Patience required during process when mortgage servicers take action

It seems that mortgage servicers aren't satisfying anyone these days.

Homeowners get fed up when they try to work something out with their servicers, to no avail. Real estate agents complain that mortgage companies drag their heels on short sales. Regulators are restless about the lack of "meaningful improvement in foreclosure prevention outcomes."

If there's a lesson for foreclosure-avoiding consumers, it is this: Be patient, don't take mortgage servicers' actions personally and be ready to send paperwork multiple times.

Mortgage servicers are the companies that collect borrowers' monthly payments and distribute the money to investors, tax districts, insurance companies and other entities that stake a claim to part of the homeowners' check. The servicer takes a cut, too. Because of the housing bust, servicers spend much of that money to hire and train employees to do loss mitigation: collecting late payments, negotiating workouts and processing foreclosures.

Word on the street is that servicers are doing a lousy job. The State Foreclosure Prevention Working Group, an assemblage of state regulators and attorneys general, has blasted the industry in a pair of reports published this year. The most recent report compared what mortgage servicers did in January with what they had accomplished in October, and concluded that servicers merely had been running in place: "While the number of borrowers in loss mitigation has increased, it has been matched by an increasing level of delinquent loans," the report noted.

The group said 70 percent of seriously delinquent borrowers (those who were 60 or more days late) were "not on track for any loss mitigation outcome" in January. It had been the same percentage in October, even though servicers and the federal government made a big deal out of their joint foreclosure-prevention efforts in late 2007.

The report defined "loss mitigation" differently than a servicer would. To the authors of the report (as well as to homeowners), loss mitigation consists of finding a way to keep the delinquent borrower in the home, either by negotiating a repayment plan or changing loan terms, such as the interest rate. To a servicer, the phrase means mitigating the loss to the investor who owns the loan -- and if foreclosure is the least-expensive option, that's the one to choose.

The working group says servicers "are severely strained in managing current workload." It bases that conclusion "on anecdotal reports of lost paperwork and busy call centers."

One homeowner's experience

with Countrywide

Larry White, a homeowner in Atlanta, knows about busy call centers and repeated requests for paperwork. He says he refinanced in 2004, getting an adjustable-rate mortgage with an initial rate lasting three years. That starting rate was 7.2 percent. Last year, it rose to 10 percent. In December, he looked four months down the road, to April, and didn't like what he saw: an upward rate adjustment that would make his monthly payment unaffordable. He says he was current on his payments.

He called Countrywide, which services the loan but did not originate it. He says he was asked to send some tax information and the reason for his hardship. "I said, 'I'm not in hardship now, but I will in April, because my rate will go up. It will readjust and be a hardship for me because it would be an $800 raise in my mortgage payment and I don't have that in my budget.'"

He says Countrywide told him to apply to have his ARM rate frozen for five years "or they would switch me over to a fixed, one way or another." He was told the process would take a month. Four weeks later, he called and was told that his case was in the hands of a debt negotiator.

White says that since December, his case has been handed to three debt negotiators. He had to send updated financial information several times and spoke with many representatives who served as a buffer between him and the debt negotiators. Finally, in April, he was told to contact a credit counseling agency. "I blew up," White says. "I said, 'You took four months to tell me this?'"

He says he will try to refinance his mortgage with another company. But it will be difficult: With a loan balance of $320,000, he owes $40,000 more than the house was appraised at in December.

Short sales can try

a seller's patience

You don't have to ask for a rate freeze to go through the game of musical chairs among debt negotiators. Allen Butler, a real estate agent who works in the West Valley suburbs of Phoenix, is becoming an expert in short sales. A short sale happens when a lender agrees to let the owner sell the house for less than the loan balance, in lieu of foreclosure.

Butler is aware that a short sale takes plenty of paperwork and time. Short sales are for people who genuinely can't afford their loans anymore; they're not intended as a bailout for would-be sellers who can make the monthly payments, but owe more than their homes are worth. Lenders require a lot of documentation to distinguish between the two groups.

Knowing all this, Butler is still scandalized by Countrywide's delays in processing two short-sale proposals. In one case, it took the servicer 27 days to assign a negotiator to the file, and another month to send an appraiser.

As for companies that do a good job, Butler praises Aurora Loan Services, HSBC Mortgage Services and Wells Fargo. But impatient homeowners should note that those companies make short-sale decisions in about a month.

White's and Butler's experiences with mortgage servicers aren't rare. And that means that when you call a mortgage company to arrange some sort of workout, it's probably best to expect things to proceed more slowly than you'd like. Servicers prefer to work with fresh financial information, so don't be surprised if the mortgage company requests updated information about your income and spending.

Government officials have urged servicers to modify mortgages in bulk. But that's unlikely to happen. Delinquent loans will be worked out case by case -- and that takes time.