Lenders more patient, but still not enough for some

MODIFIED APPROACH: Bank of America employees, pictured above in red, helped customers with loan modifications at a Westin Providence event in June. / PBN PHOTO/BRIAN MCDONALD
MODIFIED APPROACH: Bank of America employees, pictured above in red, helped customers with loan modifications at a Westin Providence event in June. / PBN PHOTO/BRIAN MCDONALD

Jay Harding and his wife bought their three-bedroom, South Kingstown ranch in 2006, while he was doing environmental work on oil wells in Indonesia and the economy was humming.
By 2010, after Harding had come home to work for the Rhode Island National Guard at a much lower salary, the house was deep underwater, the family was burning through savings to make $2,000 monthly payments and the interest-only mortgage they had taken out through Columbus Credit Union was about to readjust.
“We realized we were not going to be able to make the payments if the situation didn’t improve,” Harding said. “So I called our lender and asked what we could do.”
From that point, Harding entered the new and often bewildering world of loan modification and assistance, an evolving collaboration between banks and the government to plug the flow of foreclosures that started after the housing bubble burst.
After more than a year of looking for help, and being rejected by two different programs, Harding last year qualified for assistance from the Hardest Hit Fund Rhode Island, a $79 million federally funded, state-administered program that has allowed him to keep his house.
But the long, twisting road Harding traveled highlights how complicated the effort to prevent foreclosures has become and how difficult it is evaluating the effectiveness of public and private foreclosure-prevention measures.
Both in Rhode Island and nationally, foreclosures have slowed this year despite fears of a new spike following the settlement of foreclosure-abuse litigation.
In Rhode Island and across the country, lenders and those working with them describe a greater willingness than ever to help borrowers if it will avoid foreclosure.
And lenders have a strong incentive to avoid foreclosure as repossessed properties sold at auction typically bring a much lower price than all other transactions, especially if those homes have sat vacant.
But even now, what lenders have been willing to do often hasn’t been enough and it’s often taken federal grants like the Hardest Hit Fund to help homeowners like Harding avoid foreclosure. No existing bank has been as closely tied to the foreclosure crisis as Bank of America, which was the largest at the time of the crisis and bought Countrywide Financial as the notorious mortgage maker neared bankruptcy in 2008.
Although Bank of America is guarded about any changes in its approach to dealing with distressed borrowers, the bank has made a big point to at least connect with struggling homeowners, such as a loan-modification event last month at The Westin Providence that drew 150 people.
“Our customers want to sit down, work with us and have that face-to-face time to discuss their situation,” said Eddie Martin, events manager for Bank of America at the Westin.
Exactly what goes into loan modifications can vary. Bank of America, like other lenders, tailors each modification to the borrower with options including refinancing, putting off foreclosure proceedings and stretching out or delaying the payment schedule.
One way of avoiding foreclosures that hardly existed in 2008 is the short sale, which involves selling a distressed property for less then the outstanding amount of the loan.
Before property values plunged, short sales were largely unheard of, so when struggling owners and their real estate agents began suggesting them, banks didn’t know what to do.
“In 2007, I had never seen short sales and everyone was caught by surprise,” said Rich Epstein, an associate broker with Residential Properties in Providence. “It took six months to close a deal because the line of communication was vacant on the bank’s end. No matter what people asked for, banks wouldn’t get back to them, and the file would be transferred and transferred.”
“It was just a mess,” he added. “Because banks weren’t prepared, a lot of people who would have gotten a short sale and modification, didn’t get anything and lost their homes.”
In the early years of the recession, Bank of America had the reputation as the most difficult lender to deal with on short sales, Epstein said, but has since been one of the first to move to an online system that eliminates many of the paperwork and communication nightmares. “The process has become far more efficient than it was years ago,” said Karl Martone, an agent with The Martone Group Re/Max Properties in North Smithfield. “They are using online services instead of the phone. And they have become realistic because they don’t want to foreclose.”
After the Hardings bought their house, their loan was bought by Rhode Island Housing, the quasi-state affordable housing agency that is itself a lender and runs the Hardest Hit Fund and other foreclosure-prevention programs.
Initially Harding asked about the federal Making Home Affordable Program, but was referred to Rhode Island Housing internal programs that included refinancing and two-to-three-month-payment reductions.
Harding said the refinancing options available wouldn’t have made much difference and came with fees. Principal forgiveness was never offered, he said.
When the Hardest Hit Fund was first introduced, Rhode Island Housing suggested it to Harding, but he was rejected the first time he applied. He applied again last year and was accepted over the summer.
The Hardest Hit money has reduced his mortgage payments by roughly $500 per month without causing Rhode Island Housing to take a haircut.
Despite being four years out from the subprime crisis and in the early stages of a recovery, the loans in Rhode Island Housing’s portfolio show how long-lasting the affects of the downturn have been.
In 2007, the agency had $8.6 million in nonperforming loans on its balance sheet, a total that climbed to $78 million by 2010, said Executive Director Richard Godfrey. Last year, the total number of bad loans stabilized, but still inched up to $79 million.
“With our own borrowers, we have become much more patient,” Godfrey said about the effort to avoid foreclosure. “The length and depth of the recession and unemployment crisis [have] made us realize there is no quick fix.” •

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