The crisis hits home. And it hasn’t even hit its peak yet. What it all means for Santa Cruz County.
Dorothy Laird is not your typical sub-prime borrower fighting foreclosure. Part owner of a legal-medical professional support business in San Jose that was doing well until a few years ago, and owner of two properties other than her primary home in Boulder Creek, Laird considers herself business savvy, detail oriented and responsible.
This is why Laird, 62, married with a grown son and a history of “fairly affluent income,” was outraged by how she was treated by Chase Bank, and is outspoken about what she describes as “intentional delay and just plain malfeasance” in the processing of her loan modification application to forestall the foreclosure she knew might be coming.
Laird applied for a loan modification in May, 2010, six months before her loan payments were scheduled to increase in November. She says she was never late and never missed a payment before submitting the application, adding, “I knew I couldn’t make the higher payment when the interest rate adjusted in November, and did my best to get ahead of the problem.”
Months were lost in “back and forth dickering” with a series of different loan officers giving her conflicting directions about the required back-up documentation, Laird explains, documents that were often lost or needed to be updated with each new contact at the bank. The bank required CPA-certified audits of her business, income tax records, and seemingly endless requests for pay stubs and bank statements. Meanwhile, her loan payments did hike up in November, and she began falling in arrears.
“I have no shame at all about my situation,” Laird says emphatically. “I submitted everything they asked for, usually more than once, and I’ve worked with total integrity, and I still have not received approval of my loan modification, 10 months after my application.”
That was in February. Now, after almost a year of uncertainty, including appealing the denial of her “loan mod” application (due to incomplete documentation), Laird was finally able to sit down with a loan officer last month who deemed her application complete, and indicated it was likely it would be approved under a “new, in-house program.” And then the loan officer did something that finally gave Laird some optimism—she gave Laird her card, and said they would be in touch.
Laird’s “year of anguish” is all too common among homeowners seeking loan modification to prevent foreclosure, and she was fortunate. The majority of “loan mod” applications are eventually denied, after which the homeowner has very few options to save their home.
At the end of last year, Moody’s Analytics chief economist Mark Zandi said the foreclosure pipeline holds about four million loans nationwide that are delinquent by 90 days or more and predicted foreclosures would peak in 2011. This was due in part to the backlog of foreclosures resulting from the temporary moratorium following the “robo-signing” scandal last October-November, in which banks were called to account for possible fraudulent foreclosure paperwork in several states.
With more than one in five of the nation’s foreclosures occurring in California, the central valley and Riverside County have been epicenters of the crisis, with Hispanic-owned homes accounting for nearly half of the foreclosures across the state.
Foreclosure notices in Santa Cruz County hit an all-time record of 1,700 in 2010—an average of more than 140 families per month getting notice that they will lose their homes last year. The 2010 number is almost 17 percent higher than 2009, which was up 7 percent over 2008, for a total of about 5,000 foreclosure notices issued since the Wall Street meltdown began in 2007. Between Jan. 1 and March 22 of 2011 alone, 330 Notices of Foreclosure were issued by lenders in Santa Cruz County, up by six compared to the same year-to-date number last year, according to the Santa Cruz Record.
By all indications, this upward trend will continue, says Tito Ortega, a former loan foreclosure counselor at Neighborhood Housing Services, Silicon Valley, a HUD-certified, nonprofit organization providing no-cost foreclosure counseling services. Before Ortega was laid off due to uncertain federal funding, he had a case load of about 150 households seeking foreclosure counseling in Salinas.
“With an estimated 10 million adjustable rate mortgages across the country scheduled to re-set in 2011, loan counselors will have an avalanche of work this year. There’s far more need out there than nonprofit loan counselors can handle, especially since the reduction in staff in Salinas,” Ortega says.
