Part II of the Starbling Loan Modification Process – A Personal Look Into the Country’s Loan Modification Crisis
I really don’t want to be dramatic about a subject that is so serious. But my sense is that in today’s day and age, without drama, there is no real news coverage. While every network in America covered Michael Jackson’s funeral, they should be screaming from the hill tops about the crisis in loan modifications, because soon, this will crisis will reach epidemic proportions. And while I think Jackson’s music will always live on, many Americans’ dreams of homeownership are dying every day.
I have chronicled the story, thus far, of the Starbling family from Florida who bought a home in 2006 only to have its value drop by over 35%. To recap, Mrs. Starbling gave birth to their first baby this last spring, but with benefits running out last month, they have been unable to make the payments on the house. Since they put virtually no money down when they bought it, a traditional sale of the property is not an option. They have contemplated just giving the keys back to the bank, but opted to first see if they could get their loan modified, since they would like to stay in the house.
I entered the scene in May at the request of a high school friend and family member of the Starblings. I contacted a mutual friend, Larry Anderson of Pels Anderson LLC, whose firm specializes in helping clients obtain loan modifications. One of the lawyers at Pels Anderson, Jennifer Schiffer, was assigned the case and I have been chronicling the process over the past two months.
On May 12th, 2009, in my first piece, It’s the Monthly Payment Stupid, Part II, I introduced the Starbling family and detailed their situation. My goal was a three part series, where the second part would update at a point where the loan modification process enters the actual negotiation process with the bank (in the Starbling case it is Countrywide/Bank of America). I assumed that with an experienced attorney, we would be at this point within 60 days. It’s July 16th and so far, the Starbling case has yet to even have been assigned a negotiator. In fact, as of the last call with the bank on July 14th, the Starbling case had not even reached the stage where they had made a decision that they would even consider negotiating. And all the while Countrywide/BOA messed around, the Mrs. Starblings benefits have run out, and as expected, they have gone into delinquency as of July 1st.
Hope Turns To Despair
Despite having a top notch legal professional like Jennifer Shiffer at Pels Anderson at their side, there has been little or no progress after almost two months and the Starblings hope to resolve the situation in an amicable manner has grown to despair. On July 6th, after receiving yet another update from Jennifer that she was still trying to get through the administrative morass at Countrywide, Jeff wrote back:
Jennifer and Marty,
Thanks so much for the update.
My wife and I had a serious discussion this weekend about the house. We really want to know if a short sale is still an option. We have been really turned off by the entire home ownership experience. So far it has been a nightmare. Thousands of dollars spent with nothing to show for it. This was supposed to be an investment in our future. We should not have purchased the home with these terms, but this was our first home buying experience and we did not know any better.
If we still have an opportunity to get out of the house, we would probably be willing to do it. We can rent for a couple of years and save up enough money for a down payment on our next home. On the other side, if we are successful in getting the loan modified now, what happens if we want to sell in 5 years and are still upside down? Perhaps we should just get out now instead of wasting time here.
These are the questions that we are currently asking ourselves. It is a horrible feeling being trapped by thin house and not knowing what the best course of action is. Thanks for listening and I look forward to hearing back from you. Please let me know your thoughts on this.
My response was:
I’m sorry that you and your wife are in this situation. It’s not what the American dream was supposed to be like. But we are all in a “perfect storm” situation, one that is much bigger than you or me. Please don’t give up hope. Let’s just see how the loan modification process works out. We spoke to the bank today and they told us that we would know something in the next few weeks, which means the end of the month. If we can modify your mortgage to a point where you have a real chance to build back equity and afford the payments, you will be in a much better place. Remember, you can’t deduct rent from taxes and your credit score will be better. If at some point it makes sense to look at other options, then we should do it. My advice is hang in there.
