Mortgage Company Halves Passaic Woman's Balance

The Record ( — Tuesday, July 28, 2015

The Record

Loretta Hill of Passaic, a state health care worker, was facing foreclosure last year after she temporarily lost disability benefits and fell behind on her mortgage payments.

Her house was financially "underwater," worth not much more than half of the $403,000 she owed.

But in what may seem an unlikely turn of events, her Atlanta-based mortgage servicer, Ocwen Financial, came to her rescue by slashing the amount she owed almost in half and by cutting her interest rate from 8.8 percent to less than 3.4 percent.

Under a loan modification agreement, the principal is being reduced by $184,840 over three years. The new balance will be $218,500, and the monthly payment, which was more than $3,300, including interest, taxes and insurance, is now about $1,724, all included. The only catch is that under the Shared Appreciation Program, when she eventually sells the house, the mortgage company gets 25 percent of the appreciation in value and Hill gets 75 percent.

It's a fair deal, said Hill, 62, in an interview last week at her home on Hughes Street. "I am very grateful to Ocwen," said Hill, who injured her shoulder and knee on the job in 2010. "I was scared," she said. "I thought we were going to be homeless." Over the past 10 years, Hill has raised five nieces and nephews in her Passaic home, four of whom still reside there, while one is away at college in Florida.

Throughout the foreclosure debacle, which continues to hinder New Jersey's real estate market recovery, mortgage servicers, including Ocwen, have been lightning rods for criticism and have been hit with billions of dollars in fines.

But in recent years — sometimes because of requirements in agreements to settle allegations of wrongdoing — lenders have also been reducing the principal amounts of customers' loans. Through these reductions, they agree to share some of the losses caused by a sharp drop in real estate values between 2007 and 2012, and they allow certain borrowers facing foreclosure to stay in their homes.

In response to The Record's questions, Ocwen, one of the top loan servicers in the state, said in an email that it has modified 2,733 loans in New Jersey through its SAM program since 2011. It has completed more than 17,400 loan modifications in New Jersey since 2009, including those that do not involve principal reductions.

In New Jersey, Ocwen's principal reductions — in which the owners of the loans, including investors in mortgage-backed securities, agree to take "a haircut" on their returns on investment to avoid costly litigation — have averaged more than $100,000 each, said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. The organization has helped Ocwen in its efforts to make distressed homeowners aware of the program and has provided counseling assistance to help participants through the process.

The program is only available to those whose mortgages are serviced by Ocwen, to those who are behind on their payments and owe more than their homes are worth.

Jim Hines, assistant vice president of consumer lending communications at Wells Fargo's Chicago office, who had national loan modification statistics but no state-level data, said in an email that Wells Fargo has helped more than 224,000 U.S. customers with $8.6 billion in principal adjustments.

The San Francisco-based lender and servicer has modified more than 1 million mortgages since 2009.

"We participate in the federal government's Home Affordable Modification Program and numerous other modification options made available to customers with loans controlled by Fannie Mae, Freddie Mac, FHA and other investors," he said.

Principal reduction would be even more common if the country's two biggest owners of mortgage loans, government-sponsored Fannie Mae and Freddie Mac, would grant the so-called haircuts.

Housing activists and consumer groups have been lobbying to get Fannie's and Freddie's overseer, the Federal Housing Finance Agency, to reverse its prohibition on principal reduction.

"Many times taking the haircut is better than going through the foreclosure process with the litigation costs, the upkeep costs, and the decreases in neighboring property values," said Mitria Wilson, vice president of government affairs at the Center for Responsible Lending. "The value of these homes is declining on multiple levels."

"It's really going to be up to Fannie and Freddie as market leaders, whether they are going to take a haircut and if their investors are willing to take a haircut," said Mike Affuso, director of government relations for the New Jersey Bankers Association.

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