Bank on It? Well …
Banks have come under increasing criticism for their poor handling of “loan mod” applications and their haste to foreclose, often with questionable documentation on the bank’s part. This criticism is increasingly heard at community meetings (see inset, “Local Hero” ) and street protests, as well as from state attorneys general and members of Congress making appeals to higher levels of banking authority.
The entire California Democratic Congressional delegation, 31 Members of Congress including Sam Farr and Anna Eshoo from the Central Coast, signed a sharply worded letter dated Oct. 4, 2010 to U.S. Attorney General Eric Holder and Federal Reserve Chairman Ben Bernanke that made clear their frustration with banking practices that seem “systematically” geared for rapid foreclosure rather than working with borrowers and federally funded foreclosure assistance programs to prevent it.
“We have heard numerous stories of financial institutions being uncooperative at best or misleading and acting in bad faith at worst. These heartbreaking stories are commonplace, persisting across the state and across lenders and servicers. The excuses we have heard from financial institutions are simply not credible three years into this crisis. People in our districts are hurting,” the Members of Congress said in the letter.
A survey of 54 nonprofit foreclosure prevention counselors conducted by the California Reinvestment Corporation (CRC), a nonprofit advocate for fairness in financial services in low-income communities, found several common criticisms of banks by “loan mod” assistance counselors. The survey concluded the process is biased toward encouraging borrowers to abandon the loan modification process with delays and document verification, with lenders often setting legal foreclosure dates while the “loan mod” application is still pending. CRC’s report, “The Ongoing Chasm Between Words and Deeds V,” concludes:
”Counseling agencies continue to report that outcomes for borrowers seeking to avoid foreclosure are appalling, with foreclosure still the most common reported outcome. Fifty-four percent of counselors reported foreclosure as a very common outcome for clients, compared to 18 percent reporting loan modification as very common. These findings are consistent with industry data.”
It was as difficult getting a response from any of the major banks about this criticism as it has been for a typical “loan mod” applicant to get information about their loan approval. After weeks of requesting information from all the major banks, only Rick Simmons, Media Relations for Bank of America Home Loans, responded by email.
Referencing the federally funded Home Affordable Modification Program (HAMP), rolled out by the U.S. Treasury Department over two years ago with an ambitious goal of subsidizing three to four million mortgage modifications, the program never seemed to get traction with the banks responsible for its implementation. To date, only about 600,000 households nationwide have received permanent loan modifications through the HAMP program, representing only about 7.5 percent of the roughly eight million foreclosure notices issued since the beginning of 2008. Simmons explained the high denial rate of HAMP program applications at B of A as follows:
“Prior to last June, most servicers (all of the large servicers) were following government guidelines allowing trial payment plans to be started based on stated financial information. This allowed a jumpstart of the program, but it also resulted in backlogs of final considerations for permanent HAMP modifications and a high rate of disqualification after trial plans had been completed.”
Simmons included nationwide numbers of B of A’s participation in the HAMP program, which indicated only about 22 percent of those offered a trial modification plan ended up with permanent loan modification—a little better than a one-in-five chance of permanent loan modification after starting a “trial” payment plan.
Edward Moncrief, executive director of Neighborhood Housing Services, Silicon Valley, who is currently trying to meet the demand for no-cost foreclosure counseling in three counties, Santa Clara, Monterey and Santa Cruz, with only three, full-time foreclosure counselors due to the uncertainty of federal funding for these services, said his counselors participated in the CRC survey last year, and he agrees with many of the results.
“The banks … have kept their basic business model and frame of mind regarding foreclosures since the sub-prime crises got started in 2007,” Moncrief says. “If the banks had stepped up to the plate with the possibility of principal reductions in the loan modification process in a good-faith effort to keep people in their homes, they could have stopped the spiral of foreclosures a long time ago. The banks have successfully avoided principal write-downs, so the crisis continues,” Moncrief says.
