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Paper Avalanche, Lack Of Trained Staff And Inefficiency Add Obstacles To Loan Modification Program

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June 29^th, 2009

 

Karina Montenegro, an intern for a loan modification servicing company dials Washington Mutual to verify the status of an application for a borrower whose income has fallen. A customer service representative reprimands her as she landed on the wrong department. She later learns that the documents her company sent had vanished. This constitutes the third time since November 2008.

 

A representative of Washington Mutual named Chris disclosed that he is not sure what happened. He said that there may have been a glitch or it could have been transferred from one call center to another. He later said that the documents could be sitting on a pile inside the bank and that the pile was not going to be moved forward at any point in time. Ms. Montenegro and her colleagues experience this sort of unpleasant exchanges all day long. It is obvious indication of the difficulties afflicted by the $75 billion tax-payer funded program initiated by the Obama administration in an effort to stem foreclosures for as many as four million struggling homeowners.

 

Under the plan, the government offers as much as $1000 to mortgage companies as incentive to help modify a loan including another $1000 a year for up to 3 years. If this program fails, foreclosures will surge causing home prices to decline further thus translating into more new losses in the financial industry. This eventually will result in a more tightening credit threat to businesses and households.

 

There has been mixed reviews as to how the loan modification program has been performing since its announcement 4 months ago. Since the official announcement, millions of new homeowners have slipped into delinquency and foreclosure. According to Michael S. Barr, the assistant Treasury secretary for financial institutions, current progress is constrained to the limited capacities of mortgage service companies. He disclosed signs that the administration is impatient with the institutions that control home loans.

 

There has been a lack of basic and operational management on behalf of the firms. He is pushing the servicers to improve their infrastructure and ensure that the call centers become more efficient. He said that the level of training is not there yet.

 

The administration still does not know how many mortgages have been modified under the program. In a recent interview, Mr. Barr revealed the number to be over 50,000 and explained that the exact figures must wait for a soon-to-be-completed tracking system. He further concluded that the program should produce 20,000 loan modifications per week by the end of August 2009.

 

A representative named Tom Kelly from JPMorgan Chase which now owns Washington Mutual confirmed the administration’s frustration. He mentioned that the bank has added 950 loan counselors early this year bringing the total to 3,500.

 

In Los Angeles, an anonymous loan modification company allowed a reporter to witness and listen to agents when contacting mortgage servicers. This loan modification company charges $3000 upfront in efforts to persuade lenders to rewrite or modify loans for their clients with the end-goal of lowering their payments. The company will refund the $3000 if it fails to succeed in modifying loans for its customers.

 

Ms. Montenegro is a current student at the University of Southern California. In high-school, she worked as a clerk at Washington Mutual in a branch located in Downey, California. The mortgage department she worked under invited customers to make small tiny payments which resulted in increasing balances.

 

Many homeowners did not fully understand the terms. The unforeseen danger is that once they owe more than the house is worth, their payments will skyrocket. With home prices plummeting, that day has come. She now works on the either side of the fence calling her Washington Mutual in hopes to cut deals for her clients.

 

One of her clients, Vladimir Vishmid owes $490,000 on the mortgage of a 3-bedroom house in Sherman Oaks, Los Angeles. Vladimir’s income as a self-employed computer engineer has fallen and is struggling to sustain his monthly payments of $2,542. He is current on his loan but is behind his car insurance and utilities.

 

Mr. Montenegro’s computer software logs the details of 3 applications submitted on behalf of Mr. Vishmid to Washington Mutual. A representative from Washington Mutual named Chris told her to send in application No.4. Chris advised Ms. Montenegro to resubmit a new file because anything over 30 days will be a new submission for them.

 

Two weeks earlier, Ms. Montenegro had called to check the status of the file and was told that it was being reviewed. Now it has disappeared for the third time. The frustrated Ms. Montenegro stated that if she hadn’t called, they would have not known. Chris from WAMU said that he wished he had a better explanation.

 

Moving on to another case within the same office of Ms. Montenegro, her colleague Sean Milotta was handling a loan billed by American Home Mortgage Servicing. Although the borrower qualifies for the Obama administration plan, the company refuses to accept the application because the loan is owned by an investor who refuses to take a loss. Prior to the fall of the financial system in the United States and worldwide, some mortgage loans including many subprime loans were repackaged into mortgage-backed-securities and sold to investors world-wide. These investors bought them in hopes to earn favorable returns on the appreciating housing market. If the investor is unwilling to take a loss through a reduction of the principle amount of the loan, the lender will not be able to modify the terms of the loan.

 

In another office, Ramin Lavi picked up the file of Alice Descovich who is seeking to modify a $708,000 mortgage by Washington Mutual (Wamu) for her Alameda, California home. As interest-rates on her loan resets in the coming months it will be difficult for her to sustain her monthly payments which is currently at $4,400 a month.

 

A note in the computer system confirms that the bank confirmed receipt of all documents on April 29^th which included tax returns, pay stubs, letter disclosing her hardship and bank statements. They have been waiting for WAMU to review the file. When Mr. Lavi contacted the lending department of WAMU and a representative rejected the application because of one document. Proof-of-insurance form was reportedly missing and they advised Mr. Lavi that he must start over.

 

The frustrated Mr. Lavi responded and said that the documents were submitted properly. He then lashed out saying that he was not prepared to stand in line again for another 6 months. Mr. Lavi later demanded to speak to a supervisor. The WAMU representative said that no supervisors were available at the time. Mr. Lavi then hung up and pressed redial on his phone hoping to land on a more helpful call center or representative. The call was directed to Chase executive offices, a company which acquired Washington Mutual during the banking fallout.

 

A representative named Becky answered the call and said that they were not currently accepting any cases. Mr. Lavi responded by asking why the call was transferred to her. She responded by saying she had no idea. Mr. Lavi took the opportunity to try and persuade her to keep the file open while he faxes in the missing document. “Impossible” she says. “A sheer amount of papers coming in” she warned.

 

 

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