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Mortgage bankers complain

By Holden Lewis · Bankrate.com
Monday, November 1, 2010
Posted: 8 am ET

A week ago, I was attending the Mortgage Bankers Association's annual conference, in Atlanta. The dominant issue was regulation. Two years after we, the taxpayers, bailed them out with billions of dollars, the mortgage bankers want to be left alone to do as they please. As we continue to dig out of the mortgage-led real estate collapse, the bankers feel confident that they have good judgment.

Few people attended a panel discussion about how to contact delinquent borrowers to negotiate loan workouts, and fewer attended a discussion about foreclosure mediation. But it was standing room only at the discussion whose panelists included the heads of Fannie Mae, Freddie Mac and Ginnie Mae. The panel titled "Legislative and Regulatory Outlook" was full, too.

One of the panelists at "Legislative and Regulatory Outlook" was David Hay, a group vice president and associate general counsel for SunTrust Mortgage. He showed a humorous Powerpoint slide of what a mortgage note might look like in the future, after the government finishes its meddling. I didn't catch the exact wording, but the faux loan note said something like, "I promise to repay my home loan unless I have financial trouble, and then I have the right to have the principal reduced."

"Will it come down to this?" Hay deadpanned. "It might. I don't know." The bankers in the audience chortled. "That certainly would make life a lot easier for consumers," Hay added.

SunTrust, the parent company of Hay's employer, received $4.9 billion in TARP bailout money. That's $35.50 from each taxpayer. The company repaid its bailout early so its executives wouldn't have limits on their compensation. So my wife and I got our $71 back, but I'd like a little humility in return.

Bankers feel anxious not only about the extent of regulation, but about the pace of regulatory change. This year they've implemented a government-mandated change in the good faith estimate that consumers receive within three days of applying for a mortgage. Next spring, that document probably will change again. Bankers complain that these frequent changes are costly.

I see the merit in that complaint. But mortgage bankers gripe about something else. They say they worry about running afoul of the rules.  But what they're really saying is that they want to tread as close to the line as possible, without violating regulations. After all they've put us through, you would think they would no longer be so arrogant.

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10 Comments
OneMacIndyWest
November 18, 2010 at 11:13 am

I want to tell you all a little story. The story begins, as all American dreams do, with unfettered hope and belief, but has, over time, become a nightmare from the darkest recesses of our national psyche. This is not a fairy tale, and I beg you to see yourself in our heroine; for you could find yourself in her shoes very soon. And I promise you that that is not a place you want to be. But read on, and judge the veracity of my words for yourself.

I have been in the mortgage industry for almost a decade, and have seen my share of the ugly side of lending: the foreclosures, the forgotten families, and the greedy, heartless, faceless “holder of the note” gone wild. I have experienced all of this more times than I care to admit, and have been ashamed of my industry more times than I care to count, but the borrower I wish to tell you of was the reason I broke into this business in the first place. People like her, hard-working, honest Americans, are the ones a broker like myself looks for day and night, and strives to take care of in whatever capacity we are capable of.

Why you ask? What makes her so special? There are many answers to these questions, and the easy answer would be that she perfectly fit the mold we in the business look for. She had been employed for 22 years with the same corporation, and had managed to pay every liability on time for her entire adult life. No late payments, no missed payments, and nothing at all to indicate that she would ever change. Her credit score was 780, and she had owned a home for 10 years in Miami Beach (an expensive place to buy). This showed unequivocally that she understood liability, and knew how to get things done in the lending market. In short, she was a lender’s dream come true. A loan you approve and forget about because the payments are always in on time, and so, as a lender, you just count money for 30 years. What could be better from our point of view than that? Every lender in the world will tell you the answer to that question is nothing; absolutely nothing.

This lady decided to move to Chicago to be closer to her corporate office, so she sold her home in Miami and took her dreams and possessions north to Chicago. This took place in 2006 while the housing bubble was still growing larger, and no one outside of the industry had any expectation that it may burst at any time. She did her due diligence while looking for a home in the Chicago area, and eventually settled on a brand new property in an area ripe for gentrification. Basically, she bought in an older neighborhood that was undergoing massive urban renewal projects that were projected to raise property values in her area significantly; as long as there was no unforeseen disaster looming. That is the danger of things unforeseen. They eventually come to pass, and no one is prepared to combat them.

She started with an Interest-Only Loan as at that time it made more sense to use her principal money on personal investments rather than giving it to a lender to make decisions with. Even though interest rates were high at the time, IO rates slightly higher than fixed, she was able to get the property for almost $75K less than it initially appraised for, so she was already ahead of the game. She maintained her perfect history, 0x30 on her mortgage, and everything else for that matter, but that was before the wise and powerful bankers in America decided to play 3-Card Monty with America’s future.