A real estate market statistics website, Zillo.com, reports that nationwide, median home sale prices fell 26 percent between December 2006 and December 2010. Given the highly leveraged nature of the housing bubble before it burst, it comes as no surprise that Zillo.com also reports that fully 27 percent of mortgages across the country were “underwater” (when mortgaged debt exceeds the market value of the house) by the end of 2010.
Median home sale prices fell 35 percent in Santa Cruz between 2006 and 2010. This dive in sale prices results in lower assessments upon resale, and the loss of an estimated $26 million in property taxes to local government in Santa Cruz County since 2008, according to the CRC, necessitating severe budget cuts at both the city and county level.
The Santa Cruz County Record reported more than 5,000 homeowners have fallen behind in their house payments over the last three years, with 304 Notices of Default filed between this Jan. 1 and March 22 alone.
With many risky, sub-prime adjustable rate mortgages still out there, loans taken out toward the end of the free-for-all lending practices of 2006-2007 with super-inflated house prices, and loans with interest rate hikes scheduled five or six years after origination, these are the loans that will be hitting many families with mortgage payments they can’t afford this year. And all this with the unemployment rate running at higher than 13 percent in Santa Cruz County.
How Did We Get Here?
On a cold, rainy Sunday afternoon in February, as an opener to the quarterly “Foreclosure Crisis Workshop” sponsored by the Central Coast Foreclosure Collaborative, tax attorney Bill Purdy spoke to a group of about 100 people in Our Lady Star of the Sea Church in Santa Cruz about “how we got here.”
“The whole financial system collapsed from the inside out, and none of you, in my estimation, are responsible for this,” Purdy told the crowd. “The real crime is that none of the people who are responsible for this crisis, the people who falsely rated the mortgaged-backed securities, the people who insured them, the people who traded them and basically wrecked the economy, none of these people have been called to account. The real crime is that these people have gotten away with it.”
After the workshop, Purdy makes clear his response to those who continue to blame most of the foreclosure crises on flaky, sub-prime borrowers who should never have taken out such risky mortgages for houses they couldn’t afford.
“First, this is no longer a ‘sub-prime’ mortgage crisis,” Purdy says. “Most of them have already been flushed out of the system. Most of my clients are not sub-prime. Now it’s a problem for the entire breadth and depth of the middle-class, many with good incomes and prime mortgages. Blaming sub-prime borrowers for this crisis is like blaming the dead canaries in the coal mine for the coal gas. That’s just spin to deflect attention from those who are responsible.
“Second,” he continues, “What’s happening to your neighbor has a direct impact on what’s happening to you. When the value of your home drops and makes it impossible for you to refinance at a reasonable rate, how is that only a problem for sub-prime borrowers?”
Purdy explains that with $3 trillion promised by the federal government as loan guarantees to financial institutions, and $600 billion made available in cash through the Troubled Asset Relief Program (TARP) to shore up the major banks and Wall Street, “The people whose backs the entire burden of bailing out the banks and Wall Street have been those of the middle class.”
Purdy goes on with a certain angst to say, “and not only have the culprits of this crisis not been brought to account, but now for the IRS to be harassing people for taxes owed on cancelled debt, as a result of foreclosure, I think is just unconscionable.”
Brandy Jones, a real estate agent for David Lyng Real Estate, is acutely aware of the emotional distress of many of her clients. Specializing in “short sales,” Jones represents many sellers in default who are usually selling at great personal and financial loss, and Jones says she can’t help but share some of the pain many of her clients are going through.
“I see the emotional devastation of foreclosure notices every day,” Jones says. “I’ve had clients who are almost suicidal, divorcing, or who go into an isolated funk and talk to nobody about their mortgage situation. You can’t believe how much they often hate themselves for getting into this position—you would think they shot somebody or something, they are so filled with shame and embarrassment.”
Jones is emphatic that isolating and not dealing with either a current or pending mortgage default is exactly the wrong thing to do. According to Jones, one of the biggest problems of the foreclosure process is that borrowers must be either seriously delinquent and heading for default in order to apply for many loan modification programs, and often by the time a client comes to her there is already a foreclosure date set, that may or may not be avoided, and the “window” for the bank to approve a short sale, although often good for the bank, the borrower and the neighborhood, is often already closed.
