Thursday, July 8, 2010
“This is my home – your home,” Melchor Molina says, in a variation of the old saying, mi casa es su casa, as he opens the door of his light yellow ranch house. It sits on one and a quarter acres in a warm windless canyon just outside King City
Molina has thick dark hair and a quick wit. On weekends when he’s not working, he ropes bulls.
Facing possible foreclosure last year, he called CitiMortgage and waited on seemingly interminable hold, while listening to the ever present disclaimer: “This call may be recorded for quality purposes.”
“Well,” Molina says, “If they can do it, so can I.” With a micro-cassette recorder at the ready, Molina created a months-long audio archive of the dense web of bureaucracy he encountered at the company, one of the nation’s largest mortgage servicers. The voluminous record is a vivid personal illustration of a Treasury Department report released last month which finds just a small percentage of eligible home owners are getting relief from the Obama administration’s Making Home Affordable (MHA) program, which offers incentives to loan servicers that are willing to adjust loan terms.
Despite a $700 billion government bank bailout – $45 billion went to Citigroup alone – the 14-month-long program has resulted in loan modifications, usually involving lowered payments in exchange for a longer loan term, for just 20 percent of some 1.6 million eligible borrowers.
More than 400,000 borrowers have been flat out rejected – perhaps because their loans are too far underwater or because they simply don’t have the income to stay in their homes.
But like Molina, a huge pool of distressed borrowers – nearly 200,000 – seem stuck in limbo – placed in so-called trial modifications that drag on much longer than the three months prescribed by government guidelines, and which are often canceled.
The grim numbers are particularly bad news for Salinas and surrounding communities, which have been slammed by housing meltdown-related foreclosures. The area ranks 20th in the nation on a list compiled by realtytrac.com, a website that covers foreclosures, and nearly five percent of homeowners have received foreclosure notices.
In some neighborhoods, telltale “for sale” signs sprout like poppies and once-three-quarter million dollar homes are worth half that amount. Instead of a single auctioneer at the county courthouse, several now make regular appearances, gathering clutches of investors around them.
Andres Fernandez, a Salinas realtor who sells bank-owned properties, says he often finds them stripped to the bones, their former owners having slunk away with sinks, copper piping, even fireplaces. “It brings down the property values in the neighborhood,” Fernandez says.
In many parts of the city, the market has lost more than 50 percent of its value. The local tax base is decimated, with a 30 percent decline in sales and property taxes, reports Salinas Mayor Dennis Donohue.
“For a city to lose that kind of revenue, it’s had a huge impact,” he says. “It directly shows up in our inability to deliver services.”
But none of that compares to the human toll the wave of foreclosures has taken.
~ ~ ~
Ona recent Saturday afternoon, the 49-year-old Molina is brushing one of his three horses, Palomino, a big white gelding that does tricks.
“This is what relieves my stress,” he says, as his dog Chester paws the ground in the front yard in search of gophers, and fancy roosters preen in pens in the back.
Thirty years ago, Molina came to Salinas from his native Guanajuato, Mexico and got a job harvesting broccoli. He worked his way up, driving tractors and trucks, then switched to construction, where he became a foreman, and realized he could double his income if he worked for himself.
He studied for his contractor’s license nine years ago, and started with a single tractor. Eventually, his business grew to include a small fleet of grading and earth moving equipment.
Family photos attest to the comfortable life he built: vacations in San Francisco and at a market in Ensenada, Mexico, with his wife, four children and extended family, his kids holding a doll-sized baby Jesus in front of a lighted Christmas tree that nearly touches the ceiling, and shots of family cook-outs and birthday parties.
But lately, he’s watched as the engine of his own prosperity, the massive building boom that spawned vast tracts of new suburban homes in South Monterey County, began to sputter.
At its height, he’d get so many calls for paving and grading, it was hard to keep up. Now, Award Homes, once a major client, only calls when it needs brush cleared from land that stands empty because of the housing bust.
Molina’s troubles started last November. Business was already scarce when a doctor prescribed minor surgery and a month-long convalescence, which put him further behind on his bills. The next month, he couldn’t make his full mortgage payment.
A CitiMortgage rep said because of his hardship, he’d pre-qualify for a loan modification, which usually involves a temporarily lower interest rate and an extended loan term. Molina was told if he paid roughly half his nearly $3,000 mortgage payment during a three-month trial period, the modification would become permanent.
Weeks later, he sent in a packet with all the information CitiMortage requested, including profit and loss reports, bank statements, and permission to release his tax returns. CitiMortage reps told him his deal was approved, but he received no paperwork confirming it. And, adding to the uncertainty, the company’s collections department seemed unaware of the deal and called relentlessly, demanding Molina pay what he owed.
Molina’s wife stopped answering the phone, fearing CitiMortgage bill collectors were on the other end of the line.