As the signs of the encroaching financial apocalypse began to show themselves, she attempted, through her lender, to pursue refinancing, but was told her case called for the loan modification process. The press was making a fuss about how these modifications were the way for borrowers to get the help they needed to stay afloat in the carnage that followed the bubble bursting, and as an intelligent and savvy borrower with a perfect history she expected the process to go smoothly for her. In that assumption, she would have been right if not for the new credit card laws passed that allowed the companies to raise their interest rates and reduce the line of credit available on any given card. These changes have had an enormous, unintended consequence in the lending world since loans are in large part based on debt-to-income (DTI) ratios.

Imagine this borrower has a credit line of $10K on a card with only a $2K balance, but is then targeted by the credit card company for a reduced credit line of say $2500, so her 20% balance has now become 80% without her actually doing anything irresponsible. Yet, when lenders looked at her DTI they would see that she is nearly maxed out on her card, and in this industry that is a major red flag. She understood DTI, and how it could affect her ability to qualify for extra money (even though she did nothing untoward or rash in terms of spending), but why should that hamper her from getting a reduced rate? It is asinine to ask a person to re-qualify for something they already have, or to tell them they must qualify to save money, but this is what is happening in America today. She signed no agreement stating she could not refinance in the future with the help of her lender, so all she is left with are questions. Questions that for her and the millions like her, unfortunately, have no good answers. The American Dream, for this model American, is quickly becoming the American Nightmare.

There are so many questions our borrower wants to ask, but there are no phone lines to call or government offices to visit with any answer other than, “talk to the lender”. This is just endless runaround from the lender, and more and more frustration for her and her family. How is it possible to be locked into a loan, with bankruptcy laws so much tougher, and have absolutely no way to refinance? More transparency in the industry is great, but how can our borrowers appease the credit companies interest hikes while losing equity in their property due to the housing catastrophe and still meet the necessary financial obligations they agreed to prior to this meltdown? This is a recipe for mass bankruptcy and foreclosure; two things that hurt us all in the long run.

It was March of 2009 when our borrower started the conversation about refinancing with her current mortgage company, Indy Mac, from the 7.625% IO-Loan to a 4.5% fixed rate. They explained to her that she would need to print out a new financial packet, and send it, along with all other pertinent information, in to be reviewed before they could proceed; she did just that. After an entire month had passed, she called in to check the status of her application, and was told that the servicing company, Indy Mac, was changing hands, but she would still be taken care of by the new investor, One West.

Just like that, she and thousands of other customers were being sold to the highest bidder, and after some research she discovered that One West actually only paid up to far less than full value for these notes. It gets better. One West actually had the federal government guarantee them anything lost over a certain percentage. What does this mean you ask? All the numbers are there in black and white on the internet for anyone to see; but no one looks. You do not have to be a rocket scientist to see that it would be more profitable to foreclose quickly and collect the guaranteed funds than to refinance the borrower’s note at a current market rate.

The changing of the servicer of her note, as unsettling as it was, would have been fine if not for the dramatic change in guidelines and customer service she experienced. This often happens after a change of this magnitude in any business field, but these differences were downright ridiculous. She was informed that the financial packet she had sent was no longer valid, so she would have to assemble another one before any process could begin. So, once again she followed procedure in hopes of capturing that elusive lower interest rate.

She waited and waited for a call to inform her of the status of her newest application, and finally tried calling herself to enquire; but to no avail. Her calls were treated as a joke. They repetitiously asked for the same documents, and even claimed after three business days that they had never received her fax, and that it took all that time to verify whether or not they had received her documentation. They have done this over 50 times from March of 2009 to the present day! That is preposterous, shameful, and ought to be criminal! But it gets better; or worse for our heroine.

After calling repeatedly for three months she finally got them to look at her application. They told our borrower that the check stubs submitted were out of date according to Fannie Mae guidelines (must be less than 90 days old), but when she remedied that they told our borrower that her check stubs were fraudulent. Check stubs from one of the three largest airlines in the world which she has worked with for more than 20 years by the way. They focused on some minutiae that they knew to be nothing, but she was forced to get a complete employment record from her employer to along with a Letter of Explanation (LOX) from her Human Resources department. This process has stretched into years with no results. She was even told that the best way to get help is to be late on her mortgage payments! Imagine that. It has become so bad that when she follows up on any fax or correspondence they claim she has never talked to anyone about her issue, and when she asked about recording the conversation she was told it was against their policy. I am not making this up. Every word is true and to the point, and the point is that One West and Indy Mac, Fannie Mae and the federal government are fleecing, and failing we the people.

