result: Five large banks in February settled a lawsuit brought by state attorneys general accusing them essentially of rubber-stamping foreclosure documents without following the rules.

"The programs were fundamentally flawed because the people who agreed to do it could not do it," Rheingold said.

Life happens. The modification program initially targeted borrowers who had subprime loans that featured low payments for a year or two before skyrocketing. As the housing crisis evolved into a global recession, more homeowners ran into more obstacles and needed help.

The lengthy process only allowed consumers' financial health to get worse.

"The long review process has definitely been an issue," said Stefanie Wynne, assistant director of housing outreach services for Affordable Housing Alliance, a counseling agency in Eatontown. "Some homeowners have been doing this for three years because the bank lost their documents, the file got transferred from one representative to another, their income changed," Wynne said.

"The longer the review process, the higher the delinquency, which could cause them to have a much higher monthly payment," Wynne said.

Not that the program has been without successes. Banks have permanently modified more than 25,000 mortgages in New Jersey, according to the U.S. Treasury Department. And banks involved with the settlement are adding staff to make the process more timely, said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a consumer group.

Still, consumer advocates are calling on banks to write down the loans' principle so that homeowners not only would have lower payments, but also could build equity more quickly, giving them more flexibility.

And they believe a wave of foreclosures is still to come. "We're going to be inundated," Salowe-Kaye said, pressing Gov. Chris Christie to use money the state received in the settlement to add housing counselors and legal services.

Pollando continues to walk with a limp, his leg so swollen that at times he can't put on his shoes. The truth is, if he couldn't afford his original payment, chances are, he can't afford the higher one either.

"It's been a long process, and it's not getting any better," Pollando said.

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