Her stress was so intense that one day, Molina says, half of her body became numb. He rushed her to the emergency room, thinking she was having a heart attack or stroke, but it was just nerves.
Molina estimates he’s had some 50 conversations with the company, and still doesn’t know where he stands. For now, he’s scrounging to pay his mortgage in full every month, because he fears losing his house to a bureaucratic snafu, but with work so slow, he doesn’t know how long he can continue to make those payments.
“I sold a mobile home and a Rolex watch,” Molina says. “Then, I started thinking, I better stop because I could sell everything and lose my house too.”
In March, Molina was watching Despierta America (Wake Up, America) on Univision when he heard about the Obama administration’s mortgage relief program.
“I heard the magic number was 31 percent.” That is, if a family’s mortgage payments amount to more than 31 percent of total income, the federal program could help.
Molina called a number on the screen and eventually ended up at Neighborhood Housing Services in Salinas.
Behind a small neat desk in a spartan storefront on John Street he found Tito Ortega, a 31-year-old former community organizer who Molina describes as a good guy who’s almost brutally honest.
He remembers Ortega telling him, “‘Oh, I don’t think you’ll get a modification.’”
“I was totally deflated,” Molina says.
Ortega’s pessimism comes from experience. He’s been on the job for a little more than a year, during which time he’s made just 15 loan modification deals – and that’s not for lack of clients. He clicks on an online calendar in which each of his weekdays is scheduled nearly back to back with interviews.
When a homeowner finally inks a deal with a servicer, “I feel like I’ve won the World Cup,” he says.
But most days, he admits, “It is very discouraging.”
~ ~ ~
Sometimes the economy is the problem – homeowners simply can’t scrape together the cash to keep up with mortgage payments, bills, and daily expenses. But in other instances, it’s even hard for Ortega, a housing counselor at a federally certified agency, to understand exactly what criteria loan servicers use to make decisions.
Take Rita Chappell, a 46-year-old Salinas mom who came to Ortega’s office in desperation after she too saw him on a local TV show.
Ortega popped up on screen while Chappell was at a local nail shop, and both she and her manicurist grew quiet and grabbed their phones when they heard NHS offered counseling for distressed borrowers.
“I was dialing with wet nails.”
Chappell, who migrated to Salinas from Gujarat, India, with her family in the 1980s, has reddish-brown curls that frame her face and a diamond bindi on her forehead. She is constantly in motion, telling her story as she dispenses change, fields phone calls and greets old friends behind the counter at her business, Lou’s Laundry, in a big strip mall near Star Market on Main and Blanco Road in Salinas.
Twelve years ago, Chappell and her husband found their dream home – a three bedroom gray Craftsman built in the 1940s on an acre lot in North Salinas.
“We went by and I fell in love as soon as I saw it,” she says. “A peace came over me as soon as I walked in.”
It sold for just $220,000, but by 2005 had nearly doubled in value and was nearly paid for. That’s when Chappell’s husband got sick and was forced to retire from his job as a manager at Dole. Although the family could live on his disability payments, he decided to search for a small business to keep himself occupied, and refinanced the house to do so.
The payments were manageable at nearly $2,800 a month, but last February, Chappell’s husband was diagnosed with cancer – too late for treatment – and in April, he passed away. But not before he told his brother: “Get her out of this loan.” He knew that without his Social Security disability benefits, she’d have trouble making ends meet. “You’re going to lose everything,” Chappell’s husband told her.
Indeed, she struggled – working as a special ed assistant at a local school where her co-workers even took up a collection to help her. She ran the laundromat in the afternoons, while squeezing in time with her two sons, 16 and 19.
Unable to make the full payment she began to send what she could, all the while calling CitiMortgage in an attempt to make payment arrangements and save her home. (CitiMortgage is just one of a number of companies, including JP Morgan Chase and Bank of America, where borrowers report the same sorts of loan servicing problems.)
She’d have to steel herself to make the calls, because each time it was as if she were starting from scratch, telling the whole story of how her husband passed away and her income was reduced because the family no longer received his disability checks.
“I was reliving it every time I talked to a representative.”
But, like Molina, just when Chappell thought she was making headway, the company’s bill collectors would call – sometimes several times a day.
The calls rattled her sons, who were already mourning the loss of their father, and worried they’d lose their house, too.
Weeks, months, and then an entire year passed, with no decision on her loan.
What is more, Chappell couldn’t understand why she’d be asked to send the same documents again and again, but she insists she did so – every time the company asked for them.
Data compiled by the nonprofit investigative news site ProPublica.org, which referred the Weekly to Chappell, shows that after an initial trial period, CitiMortgage had canceled a higher percentage of loan modifications under the government MHA program than all but two participating companies.
It has a so-so record compared to other servicers when it comes to keeping borrowers in limbo – some 14 percent of those in the government program remain in so-called trial modifications that have dragged on for more than three months.
Not surprisingly, the company sees its record differently. A company spokesman referred the Weekly to its own report on foreclosure prevention efforts, but didn’t agree to an on-the-record interview.