This is dangerous and uncontrolled corporate behavior, and it cannot be allowed to continue. One West has become the poster child for what is wrong with this industry; what is wrong with America in fact. In my humble opinion (and that of thousands of other Americans…not to mention all the honest lenders in the industry), they have pulled out all the stops when it comes to delaying and deceiving their customers in order to get a government handout and make a dishonest buck. This must not be allowed to stand.

Help her. She has asked again and again, and researched every option. She can’t refinance due to not having value. She can’t modify because it’s not profitable to the lender to do so, and she can’t walk away as her state won’t allow this. Why I ask myself? Is it considered walking away if you have no more options? Why is it easier to profit from bad deals than good ones? There is no hope for this borrower that she can see. The only hope I can think of is a Federal Reserve for primary borrowers in America. By that, I mean the feds open the vaults to primary homeowners at a specific rate, and work directly with the borrowers from a federal standpoint. Cut the banks out. Let them focus on commercial deals and second homes where the rates are higher and people know what they are getting into from day one. I do not think these customers’ closing paperwork said anything about having to stay in one rate for thirty years. Do you know anyone on record in today’s environment that can say they stayed in their home for thirty years at the same rate? I don’t think that is even possible. Please share…

Here are some sites that clearly have people in the same situation, read, educate, follow and post, let’s start the revolt against One West/ Indy Mac and Fannie Mae.

Go to Google, You-tube or any engine for that matter and type class action Indy Mac, Type Complaints Indy Mac/ One West; you will see firsthand what we are all up against.

Fran D
November 05, 2010 at 12:15 pm

What I think these people do not understand is that America is angry (very) and that collectively people may star to believe that they can make a difference. Check out http://www.knowyourmortgagebanker.com/fightBack.html, for example - this is a site I have started working with and based on early feedback from friends/family, I think a wave of "we're tired and not going to take it anymore" is coming. Very few people ever believed banks were serious about workoing on loan mods and the gov't was wrong to give bailout money without forcing this to happen.

Gina Gonzalez
November 03, 2010 at 9:34 pm

"But mortgage bankers gripe about something else. They say they worry about running afoul of the rules. But what they're really saying is that they want to tread as close to the line as possible, without violating regulations. After all they've put us through, you would think they would no longer be so arrogant." -- Holden Lewis

Someone needs to regulate these banks! It seems that the Bank of America Home Retention Division is so inefficient, disorganized, inexperienced, etc. Someone or something needs to force them to finalize agreements instead of looking for ways or excuses to back out of these.

I can't tell you how many more modification agreements the Bank of America is going to put me through before they eventually finalize it, but I can tell you they've given me "four" of these already! The agony of it all, is they managed to disqualify the third one "without notifying" me of its disqualification. They simply told me it was transferred from home retention to another department... then later back to home retention again. Meanwhile they continued accepting the lower payments they instructed me to make -- posting them as "partial payments." I was unable to track postings as they removed the options to review statements from online banking, did not send any in the mail, ignored my requests for written receipts, and further removed my option to use their mortgagepay online. Add to it... although every single trial payment I made on the third modification was mailed out two days prior to the first of each month... their mortgage payment processing center did not post two of these payments until after the 15th day of the month! Their late postings made it appear as if I was the one defaulting during the trial period!

The result now is "modification agreement number four" with still another 3,000.00 or so added to the bank end of the mortgage bringing it to 33,000 above the current market value. Each time they decide to throw out an agreement the homeowner gets stuck with an even larger default amount then what they started with, as the bank will attach the difference between the old and "temporary" new payment, plus add back in late fees and other administrative fees they don't tell you about all along.

This has been nothing but a 17-month horror story with no end or relief in site. My story has nothing to do with the Obama administration, and everything to do with the mortgage bankers.

Tim
November 02, 2010 at 12:48 pm

Am I the only one thinking that the monied elite is waiting on the sidelines with their trillions in liquid reserve until after today, and will FINALLY begin to spend and pump the economy with hiring, just in time to give the credit to their buddies ruling the House?

reality100
November 02, 2010 at 10:03 am

For all of you bankers who blame homeowners who can no longer pay their mortgage, I have this to say:
1. We could all pay our mortgages just fine before the economic crash and very few people went into foreclosure a couple of years ago.
2. Before the crash, you could also sell your house if you realized that it was too expensive. Now you cannot.
3. This situation exists totally because THE BANKS destroyed our economy.

For the banks to foreclose is like a murderer stabbing someone and then complaining because he did not get his knife back. For the bankers to complain is similar to someone shooting you in the leg and then complaining because you can't walk fast enough.

The banks caused all of this and all of the bad things that have an will come from their greed and immoral (and often illegal) actions. Any politician who is on the side of the banks is a traitor to the American people.