While my heart goes out to the thousands of American family’s like the Starblings who are having to slog through the loan modification process, I also have some sympathy for the thousands of loan modification “specialists” who have to handle what is simply put, a complete and utter overwhelmed system. This has become apparent as I have tracked all the calls and correspondence related to the Starbling case. Here is a timeline since my first story on May 12th:
- May 13th — Initial call from Pels Anderson to Countrywide/BOA. [Important to note that prior to this call Jennifer had submitted a signed affidavit from the Starblings appointing Pels Anderson as their “third party negotiator.” If you hire an attorney/advisor and they don’t know to do this first, get someone else.] After more than 15 minutes of being transferred, disconnected and peppered with security verification questions (that she had to repeat three times to three different people,) Jennifer finally reached someone in “loan servicing.” The loan servicing agent was rude and at first said they couldn’t talk to third parties. Then said the loan didn’t qualify because it was a government product (i.e. Fannie Mae.) Then after being corrected on both of the answers by Jennifer, the loan agent said “the loan doesn’t qualify” for modification because the Starblings can afford it based on their “perfect payment history,”i.e. they are current. Jennifer explained that while the loan was current, it would be going into default shortly due to the impending loss of benefits by Mrs. Starbling and that they wanted negotiate before it went into default. “Nothing we can do,” was the response. Jennifer shot back, “then are you suggesting we go into default now,” at which point the agent’s tune changed and said, “you can submit the paperwork if you want.”
- June 3rd –The paper work, mentioned above, which included income and expense statements, bank statements, pay slips, and a hardship letter (see attached letter) was sent. It was emailed to the bank on June 3rd [but as Jennifer pointed out, the email they provide for submissions of the information doesn’t work most of the time so she goes ahead and mails a hard copy in as well.]
- June 26th — Jennifer follows-up with another call. Again, after 11 minutes of transferring, verifying and explaining, Jennifer gets to “loan servicing.” This time a nice man by the name of Grady explains that all the documents where uploaded into the system on June 17th and that the negotiator would be assigned within 2 weeks of being uploaded, so he suggested that we call back the following week. He actually gives a direct line to the call center handling loan modifications. Jennifer considers this a success.
- July 1 — Jennifer calls in again (2 weeks from the upload date) and despite having the direct number to the loan modification department, she is spending 10 minutes of tedious automated message direction, followed by security verification, then transferring, followed by more verification, only to get a man by the name of Marty. Marty has a completely different story on what is going on with the loan modification request. He is a know-it-all who must be late for a lunch date, since he offers little or no help, and gives the “try again at a later date” brush off. Jennifer, having been down this road before, wants answers. She pushes to find out where the loan request stands and says that she had spoken to a Grady last week and he said 2 weeks from upload, the Starblings loan request would have been assigned a negotiator. Marty says that whoever told her that is wrong. That there is no 2 week deadline, in fact it could take 45 days from the initial review and it’s not certain that the initial review has even gotten started. Marty had another, new term for where we stood in the process, he called it “active processing.” Apparently in active processing, the loan was only checked to see if it was eligible, not even assigned a negotiator. Furthermore, Marty stated that if we wanted an update on the request, Jennifer should go online. She asked how she could access the online process and Marty said that login and passwords would be sent to the Starblings, but that it was uncertain if that would even be done. Marty gets the imbecile award when he replies “the computer’s gonna do, what the computer’s gonna do!” Exasperated, Jennifer asked for his supervisor. It had been almost 20 minutes on the phone so far. After a few more minutes of holding, Danielle answered. She had a calming voice and appeared to be helpful. Jennifer explained that we had gotten two different stories in the past week and we were trying to get a correct answer as to the loan modification status of the Starbling account. Danielle explained that the reason for the two stories was because on July 1st, the process had changed and that now they were telling applicants that the new review time would be 30 to 120 days from time of receipt of documents, but assured Jennifer that they are reviewing the account. When Jennifer asked who the collective “they” was, Danielle said, “I can’t say that.” After the call, Jennifer told me that this type of frustration is mild compared to what she witnesses daily with other banks. She told me that in one case at another bank, the representative was so rude, that she actually filed a complaint at the Better Business Bureau. She told me “they don’t care and the BBB won’t be able to do anything, but it made me feel better.” More determined, Jennifer suggested a call back the next week. The more calls the better apparently.
