Reprinted with permission from the Missourian

Sheila Durnil considers herself fortunate. In just three attempts to qualify for the federal Home Affordable Modification Program, she was accepted while thousands of other homeowners and former homeowners across the state weren’t as lucky.

Launched in March 2009, the program was the Treasury Department’s keystone attempt to curb the nation’s rising number of foreclosures. The program gives homeowners the chance to reduce their mortgage payments if they meet certain eligibility requirements.

If accepted, they pay a lower rate during a three-month trial period. And if they make their payments, the modification is supposed to become permanent, and they no longer have to pay the old higher rate.

That end result — a permanently reduced monthly payment — has proven elusive for most homeowners who’ve signed up.

Through a Freedom of Information request, the Missourian obtained Department of Treasury statistics that detail the program’s shortcomings in the state. As of Feb. 28, of 18,159 trial modifications that were started in Missouri, 6,944 became permanent (1,484 of those trials are currently active). Of those that became permanent, 1,026 were eventually canceled.

Excluding active trials, 35 percent of Missouri homeowners admitted into the program have permanently lowered mortgage rates. An additional 12,524 applicants were rejected from entering the trial phase of the program, as of Jan. 31.

In Columbia, 53 of 139 homeowners who entered trials have permanent modifications. (This figure excludes 16 currently active trials.)

The program was created to make loan modifications easier by tackling a central barrier in the modification process. The banks and mortgage companies that receive mortgage payments — known as mortgage servicers — have little incentive to help homeowners prevent foreclosure because they don’t own most of the loans they handle. So if a home is foreclosed on, they often don’t lose money.

To induce servicers to participate in the program, the Treasury gives one-time payments of $1,000 for a completed modification and up to an additional $1,000 per year for three years if a borrower makes timely payments.

But the Treasury hasn’t been able to force servicers to follow program guidelines. By its own admission, it has no way of holding them accountable because the program is voluntary, and there is no penalty when servicers fail to help qualified homeowners.

As a result, most program enrollees haven’t received permanent modifications at the end of a trial. Instead, their rates return to original amounts, and they now owe back payments. This means if someone’s original monthly payment of $1,000 is reduced to $700 during a trial, they now owe $900 because of the $300 less they’ve paid each month — and their rate returns to $1,000.

“Without question, we have not helped as many people under (the program) as we originally estimated,” said acting Assistant Secretary for the Office of Financial Stability Timothy Massad in a news release on the Treasury’s website.

The underwhelming results were partly driven by the program’s “prudent” eligibility requirements, Massad said, which weren’t designed for homeowners who can afford to make payments. Nor was the program intended for borrowers who can’t sustain a mortgage even after modification, he said.

But the program’s former inspector general, Neil Barofsky, highlighted a different problem in a report to Congress in January — the “abysmal performance” of servicers. “From the repeated loss of borrower paperwork, to blatant failure to follow program standards, to unnecessary delays that severely harm borrowers while benefiting servicers themselves, stories of server negligence and misconduct are legion,” he said.

In Missouri, the servicers processing the greatest number of applications have some of the lowest success rates. Of the four servicers that approved the most trial modifications, none converted more than a third into permanent modifications that weren’t canceled.

Treasury criticism

The Congressional Oversight Panel now estimates that, nationally, the program will prevent roughly 700,000 to 800,000 foreclosures — far short of the original aim of three to four million.

Neil Barofsky, who resigned from being the program’s inspector general March 30, accused the Treasury of being soft on servicer noncompliance and said the department’s reluctance to punish servicers with fines or incentive pullbacks seemed to be driven by a fear that forcing them to comply would drive them away from the program. The Treasury told the panel that because servicer participation is voluntary, the department’s ability to enforce performance is limited.

Barofsky said if the Treasury doesn’t begin holding servicers accountable, the program will continue to flounder. “At some point, Treasury needs to ask itself what value there is in a program under which not only participation but also compliance with the rules is voluntary,” he said.

“And if getting tough means risking servicer flight, so be it,” he said. “The results could hardly be much worse.”

Although the Treasury admitted the program has fallen short, it has benefited the borrowers who received permanent modifications through the program — modifications the Treasury said probably wouldn’t have happened otherwise. Statistics from the Office of Thrift Supervision show that modifications produced from the program result in greater average reductions in payments than in-house modifications. Also, homeowners who receive modifications through the program are less likely to become delinquent.

In addition, the government has issued far fewer in incentive payments to servicers than anticipated, so the program will cost taxpayers less than the Treasury initially believed. When it was launched, $50 billion from the Troubled Asset Relief Program was set aside for the program. That number was reduced to $29.9 billion, but as of February, the Treasury had spent only $1.04 billion.

On March 4, Timothy Massad told the congressional panel that the program has had further impact by setting standards for modification practices that “have now been followed by the industry widely” and resulted in a greater number of in-house modifications. But according to the panel’s December report, the Treasury acknowledged “there is no clear causal link between HAMP and proprietary modifications.”

The long road to a modification

When Sheila Durnil first requested a program application packet from US Bank, three months passed before it arrived on her doorstep. She submitted the packet in June 2009 and was told in September she needed to make larger payments than she had been paying to qualify. Durnil said she paid what she could and waited for an update.

In November, that update left her incredulous — it was a foreclosure notice. Without notifying her, US Bank had rejected her from the program in September, she said.

“My biggest issue was just getting in touch with them,” Durnil said. “They want to send me letters and send me letters and yell at me through the letters, but they don’t want to talk on the phone.”

Durnil said working with US Bank has gotten better but overall has “been a bad experience.” But compared to many other servicers, US Bank’s numbers are stellar. Of 536 trial modifications offered in Missouri that aren’t active, 359, or 67 percent, are permanent.

Ryan Murphy, a default resolutions specialist at US Bank, said the bank didn’t receive enough information about the program or have a large enough workforce to handle the program when it was introduced. “Phone lines were overwhelmed with calls,” he said. They’ve opened additional call centers and hired more personnel to better manage the demand since then, he said.

Even with improved support from US Bank, Durnil was rejected from the program for a second time in December 2010. In October, she was laid off from her job as an administrative assistant at MU’s Office of Research. She attempted to qualify for the program through her unemployment benefits. When Congress didn’t extend federal benefits on Nov. 31, she didn’t have proof of guaranteed future income and was denied.

In January, she received a second foreclosure notice. There was no way she was going back to Columbia Regency, but she was worried she’d have to move her family back into a mobile home.

Then, in February, a week before the sale, she landed a job at the Cannery Row Preschool day care. After another round of calling and emailing, she stopped the foreclosure two days before the sale.

Durnil applied to the program a third time, and US Bank quickly approved her application. On May 1, she successfully made her second trial payment of $591, reduced from $703.

And she landed a better job. Despite having 10 years of experience as a department manager at Walmart, she’d been working as a part-time cashier at Gerbes since March. On May 9, she accepted a full-time office support position at the MU Office of the Registrar.

She isn’t in the clear yet, but she said she’s optimistic about her chances. She knows things could be worse, and several inch-thick files filled with forms, resubmitted documents, rejection letters and foreclosure notices at her home serve as a reminder of that.

But if she makes her third and final trial payment June 1, US Bank told her the modification will become permanent, and Durnil might be able to put the two most distressing years of her life behind her.

“We worked very hard for this,” she said.

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