Altering mortgages tricky
Servicers' mistakes, neglect put homeowners in tight spot
By Jeremy Herron and Stephen Bernard
NEW YORK – A cancer diagnosis forced Lindsey Jennings to give up his government job. With less income, Jennings feared he might lose the home he and his wife Pearl built near Atlanta almost 20 years ago. So he asked for help.
But Jennings, who needed to lower his monthly mortgage payment, was rejected for a loan modification. The snub didn’t come from the mortgage lender, but from a less likely source – the company that collects and processes the payments, the loan servicer.
All mortgage and student-loan payees know their servicer – it’s the company that collects their monthly payments. The companies are an integral part of the complex mortgage sector with a relatively simple role, like a corporate payroll department.
But as the housing crash ravages the mortgage sector, millions of servicing contracts are changing hands as parent companies go bankrupt or pare back their lending activities. Amid the turmoil, even homeowners who pay their mortgages on time face the real possibility of falling behind on insurance or property tax payments because of clerical errors at the servicer.
And homeowners like the Jenningses, who try in good faith to salvage a troubled mortgage, are finding many servicers – the only point of contact for payees – unwilling, and in most cases not even able, to renegotiate terms.
“Sometimes we believe folks in the industry just aren’t listening,” said David Berenbaum, executive vice president of National Community Reinvestment Coalition, an advocacy group that helps borrowers refinance or modify their mortgages.
The Jenningses contacted NCRC after their servicer, Orange, Calif.-based AMC Mortgage Services, rejected attempts to work out an arrangement, even after they filed for a hardship exemption.
Like many homeowners, the couple refinanced their home three years ago – with AMC’s former sister company Ameriquest Mortgage Co. – to lower their monthly payments, but got caught short when their adjustable rate rose and Lindsey took ill. For a year they pestered AMC for a break, but eventually missed several monthly payments, Pearl said.
At that point, AMC made an offer, but the servicer stipulated that any renegotiation include an upfront payment of at least $3,000.
“We were already in trouble with our payments, how could we afford that?” she said.
One problem is that servicing operations are not designed to cater to customers, said Guy Cecala, publisher of Inside Mortgage Finance.
“They are like a factory,” he said.
A recent survey by Moody’s Investors Service showed only 1 percent of loans to people with poor credit records that reset in the first three months of the year were modified. With 2 million of those subprime loans scheduled to reset in the next year, requests for modifications are certain to increase.
Some of the largest servicers are adapting, but Moody’s said the changes are too slow to prevent a spike in defaults. And the NCRC’s Berenbaum said most modifications – like the one offered the Jenningses – are impractical and do not take into account the needs of individual customers.
Chase Home Finance, a unit of JPMorgan Chase & Co. and the third-largest servicer with contracts for $722.8 billion worth of loans, said it has bolstered its staff that deals directly with customers in recent months. It is also warning homeowners a few months ahead of when rates are scheduled to change.
Chase has some flexibility to modify loans on its own, but does have to run some requests by the mortgages’ owners, spokesman Thomas Kelly said.
As of Sept. 1, the Jenningses’ servicer is Citi Residential Lending, a unit of Citigroup that acquired AMC from ACC Capital Holdings. The company would not comment on the Jennings case, citing confidentiality agreements.
In an e-mail, a spokeswoman said Citi works with customers to “understand their circumstances and to explore possible solutions that make sense for all parties.”
The other party, of course, is the loan owner – the investor pocketing interest on the mortgage who hired the servicer to collect payments.
“The servicer is obligated to guide their actions by what’s in the best interest of the owner,” said Larry Platt, a lawyer with K&L Gates specializing in mortgage financing and consumer credit issues.
In most cases, the investor wants to avoid foreclosure – especially when that means taking possession of a property that is losing value. But if a workout merely forestalls the inevitable, that ultimately makes the foreclosure more costly.
Whether a servicer offers a modification that can help the borrower is “a clinical, unemotional cost calculus – there’s not a social factor that is included in the analysis,” Platt said.
Altering mortgages tricky | The Journal Gazette