Work it out - Arlene Williams meets with an ESOP counselor.
Arlene Williams narrowly avoided foreclosure, but is back in the hole. All she wants is a lower monthly payment on her home mortgage, one she can afford, so she has money left over to care for the five children she's been raising since her sister passed away.
Most of the time, the 53-year-old Williams manages to keep her composure when in public. Only occasionally does her voice seem on the verge of cracking, like when she's on the phone with Countrywide, the home loan company that holds Williams' future in its hands. One afternoon last week, Williams made her way to the East Side Organizing Project, a free housing counseling agency, still in her janitor's uniform, for yet another conference call with Countrywide.
"It's like nobody is listening," Williams tells the representative she's never met. With the help of ESOP, Williams has, since July, been trying to negotiate new terms for a first and second mortgage, both subprime and with high interest rates ready to jump even higher. She can't keep up with the payments.
The man on the line keeps repeating that Countrywide wants to help.
"We want to help find any way to keep you in the property," he says, "and keep it affordable for you." But he and Williams just seem to talk past each other.
For months now, since the subprime mortgage mess has escalated to epic proportions, a common refrain has emerged: Call your lender. Don't let the legal notices pile up. Get help, avoid foreclosure. Consult housing counselors. Refinances, waived fees, fixed interest rates and other monetary balance reductions are there for the taking.
The reality, however, has been quite different. People have flocked to national hotlines, nonprofit agencies, government-sponsored home preservation clinics and the lenders themselves for help. But only a few companies are working quickly or sincerely toward this end. The rest make it difficult to actually change loan terms. Borrowers, meanwhile, are left in a lurch by lenders' foot-dragging or their misinformation about how much control or authority there is to in fact rewrite terms.
Arlene Williams entered into home loans with Countrywide late last year after, she recalls with wonder, a mortgage broker followed her to work. Williams' sister had died of cancer, leaving behind five children with nowhere to go; their respective fathers had abandoned them. So Williams needed a new home for her suddenly large family.
Countrywide signed off on a first mortgage. A second mortgage covered a nearly $40,000 down payment.
Williams took on this debt because she'd assumed that as a janitor raising five kids, she'd qualify for some form of public assistance. She was wrong. By March, Williams was on the county's pending foreclosure list, her mailbox flooded with "home rescue" solicitations. Williams called one to help her obtain lower monthly payments with Countrywide.
The service asked for a $1,200 fee. Williams agreed, thinking that the service would arrange a consolidation of her loans, lower monthly payments and the waiver of some fees. Later, however, she learned that no fees were waived, and that her past-due payments were simply rolled into future monthly payments on the first mortgage. The interest rate remained unfixed, and the second mortgage was left as it had been. Williams was right back where she'd started, and $1,200 poorer.
That's how she found herself at ESOP's doorstep in July.
ESOP is among a handful of Cleveland-area housing counseling agencies, but the only one whose board members can boast an 85 percent success rate in getting loan workouts (Countrywide excluded), all because of a unique system of signed agreements between ESOP and lenders and loan servicers.
The agreements, explains ESOP Executive Director Mark Seifert, ensure the consumers' interests. Without agreements, lenders and servicers have no obligation to do their best, especially with those borrowers negotiating without a housing counselor.
"The formality is a huge help," says Mark Wiseman of Cuyahoga County's Foreclosure Prevention Task Force, who oversees workout applications from most countywide housing counselors. "The battle is getting lenders to agree to concessions they'll give people with their loans."
For ESOP, known for its grassroots organizing and direct-action protests, almost all of its half-dozen agreements were hard won. Each requires a commitment to best practices, like accounting for a borrower's ability to pay back the loan and a cap on broker fees, and loan servicing terms.
The trickiest part, Seifert says, has been figuring out which entity controlled, or serviced, the loan at the time the borrower wanted to renegotiate - usually months if not years after the closing papers were signed.
When three clients, each with a different lender, complained that they all had the same unresponsive customer service phone number, it was the first sign to ESOP that renegotiating a loan went beyond the institution that originated it.
The key was a segment of the mortgage enterprise known as "servicers." Once a lender gives a loan, it then resells that loan to an investment bank. These banks throw the loan into a larger pool of mortgages, which in turn are auctioned off to individuals or groups of investors in the securities and trade markets. But these investors don't deal with borrowers directly; they hire loan servicers to collect monthly checks and then disburse the cash to investors, all dictated by strict contracts with investors called loan pool servicing agreements (PSAs).
As ESOP began trying to get clients' loan terms rewritten, the various entities involved - credit rating agencies, investment banks, servicers - all claimed their hands were tied by one or more of the others.
