Slowly, mortgage help comes
Area’s big lenders ramp up efforts to stem foreclosures
As federal agencies and the mortgage industry announced new initiatives last week to speed help for struggling borrowers, three of the area’s biggest lenders say the new efforts won’t change what they do because they’ve already been proactive.
HSBC Finance Corp., M&T Bank Corp. and Bank of America Corp.’s Countrywide Financial say they’ve been aggressively modifying loans for troubled customers for months and even years.
They’ve ramped-up the efforts recently as the economic crisis has worsened. But they say they are already taking the steps now advocated by Citigroup, Fannie Mae, Freddie Mac, an industry coalition and government regulators.
“We’ve had very, very strong modification programs in place for quite some time,” said Greg Zeeman, executive vice president and chief servicing officer for HSBC’s Consumer and Mortgage Lending group.
Or they’ve been able to handle the crisis without going the loan-modification route.
“The streamlined programs are out there to get some quick relief, help companies with a backlog, and keep people in their homes,” said Mark Mendel, group vice president of customer asset management at M&T, which modified hundreds of loans this year. “We haven’t gone to that extent because we don’t think we’ve had to.”
In the meantime, bankers continue urging customers to reach out to their lenders when they’re having problems. “They’ve got to do their part and at least pick up the phone or respond to the letters,” Mendel said. “The longer you wait, you’re just making it more difficult for us to help you.”
Local consumers like Jeanette and Joseph Castro of Lockport have already found such outreach and persistence can work.
The Castros fell behind on their $152,000 mortgage from consumer lender HFC after his salary at Delphi Corp. was cut when he entered semi-retirement. Monthly payments shot up from $1,500 to $2,000 because the lender was paying their back taxes, and a partial payment plan wasn’t working.
Seeking help, they attended a mortgage assistance program in May sponsored by State Sen. Antoine Thompson. A representative from HSBC Finance, which owns HFC, put their arrears at the end of the loan and brought them current.
“It was definitely well worth going,” said Jeanette Castro. “I was devastated before because I thought I was going to lose my home, but he helped us.”
But as James Crump knows, communication and bank promises are still not always enough. Crump was saddled with a $94,000 loan from Beneficial Finance, at 11 percent interest. The 60-year-old Buffalo single father, a veteran car salesman, owned his home but got a mortgage 7 years ago to take money out of equity and use it to open a car dealership at Starin and Kenmore avenues.
He had a high credit score at the time, but needed the money in a hurry and couldn’t wait for a regular bank loan to close at a lower rate. But when he wanted to repay the first loan in a month with the cheaper second, he was told it would cost him $16,000 in penalty interest.
Meanwhile, his plan to open the dealership fell through because of neighborhood opposition, so he lost $350,000 he had already invested in preparations.
Two years ago, he fell behind and called HSBC for help. He got a temporary adjustment down to 5.79 percent, bringing his payment down from almost $1,000 to $578, but it went back up to 11 percent after six months. When he attended the same event as the Castros, an HSBC official brought his rate down to 5.5 percent, or $567 a month — but for just 18 months.
“It should have been permanent,” he said. “I was kind of disappointed about that.”
Politicians and national consumer advocates have called for action to help borrowers, but critics say the efforts, largely voluntary and case-by-case, have been disappointing.
An industry coalition says it has helped 2.5 million homeowners since July 2007, with 200,000 a month avoiding foreclosure. But advocacy groups say most of those are just repayment plans that will ultimately fail, not real changes that will make the loans more affordable in the long run. And while the servicing industry claims to be doing the best it can, the consensus is that it’s simply overwhelmed.
New big-bank programs
Under pressure to do more, Bank of America, J. P. Morgan Chase & Co., and Citi announced new programs in recent days and weeks to streamline the process and reach more borrowers faster. Fannie, Freddie, and their regulator followed with their plan Wednesday, but it covers only loans owned or guaranteed by them.
The new initiatives involve proactively reaching out to borrowers who are not yet in default but are likely to fall behind soon, and offering them “prequalified” or “preapproved” loan modifications. That means reducing interest rates, writing off principal, or changing other terms for borrowers.