CitiMortgage notes its loan work-outs outnumbered foreclosures 12:1 in the first quarter of 2010. And the company claims success in working with 115,000 borrowers to avoid foreclosure in the same period.
Still, there is no question the mortgage servicing industry remains in disarray three years after the mortgage meltdown, says Doug Henkel, CEO of San Diego-based First Associates Loan Servicing and a member of the California Mortgage Bankers Association.
Before the crisis, he says, loan servicing was a routine affair. Low level staffers, some of them half a world away in India, would process payments, and spend little time with customers. “The name of the game [in loan servicing] is cheap as possible and ultra low touch,” Henkel says. “And that type of structure works wonderfully when the economy is good and people are paying their bills.”
But, he says when the housing bubble burst and the economy tanked, the servicers needed skilled workers – “Not just someone who’s used to posting a payment and not talking to borrowers.”
Nothing less than all-out transformation of their business model would help the bigger loan servicers face the new market reality, Henkel says.
But some delayed making changes, thinking the crisis would blow over. Even those that didn’t are like giant aircraft carriers that still haven’t been able to change course, says Henkel, who claims his smaller operation has avoided some of the problems of higher volume servicers.
Another big obstacle to loan modifications, Henkel notes, is that loan term changes must be okayed by the individual investors who own the loans.
“If you’re dealing with 20, 30 or a hundred investors [there’s] no way they’ll all agree on one modification parameter,” Henkel says. “It’s just a giant, giant mess.”
~ ~ ~
In Sacramento, Salinas Assemblywoman Anna Caballero says a bill she’s sponsoring is one step toward cleaning it up, or at least leveling the playing field for borrowers.
She’s heard dozens of stories like Rita Chappell’s and Melchor Molina’s – and worse, like the constituents who told her that they thought they had a loan modification agreement only to learn they were in foreclosure and facing eviction.
The bill, SB 1275, would require loan servicers to evaluate borrowers for loan work-outs before starting foreclosure proceedings. It would also give borrowers who’ve lost their homes due to errors by servicers the right to sue.
The bill doesn’t require lenders to work out deals with their borrowers. But, Caballero says, “If you’re going to have one, you have to send written communication [to borrowers]. And, if you’re going to do a modification, keep records… before you do a foreclosure.”
A similar bill has just been passed in Illinois. But it isn’t likely to make a real difference, according to Daniel Mulligan, a San Diego attorney who is embroiled in an eight-year legal battle with mortgage servicer Ocwen over similar issues.
The real fix would have been a provision in federal bankruptcy legislation that would have allowed bankruptcy judges to impose loan modifications to allow distressed borrowers to stay in their homes. But it was handily defeated by the banking industry.
SB 1275 has cleared the Senate, as well as the Assembly Banking and Judiciary Committees, and appears headed for the Assembly floor in August.
It’s expected to pass, but may face a gubernatorial veto.
The California Chamber of Commerce has targeted the bill for defeat, placing it on its jobkiller list. Chamber lobbyist Robert Callahan says SB 1275 unnecessarily delays the foreclosure process, slowing economic recovery.
~ ~ ~
As for Rita Chappell, a full 14 months after she first picked up the phone to seek help from CitiMortgage, she finally received a good news/bad news letter from the company.
It would be unable to approve her for the government’s Home Affordable Modification Program because she did not provide the documents the company requested, an assertion that Chappell adamantly disputes. But CitiMortgage did offer her a loan modification – at a slightly higher interest rate than she’d pay under the government program.
Housing counselor Ortega says he can’t explain why she was rejected for the government program.
A U.S. Treasury Department spokeswoman tells the Weekly Chappell can appeal the decision. But after such a long, Kafkaesque struggle, she decided that Citi’s offer was good enough, and signed on the dotted line.
On a warm June afternoon, she’s savoring a partial victory while carrying on a tradition that her husband began – a customer appreciation barbecue – to thank patrons for their business and friends for the support they’ve offered since her husband passed away.
She’s put up a couple of canopies in the back parking lot where a friend’s son is grilling burgers, while she urges hot dogs, nachos, and strawberries and cream on her friends and customers.
Also invited is Neighborhood Housing Services’ Ortega and a colleague who work an information table which attracts no small amount of attention, since everyone appears to know someone struggling to hold on to their home. He’s told Chappell her deal with Citi is a good one, but after months of wrangling with the company, she remains skeptical it will hold up.
Molina is still waiting for a definite answer from CitiMortgage.
Like a lot of eligible borrowers, he has yet to benefit from the government’s big rescue package but he says no matter what, he’ll weather the storm.
Given the chance, he says, “I know I can make money.” After all, he had no safety net when he came to this country with nothing, and none when he grew his business from a single tractor operation to a full-on grading and earth moving company.
As the crisis drags on, many others may not be so lucky.