Shirley Burnell, a community activist from Oakland, California, has been trying to get her subprime loan restructured since 2007.
She never missed a payment, but the adjustable rate mortgage she got in 2004 shot up to a monthly payment she could no longer afford.
First she provided documents without getting any response, then she was denied in April by her servicer, Bank of America (BAC.N), for not providing documents it never actually asked for.
As one part of the bank appealed that decision and approved her for a trial modification, another part denied her again – twice – providing two new reasons in part based on inaccurate calculations, according to documents reviewed by Reuters.
When asked about Burnell’s case, a bank spokesman said she was unable to qualify under “imminent default provisions,” a third reason that Burnell said she had never been given.
At one point, Burnell even received notice the bank would accelerate foreclosure proceedings, despite her perfect payment record and the letter itself saying the bank owed her $281.01.
“They gave you a funky loan in the first place, and now they’re refusing to work with people to get it worked out,” Burnell said. “It just keeps you upset all the time.”
Three years after the foreclosure crisis began, the process to apply for a loan modification remains a bureaucratic nightmare that is complicating the housing recovery and could dull the impact of any Obama administration initiatives in the works.
The administration’s biggest foreclosure-prevention effort, the Home Affordable Modification Program (HAMP), targeted to help 3 million to 4 million homeowners, has reached only about a quarter of that since its 2009 inception.
The program pushed mortgage servicers to cut interest, extend terms, or defer parts of a loan in an effort to reduce monthly payments and keep borrowers in their homes.
But servicers have dragged their feet on providing wide-scale modifications. They continue to lose documents, use inaccurate numbers to issue denials, or both approve and deny applications at the same time, according to housing advocates.
“It delays resolution of the problem of defaulting loans and it is adding uncertainty to the market,” said Susan Wachter, a housing expert at the Wharton School of the University of Pennsylvania.
Around one in every 12 mortgages in the country is delinquent, and only a fraction of them have received modifications.
“Somehow the borrower is unreachable, or the servicer hasn’t found the right way to reach the borrower, but the fact is, we see (modifications) piercing maybe 10 to 25 percent of the potential population,” said Diane Westerback, a managing director of global surveillance analytics at Standard & Poor’s.
“These are institutions that have taken a huge amount of bailout money. There should be a level of responsibility to communities,” said Josh Zinner, an advocate with the Neighborhood Economic Development Advocacy Project in New York. “HAMP is far from perfect, but the biggest problem is servicers not doing their job.”