The indicator that convinces Jones that people are simply not dealing with the threat of foreclosures is the sheer number of them, and that less than 15 percent of “distressed properties,” those for which a Notice of Default or Notice of Foreclosure have been issued, are eventually listed for “short sales.”
Often a short sale is the best way out, Jones explains, because the hit on a credit score by the default and short sale can often be restored within three years, whereas going into foreclosure or bankruptcy usually takes around 10 years before the borrower can be “bankable” again.
Selling “distressed properties,” either already owned by the bank or with a bank-approved “short sale,” has become a staple of the real estate brokerage business in Santa Cruz since the Wall Street financial meltdown began in early 2007.
In 2010, 744 homes in Santa Cruz County homes were sold at foreclosure sales, almost 40 percent of the total number of 1,872 sold in the county, according to data from the Santa Cruz County Association of Realtors. According to real estate agent Jessica Wallace, who says about half her sales are foreclosures and short sales, this is the “upside” of the foreclosure crises.
“I work with a lot of first-time home buyers at the lower end of the market buying foreclosed properties, which is good in the sense that foreclosures are providing opportunities for people who thought they would never be able to buy a house in Santa Cruz,” says Wallace. “Home prices are way down, and low interest rates are available to qualified buyers.”(See page 8)
While it may be cliché to note that the Chinese character for “crisis” is a combination of characters for “danger” and “opportunity,” the bursting of the real estate bubble and the foreclosure of homes for many has opened up opportunities for others. Some are first-time homebuyers, others are high- rolling investors, according to both Jones and Wallace.
Banquet for Bottom-Feeders
Responding to the question put to the audience at the Foreclosure Crises workshop, “How many of you started receiving unsolicited phone calls and emails from ‘Foreclosure Rescue’ services once you received your Notice of Default?” over a third of the crowd at the February meeting raised their hands.
As can be seen by the pages of public notices for Trustee Sales of foreclosed properties in the back pages of many newspapers, a troubling feature of foreclosure is that it is a very public process. Getting the name, address and phone numbers of borrowers in default is not difficult for foreclosure scammers—unscrupulous practitioners representing themselves as lending professionals or lawyers with “all the right contacts” or “special software” that can rescue a family from foreclosure, for a fee, paid in advance.
These bottom feeders in the real estate industry food chain prey on desperate families with promises to resolve their foreclosure problems for an up-front fee, ranging between $1,000 to $3,500, for services usually promised without a contract or even a receipt, and then these often-fraudulent outfits are either unsuccessful in working out the loan default or are never heard from again.
Robin Gysin, coordinator in the Santa Cruz County District Attorney’s Office of Consumer Affairs, says her office received around 50 complaints about foreclosure scammers over the last two or three years, and a big part of her job has been referring the complaint to the right jurisdiction, since most of them are located out of the county.
“Especially in Watsonville, I’ve heard of several scammers going door-to-door, able to speak Spanish when necessary, trying to talk people into hiring them for cash, usually saying they work for high-powered attorneys with all the right contacts at the banks,” Gysin says. “Victims are usually seeking their money back after the foreclosure. I’ve spent a lot of time trying to find out where these companies operate out of to refer the complaint. Many seem to be located in Orange County, and some have been from out-of-state.”
Henry Martin, a lawyer and project manager for the Watsonville Law Center, gave clear warnings about so-called foreclosure rescue services to the crowd at the “Foreclosure Crisis” workshop. “I’ve never seen anyone benefit from paying for foreclosure rescue services, and I’ve seen a lot of people harmed,” Martin says. These services often indicate some kind of guarantee that they can prevent foreclosure, Marin explains, but buried in the contract, when there is one, are usually disclaimers that nothing is guaranteed and legal advice cannot be provided.