Bank of America, which unveiled its program first on Oct. 6, expects to provide up to $8.4 billion in interest rate and principal reductions for 400,000 Countrywide customers, including 13,000 in New York.
The program is designed to help borrowers with subprime loans or “pay option-adjustable rate mortgages” serviced by Countrywide and made before Dec. 31, 2007. The focus is on customers who are at least 60 days late in payments, but will also cover those not yet in default.
However, the bank has already been busy this year. Since Jan. 1, Countrywide has completed 240,000 loan workouts to avoid foreclosure, with 223,000 of them resulting in borrowers keeping their homes. Of those, 168,000 were modifications, while the rest are repayment plans, “partial claims” and other workout efforts.
“We are proud that our program has been held up as a model for others in the industry,” said Jumana Bauwens, spokeswoman for Countrywide and Bank of America. The newest efforts start Dec. 1.
Chase hopes to help another 400,000 families holding $70 billion in loans from Chase, Washington Mutual or EMC. Chase bought failed EMC parent Bear Stearns in March and WaMu in September.
And Citigroup, which says loss mitigation efforts prevented 370,000 foreclosures on $35 billion of loans since early 2007, said it will reach out to another 500,000 borrowers, giving $20 billion in relief.
It’s specifically adopting streamlined modifications modeled after the process used by the Federal Deposit Insurance Corp. with the failed Indy- Mac Bank in California. That calculates an affordable payment as a percentage of gross income and then cuts the monthly payment by reducing the interest rate, extending the loan term or writing off principal.
Finally, on Tuesday, Fannie and Freddie said they would reduce monthly payments to no more than 38 percent of a family’s monthly income for borrowers who are at least three months late. It would stretch loans to 40 years, lower rates or lower loan amounts. But that doesn’t cover many subprime loans that Fannie and Freddie don’t control.
In an unusual break with the Bush administration, the FDIC on Friday said those efforts aren’t enough. The agency called for a loss-sharing program on loans that are or may become delinquent and aren’t controlled by Fannie or Freddie. The FDIC says it would help 2.2 million loans, avoiding 1.5 million foreclosures.
Based on IndyMac, the proposal entails servicers modifying loans to get monthly payments down to 31 percent of a borrower’s monthly income, with the government agreeing to share 50 percent of the loss if the modified loan goes bad again after six payments.
Ahead of the curve?
But while they praise all of the new efforts, M&T and HSBC say they’re already ahead of competitors. “We have been firmly committed to foreclosure avoidance efforts over the years,” Zeeman said. “We’re going to continue to advance our programs to provide relief.”
For example, HSBC has had a foreclosure- avoidance program since 2003 and launched preapproved modifications in the first quarter. It also has a “re-age” program to move delinquent amounts to the back of a loan and bring the loan current.
So far this year, HSBC Finance modified 61,000 loans worth $8.6 billion. As of Sept. 30, HSBC had modified or “re-aged” $26.953 billion in loans, or 36.15 percent of its total portfolio. That’s up from $24.205 billion, or 30.82 percent, in June and $17.623 billion, or 20.28 percent, a year ago.
“We’ve been able to help thousands of borrowers with modifications in a timely fashion,” HSBC’s Zeeman said. “That’s the right thing to do for our borrower as well as for our business.”
M&T loosened its modification criteria, taking financial information verbally over the phone instead of requiring it in writing. It also streamlined other procedures, in what Mendel calls a “hybrid of what we’ve done in the past.”
The bank also boosted loss mitigation staff to be ready for higher volume, although it doesn’t have as big a portfolio of problem loans as many other lenders. And it has a group of field agents who will try to reach consumers by phone, letter, and in person, not to collect money but to make contact.
Finally, when M&T doesn’t own the loan, bank officers reach out to investors to seek exceptions on modifications that don’t fit typical guidelines. And they’re finding investors are more willing than in the past to grant them.
“We don’t do business the same way we used to. And the investors realized that, too,” Mendel said. “The landscape has just changed and we all need to do business differently to get through this.”