But in truth, PSAs offer a wide range of flexibility to servicers, Seifert learned. And as these PSAs have been renewed over the last 18 months, in the midst of the rising defaults and foreclosures, servicers have gained extensive authority to work out new terms - waiving interest payments or principal balance fees, and stopping foreclosures.
This knowledge, along with the formal agreements ESOP has with specific lenders and servicers, has helped immensely in winning new loan terms for clients, Seifert says.
But some companies, like Countrywide, have refused to enter into an agreement, preferring a "relationship" with ESOP and other area agencies. Jerry Durham, vice president for home preservation at Countrywide, would not tell Free Times why there is no agreement with ESOP and referred the question to a media relations person who did not return calls seeking comment.
"Most workouts are proceeding well, except for those with Countrywide," Seifert says. "If we had a point person [there], and an agreement to work with us, things would move much faster."
An example: For every 100 cases with a servicing company called Litton, ESOP reaches about 85 successful workouts within a matter of days. Out of 130 Countrywide claims, on the other hand, 15 have been worked out, and only two have met ESOP's standards.
After some direct action by ESOP, infuriated executives agreed to a daily conference call. "The one-hour calls are a waste of time, so it's not a victory," Seifert says.
"You try raising five children," Arlene Williams says in her conference call with a Countrywide rep, her voice on the point of a quiver. "They have no one. I mean, I had to do it. The fathers, we won't even discuss that."
But the only solution on the table, for now, requires Williams to abide by her first modification terms (which cost her $1,200) for another six months, before Countrywide will consider a second modification. (A county program that provides struggling borrowers up to $3,000 rejected this workout offer, on grounds that it was an unsustainable adjustable rate mortgage, sure to put Williams in default.)
Fixed rates and reductions in fees or principle balances are "not typical" of Countrywide's loan modifications, Durham says. "Most of the time," he says, "we're looking at making payments more affordable." When asked about Williams' situation, and perhaps waiving interest rates or fees, Durham says, "We'd have to look at it. We would look to see what other options are available. We don't want to establish expectations that are unrealistic."
Countrywide was the nation's number-one home mortgage lender last year, with CEO Angelo Mozilo taking home more than $120 million in compensation and stock gains. Last week, as the US Senate approved $100 million in funding for non-profits like ESOP, Sen. Chuck Schumer (D-NY) asked Mozilo to commit another $250 million to the cause.
In Cleveland two weeks ago, at a government-sponsored event for lenders, servicers and housing counselors to interact with borrowers, Countrywide had volunteered the soft-spoken, seemingly nervous Durham to speak. In between platitudes like "nothing is worse than doing nothing," Durham put the burden of workouts squarely on the shoulders of housing counseling agencies. He repeatedly urged borrowers to call counselors - the crucial "third leg," he said, in sealing workouts and preventing foreclosures.
ESOP alone is evidence of the need for more housing counselors. From less than 10 families a week, ESOP now processes close to 100 during its four weekly intake sessions. Yet, when contacted by Free Times last week about Schumer's request for Countrywide to help out financially, Durham declined to comment.
One possible explanation for the reticence is that Countrywide doesn't want to move cases along too fast. Mark Wiseman, head of the county's Foreclosure Task Force, says that to rewrite loan terms, Countrywide must first buy back the loans from investors. But if they buy too many, they invite bankruptcy; too few, and they risk defaults and the wrath of investors. That's why the answer is often, "we're still looking into it," Wiseman says.
In addition, says ESOP's Seifert, Countrywide may fear the consequences of mass loan rewrites on the numerous pending investor lawsuits against it, lawsuits that allege Countrywide lied about the value of these mortgage bonds. "If they do the level of workouts they should be doing with the number of bad loans they did, at least in Cleveland," Seifert says, "they would be proving the shareholders' case that those loans were all garbage."
The end result is a logjam. For this, Countrywide's Durham does have an explanation. "When our borrowers call, we try to get agreements as quickly as we can," he says. Delays in the process are usually caused by borrowers not having their information together, or investors requiring Countrywide to follow strict rules on workouts. Durham adds that "our goal is to keep the borrower in the home."
Arlene Williams would like to believe that.
On the phone with the Countrywide rep, she pleads her case again. "I'm just wondering if there's somebody humanly that understands, can help me get some type of, maybe even a fixed rate," she says. "I just wish somebody would understand that I'm not trying to run from the mortgage, just help me get a fixed rate."
For free advice and connections to nonprofit housing counselors, call the Cuyahoga County's Foreclosure Prevention Task Force, 211 or 216.436.2000, or visit dontborrowtroublecc.org .email@example.com