“There’s maybe a perception that you get what you pay for in comparison with the free, HUD-certified services,” he adds, “and when these scammers are promising immediate relief with bogus guarantees, people are vulnerable.”
But the local resources for these no-cost services are extremely limited. Neighborhood Housing Services, Silicon Valley fields more than 100 calls and has an average of more than three new clients each week, according to Ed Moncreif, the executive director. “Most people don’t see the real flesh and bones hardship of those affected by budget shortfalls and funding uncertainty, but Neighborhood Housing Services is a case in point,” Moncreif says. “There are families falling through the cracks that have a chance at loan modification who are losing their homes.”
More Help on the Way?
In early February, the California Housing Finance Agency announced a four-part program called Keep Your Home California, funded by almost $2 billion of TARP-authorized, “hardest hit” funds from the U.S. Treasury Department. The problem is these programs require the participation of the loan servicers, and not all loan servicers are on board. Paul Leonard, California director of the Center for Responsible Lending (CRL), a nonprofit advocacy organization that pioneered anti-predatory lending legislation, noted that despite “generous” administration fee incentives, many loan servicers have not committed to all the programs. (See inset for more information.)
“Banks generally seem open to participating—except for the principal reduction program,” says Leonard. “They only stand to gain with the unemployment program, but they don’t seem willing to play ball with the principal reduction program.”
Another ray of hope for those hoping for better results with loan modification is a controversial “foreclosure settlement offer” forwarded to major banks last month following an investigation by a coalition of state Attorneys General into the irregular foreclosure practices that surfaced in the wake of the “Robo-signing” scandal last year.
The settlement seeks to protect the rights of borrowers and streamline the loan modification and foreclosure process with mandatory procedures and an “affirmative duty” to promptly offer appropriate options. According to Leonard at CRL, the agreement will, “require servicers to obey the law, stop losing documents, stop giving homeowners the run- around, and prevent unnecessary foreclosures.” Republican lawmakers have taken issue with the proposed offer, indicating it’s an “overreach” of state authority, particularly with regard to the principal reduction provisions of the proposed offer.
Dorothy Laird says she is very sympathetic to those who are unemployed, don’t have a good command of English, or lack the business savvy to push back against a denial of a ”loan mod” application.
“You just have to make up your mind that the bank is not going to take your house—no matter what happens,” Laird says. It is clear to her that this crisis has been brought about by the same banks that are now refusing to write off one dollar in reduced principal, and “you just have to stand up to them.”
Local Hero Lauro Navaro; Si Se Puede
Lauro Navaro and his wife Yolanda, after a very long struggle for a loan modification, finally lost their house to First Horizon Home Mortgage Company in early March. After years of negotiation and their best efforts at getting a new loan, they now dedicate themselves to helping others prevent what happened to them.
“We don’t want people to feel sorry for us,”Navaro told a crowd of protestors through a hand-held megaphone at a rally aimed at Wells Fargo Bank in Watsonville on March 17. “We want people to join us in the fight against losing our homes, and together, Si Se Puede,” Navaro said.
Lauro and Yolanda have been leaders in facilitating a weekly, Spanish-speaking support group for families facing foreclosure in Watsonville and Pajaro. Meeting every Thursday evening in the Casa de Cultura building in Pajaro, the informal neighborhood group offers support, experience and professional advice with foreclosures and the loan modification process. The meetings have attracted anywhere from six or seven to as many as 50 people facing foreclosure since it got started more than two years ago.
Having heard about a Catholic parish taking a lead in helping families with foreclosures in Los Angeles, Lauro contacted Father Walter at Assumption Church in Pajaro, and both Lauro and Father Walter were put in contact via the L.A. parish with the local chapter of Communities Organized for Relational Power in Action (COPA), a nationwide network of local organizing efforts that is a direct descendent of the Industrial Areas Foundation, pioneered by Saul Alinsky. COPA was soon sponsoring training for effective “home meetings” and supporting Lauro’s outreach work in Pajaro.
