In these blogs, I usually focus on local matters that might interest potential homeowners who might choose to settle in western St. Louis and St. Charles Counties. In view of new announcements this week about further modifications to the Making Home Affordable Program (HAMP), I am today sharing with you the story of a Ballwin woman who tried for a loan modification and met with some unexpected consequences.
Donise Reitz, of Ballwin, applied for the program last spring after she lost a part time job and other income opportunities dried up. Reduced to living on credit cards, she approached her mortgage company, Nationstar, and applied for the program. She specifically asked if being in the program would affect her excellent credit rating and was told no. She was approved for the trial program and was given a reduced payment that was only 1/4th of her normal payment. The condition was that she must pay exactly this amount or risk not being accepted for a permanent reduction.
After three months, Reitz tried to buyout the lease on her car, and was turned down. She was also notified that the credit limit on one card was reduced, while another was shut down by the lender. She found out that Nationstar has reported her as "severely delinquent" as she was making partial house payments. Though she received a demand letter from Nationstar, she ignored it as directed.
The lender extended her trial period two months so she could submit document (pay stubs, financial statements) that had never been requested before. Angered that her credit was wrecked, Reitz began making full payments again. She then got a call telling her she had not been accepted in the program and that she needed to pay $8,000 at once (the balance remaining on her past few mortgage payments) or risk foreclosure.
Fortunately, Reitz was able to pay, but her story is chilling. She met the criteria for a permanent loan modification, but experienced what many involved in such program are facing: Her lender acted in violation of HAMP policy by pursuing a foreclosure action without a completed HAMP review of her documents. Based on survey of 113 NACA members for 24 states, this is common. Reitz met the public qualifications for permanent modification (she owe equal to or less than $729,750 on a first mortgage and experienced hardships such as an increase in mortgage payment or reduction of income.) She apparently passed an eligibility review.
Two things went awry after that. First, the documents required by HAMP were requested late; many others have been told their documents were lost. Not turning in the documents is a barrier to moving on to the permanent status.
Second, Reitz may have been caught up in a less public issue. According to Ellen Taverna, legisitrative aid to NACA said that HAMP applicants must pass a "'net present value test' to determine if the investor will make more money under the terms of a proposed modification or if it doesn't, proceed with a modification." Unfortunately, candidates aren't old about this and don't know the criteria.
Donise Reitz is left with her original burdensome payment and poor credit. It is unfair that she and many others who could benefit from HAMP have been caught up in shady practices at a time they are trying to save their homes from foreclosure. A few universal lessons for homeowners can be gleaned by this case though.
• If you are in trouble, seek help - but don't do it alone. Donise might have fared better had she used a HUD-approved counselor.
• Be on the lookout for scams. The housing crisis spawned predators who want your money and maybe even the deed for you house but offer no help.
• Be prepared for credit score impact. Nationstar was not forthright, but again, a housing counselor might have made this clear. Many people who enter the program already have poor credit if they have been out of work or behind on their payments, but the trial period alone makes the score worse. According to a case study reported by CNN Money, the credit score hit can be up to 200 points.
• If you are in a trial modification, follow the payment plan. Given that banks are not thrilled to be modifying payments, they could use any deviation as a reason to kick you out of the program.
• During the time you are in a trial modification, consider the impact of making other financial changes, such as refinancing a car.
•· Be prepared to submit documents, perhaps multiple times.
At this time, only 170,000 permanent loan modifications have been completed. The newest guidelines hope to increase this by offering help to underwater homeowners and a break from payments for the unemployed. It remains to be seen whether the program can successfully help homeowners.
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The Becky O'Neill "POWER" Team knows the St. Louis area well. They can help you find the right home, in the right neighborhood at the right price. Call (636) 326-2290 today and let us help you find the home of your dreams!
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