- July 6 – Now only 6 days after the last call, Jennifer calls in again. If you haven’t picked up on it yet, the telephone-verification-transfer dance usually takes about 10 minutes. The bank doesn’t disappoint again. This time she gets Tom. Tom seems on his game. He is quick and efficient. He located the account, but unfortunately gives the all too familiar answer “it’s still under review.” Jennifer asks how it is possible that there is still no negotiator assigned and explains that the Starblings have now gone into default (as originally was disclosed to the bank would happen in July.) Tom agrees that it has been too long and says he is now “escalating it.” He assures Jennifer that it hasn’t fallen through the cracks and that “by the end of the week (July 10th) there should be a negotiator assigned.” “You’re sure,” asks Jennifer. “Absolutely,” replies Tom.
- July 14 – This time, the rubber met the road, i.e., we actually got some answers. But before I get into that, one of the great ironies occurred when we first called Countrywide/BOA and got a call center in India (one would think that we would have enough laid-off mortgage departments in the US that we could staff this function domestically.) In all fairness to Jennifer, she was very pleasant and articulate, but John and Mark (John’s supervisor) from India (with American names) could barely be understood and were like parrots repeating the same “it’s still under review” mantra. After 20 minutes of holding, transferring and questioning, Mark gave Jennifer another 800 number to call, saying “they could better help.” So we called this new 800 number. Unbelievably, within seconds, we actually got a human, a very nice lady by the name of Peggy. Peggy works at the “Advocacy Department.” Peggy immediately got us some answers. Unfortunately, they were not positive. According to Peggy, the records the bank had on the Starblings showed that their monthly income and expense statements did not allow them to qualify for a loan modification. In other words, Peggy said even if they wiped out the first mortgage completely, the Starblings didn’t have enough monthly income to even live on and pay their bills. Jennifer asked what information they were looking at and Peggy responded by going down all the line items that she saw in the system.
The problem with the numbers that Peggy was looking at was three fold: 1) the expense statement they were using had April’s expenses and were outdated (Jennifer had submitted them in May), and many of the those costs had been reduced as the Starblings had tightened their belts; 2) the income statement did not include Mrs. Starbling obtaining another job (she is a nurse, and there is a high degree of likelihood that she will find employment) and 3) the bank only looks at replacing the loan with another 30 year loan, which costs significantly more.
Jennifer pointed out to Peggy that if you take into the account the above revisions, the loan modification would be very much justified. Peggy said Jennifer would have to resubmit a new proposal and they would send it off to the “investor” for review.
According to Jennifer, you have to be very careful what projections to provide the bank. If your personal financial projections are too rosey, the bank may say, “why should we modify anything, you can afford it?” However, if your projections are too dire, the bank may say, “sorry, you are in too much trouble and it makes no sense to modify the loan.”
One of the really difficult parts of this process, and one I believe needs to drastically change, is that there is no real feedback from the bank when you are trying to work out a modification. As Peggy told Jennifer “any proposal was subject to the approval of the investor” and that “the investor’s name would not be revealed.” Welcome to the game of negotiating with a ghost and playing with a double edged sword.
My advice to the “investor” who owns the Starbling’s loan is take a lower rate and defer the principal. On the $200,000 principal balance (I have combined the first and second mortgages for simplicity) if you drop the rate from 7% to 5% you take an interest reduction of $28,000 over a 7 year period, but you may very likely be able to save your principal on the loan. But, if you foreclose now, you will likely take a $60,000 principal, plus interest loss within the next 12 months.
So what’s next? Jennifer will work with the Starblings to revise their income and expense statements so that they may propose a loan modification plan that works. I will keep you abreast of the progress.
In the meantime, the clock continues to tick as the Starblings go deeper and deeper into default. At first, I asked Jennifer, “Why should they hurry, if the bank is in no rush?” According to Jennifer, most banks’ foreclosure departments don’t speak with their loan modification departments. Therefore, it’s very likely that while waiting to get your loan modified, you end up getting foreclosed upon.
In other words, while Nero Fiddles, Rome Burns.