This week in my neighborhood, a woman was found with a bullet through her head, a gun in her hand, and her mortgage papers laid out all over the kitchen table. She had tried repeatedly to get a mortgage modification only to be jerked around by the bank for months and was facing possible foreclosure. She had finally reached her breaking point.

Now one cannot blame the bank for someone losing their mind and committing suicide. However, after fully qualifying and going through seven attempts at modification with Bank of America, I absolutely blame them and the other banks like them for the anger, frustration, and desperation that drove this woman to kill herself. It is unlikely that she would have reached such a low point if the banks would have just simply talked to her and tried to help.

Way to go, banks! We should all be proud of you. Bank of America, you are a disgrace to our country and please drop the name. You don't deserve it.

Holden Lewis
November 02, 2010 at 8:58 am

Mona Carol,
What a terrible situation. I wish there was something I could do.

You ask, "So what did Obama do for us ?? Gave our money away. The elderly who cant even get a raise in social security. Where is our help ??? oh right in the banks bailouts. Where does this all end ?" You're asking this question on Election Day, which the Republicans are going to win overwhelmingly. I think the media, and the Republicans and Democrats, are going to take the wrong lesson from today's Republican landslide. The pundits and politicians are all going to say that the election results prove that this is a center-right country. They will be wrong.

Instead, the real message of the election will be this: Democrats are insufficiently liberal, and the voters punished them for it. Instead of protecting regular people, the Dems protected the banks that foreclose on ordinary people. But you won't hear anyone make this argument on TV tonight.

Holden Lewis
November 02, 2010 at 8:51 am

Richard,
The Obama plan is voluntary. Servicers are strongly encouraged to follow it, but they don't have to. Now proprietary modifications (like the one you were offered) outnumber Making Home Affordable mods 3 to 1.

You ask: "Does the lender consider the best interest of the homeowner in this case?" Absolutely not. The lender (or, to be more precise, the servicer) considers the best interest of the investor who receives the loan payments. If the investor is better off with a foreclosure than with a modification, then the servicer will foreclose.

As far as the supposedly new rule about minimum credit card payments, I don't know what that's about. It's not the result of a new law passed by Congress. Maybe it comes from a new guideline, handed down either by Treasury or, more likely, by someone in a corner office at the lender that services your loan.

monacarol
November 01, 2010 at 9:50 pm

GMAC, takes tax payers money. Offer nothing to real people in trouble. I have a house an they will make me homeless. I have tried to explain my situation. They don't want to hear of our hardships they got there bailout. my husband died of cancer over two years ago, was left with bills he made for me. My job hours got cut, an had surgery Feb 2010. My son who fought for our country 29 has cancer. Yes I have to make a choice pay my home, or take my son to his cemo.It costs me 50 a day for gas. So once your behind they call ya an don't care about any situation. If they did your one of the lucky ones.I was one day late in giving them a 1700 payment and would not except what I could pay. So what did Obama do for us ?? Gave our money away. The elderly who cant even get a raise in social security. Where is our help ??? oh right in the banks bailouts. Where does this all end ? Like to know ? Tell me ? TY mcy

Richard Lyon
November 01, 2010 at 8:22 pm

Yes, I read the mortgage bankers complaints section and I just wanted to tell my situation as it pertains to the comments from the bankers. I see their situation but I wanted to add what I had gone through so that others see for themselves the anguish I have been through and if help is out there for me and people going through the same thing as me.

Richard Lyon
November 01, 2010 at 8:16 pm

Back in May, 2010, my mortgage lender approved me for an interest rate modification plan, but not Obama’s reduction plan. Unfortunately, something happened so the modification was canceled. During that modification, my payment was $2284/mo with 2.5% interest.
Now today, Nov 1, I was approved for the same type of modification, again not Obama’s type, with the same lender, close to the same expenses, income, etc. as before. However, this time they calculated that I pay $500/mo more than before with an interest of 4.5%. The lender explained for one that the laws have changed and that they have to take minimum credit card payments from credit reports when summing expenses.
What is really going on?
First, they told me I was not able to get onto the Obama's home affordable modification program: That whatever the steps were to get my mortgage payment to 31% of my take-home pay, it was not possible. What about the last step of Obama’s plan if all other steps could not work, which is paying interest on part of the mortgage balance? In the end I would still pay back all of the loan.
Doesn't the lender have to consider that or are they just saying I don't qualify for the Obama plan which gives them the reason to increase the interest rate from 2.5% to 4.5% for my 2nd reduction plan?
Does the lender consider the best interest of the homeowner in this case? If not, what I can do to help myself to get what is fair as far as Obama's modification guidelines are concerned, and see for myself if I do qualify for it even if they say I do not.