Maria Rocha, a member of COPA’s Housing Committee, was successful in getting a loan modification that allowed her to stay in her home, and offers what help she can to an ongoing number of families that come to the Thursday evening meetings looking for help.
“There are just not that many resources available,” Rocha says. “It’s very important to break out of the shame and isolation that many people feel, and when we all work together with our shared experience, people can really believe they are not alone.” Dean Landholm, also working on COPA’s Housing Committee, says he and others are reaching out to other community organizations to increase the number of no-cost foreclosure counselors in the area.
Joaquin Sanchez, lead organizer for COPA in Watsonville, explains that Lauro’s and Father Walter’s work showed initiative and commitment that COPA was more than willing to support, and hopes to build upon the “small successes” that are measured “one loan modification at a time.”
COPA is also “fighting the battle” on the state level, according to Sanchez, for the best use of public dollars to help fight foreclosures. In COPA’s view, the banks have been far too slow considering significant principal reductions in loan modifications, which COPA believes is only fair considering the banks helped fuel the speculative housing bubble in the first place with sub-prime, predatory lending practices. “The lack of real teeth or support at the federal level for principal reduction has helped keep this crises going,” Sanchez says.
Keep Your Home – California Programs
Take note of these brief summaries of new programs recently rolled out under the name Keep Your Home California; full information is available at KeepYourHomeCalifornia.org. The website includes information about eligibility, and which banks and servicers are participating with various programs.
Unemployment Mortgage Assistance Program (UMA) – Assistance for unemployed homeowners who are in imminent danger of foreclosure. UMA will provide temporary financial assistance in the form of a mortgage payment subsidy of up to $3,000, or 100 percent of the mortgage payment, whichever is less, up to six months.
Mortgage Reinstatement Assistance Program (MRAP) – Intended to assist homeowners who have fallen behind on their mortgage payments due to a temporary change in a household circumstance. MRAP will provide limited funds to reinstate mortgage loans that are in arrears in order to prevent foreclosure, up to a limit of $15,000 per household.
Transition Assistance Program (TAP) – Relocation assistance for families to be used in conjunction with a servicer-approved short sale or deed-in-lieu sale; aimed at helping families find stable and affordable housing in exchange for homeowners occupying and maintaining the property until the home is sold.
Principal Reduction Program (PRP) – Aimed at assisting homeowners at risk of default due to economic hardship coupled with a severe decline in the home’s value. PRP will provide capital to reduce outstanding principal balances of qualifying borrowers that are “under water.”
Principal balances will be reduced in an effort to prevent avoidable foreclosures, as a prelude to permanent loan modification. The State is requesting loan servicers to contribute through matching funds to increase the benefit for homeowners. Not all banks and servicers have indicated willingness to participate.
Free, HUD-Certified Foreclosure Counseling Services: Neighborhood Housing Services, Silicon Valley (nhssv.org):
Foreclosure Counseling Services.
Homeowners in need of assistance must register for Foreclosure Workshops prior to receiving one-on-one counseling. The workshop covers tips for avoiding foreclosure, communicating with lenders, and prioritizing debt. High demand may limit service availability. Call (408) 279-2600 X229 for more information.
SurePath Financial Solutions: Consumer Credit Counseling Service (surepath.org). Non-profit community service organization providing free and confidential financial counseling. (877) 615-SURE (7873).
Other Organizations :
Watsonville Law Center: Referals: (831) 722-2845
Communities Organized for Relational Power in Action (COPA): Community Organizing Activities: (831) 728-3210
Sen. Barbara Boxer (Calif.) unveiled a new “Resources for Struggling Homeowners” web page on the constituent services section of her Senate website at boxer.senate.gov/en/services/homes.cfm. The Homeowners page contains information and links to federal programs for people threatened with foreclosure .