Occupiers have been camped out at the Lucero residence in East Los Angeles for over 80 days now and at the Corona residence in Lincoln Heights since just before Christmas. Recently as well, the Hernandez residence in Van Nuys was “occupied” for four months before sheriffs evicted the family on Dec. 27.
These high-profile cases all have one thing in common: the homeowners had all attempted to get loan modifications prior to their bank foreclosing on them.
Although it may seem straightforward, the process to get a loan modification can be difficult and uncertain for a homeowner. This was apparent at an Occupy Fights Foreclosures, or OFF, meeting held on December 30. Over 40 people crammed into a local Denny’s restaurant, several of them were homeowners seeking assistance with their mortgage and banking woes. Others wanted to share their experiences from having fought their bank.
Carlos Marroquin, an organizer for the group, said OFF, which is a subcommittee of Occupy LA, is able to review people’s documents and “put things into perspective [and] give them focus.”
“A lot of people, they just don’t understand what is happening to them,” he said. “They live in fear. We are able to soothe the fear, calm them, give them understanding so they can fight back.”
Marroquin said homeowners often experience challenging hurdles, such as near-impossible deadlines or requirements.
“In some cases, after they have given [homeowners] loan modifications, the banks either withheld the paperwork or withheld the payments,” putting the home into foreclosure, he said.
According to Soledad Corona, this is precisely what happened to her. After being granted a loan modification in 2009, she said, Bank of America withheld her first payment and put her home into foreclosure.
She had been hoping the loan modification would see her through hard times, which began after a severe car accident. Instead, she lost her home in the process while accruing over $35,000 in attorney’s fees.
According to The Huffington Post, BofA said they foreclosed on Corona because she failed to return her paperwork on time.
Both Corona and Javier Hernandez state they were advised to skip payments in order to qualify for the loan modifications. Corona said her advice came from a loan modification specialist; Hernandez said it was BofA that told him to miss payments.
BofA has stated that Hernandez failed to provide the proper documentation, compelling them to follow through with their foreclosure, according to LA Daily News.
Corona and Hernandez are not alone. Many across the U.S. have been advised to skip mortgage payments in order to qualify for loan modifications. It has often resulted in the destruction of their credit and losing their homes.
Marroquin said sometimes banks give homeowners a loan modification, but demand their first payment the next day, which for many can be impossible to do. In the case of Benito and Margarita Lucero, their loan modification’s first payment was due the day before they signed the contract.
The Luceros thought their modification was permanent, but was only temporary. After making payments for 11 months, their home was put into foreclosure. Carrington Mortgage, the Luceros mortgage servicer, or Deutsche Bank, the property’s trustee, did not reply to LA Activist’s request for comment.
For many, these claims can be hard to believe. However, these stories go well beyond Los Angeles and its housing advocates. ProPublica has documented many of the difficulties homeowners face during foreclosure. They referred to loan modifications as a “bait and switch” tactic of the banks, which often ignore signed agreements and load the homeowner with unexpected fees.
Rolling Stone also observed that “many people who are being foreclosed on have actually paid their bills and followed all the instructions laid down by their banks.” This may have been the case with Long Beach residents William and Esperanza Casco, who said they merely wanted to take advantage of an offer made by their bank. However, JP Morgan Chase & Co. put the home into foreclosure after deciding the Casco’s new and smaller payments were not enough.
A Chase spokesperson said the Casco’s were not able to qualify for their loan modification, according to the Associated Press. The Casco’s owned their home for 17 years, they said, and never missed a payment.
It may seem like strange behavior that banks don’t work harder to keep people in their homes and paying their mortgage. After all, to do so would seem in their best interest. In all of OFF’s high-profile cases, owners wanted to keep their homes and work with their banks.
This oddity, however, is common and has everything to do with the current foreclosure crisis.
In years past, a homeowner could deal directly with their local bank or credit union, which held a personal stake in the home loan. It was never perfect, but at least there was the possibility of a personal relationship.
However, about a decade ago, mortgages became commodities, called mortgage-backed securities. Banks would immediately sell their home loans to multi-national behemoths, who would in turn dump thousands of mortgages into tax-exempt real estate trusts. Once in the trust, the mortgages became securities, graded by ratings agencies and sold to investors.
Then came the mortgage-servicing industry, which manages these trusts. Servicers are essentially middlemen who often do not have a stake in the mortgage. They simply collect payments from homeowners and keep a small cut.
The system works fine when homeowners are financially stable and can afford their mortgage. However, anything less than financial solvency, such as a homeowner falling on hard times due to unemployment or medical expenses, and all of hell breaks loose.
This is because, in most cases, mortgage servicers decide who gets foreclosed on and who gets a loan modification, and servicers have more incentives to foreclose than any other option. There are many reasons for this, but plainly put, foreclosing is, more often than not, simply good for business.
“The complex incentive structure for servicers means that servicers can sometimes make more money from foreclosing than from modifying, and that for servicers, short-term, unsustainable modifications may be more profitable than long-term, sustainable modifications,” states a 2011 report in the Washington Law Review.
When it comes to loan modifications, the interests of the servicer and the homeowner clash. For one, they are simple operations and keep costs low. Assisting homeowners avoid foreclosure is costly and reduces their profit margin.
“In general, servicers make money by providing as little service to homeowners as possible,” reports ProPublica.
Furthermore, if the homeowner misses a payment, the mortgage servicer is obligated to cough up the missing funds. According to Rolling Stone, the only way out for the servicer “is if the house is foreclosed on and sold.”
Also, a good source of income for servicers are penalty and foreclosure-related fees. If the mortgage is securitized, the deal is even sweeter for them, as it then matters little if the homeowner pays these fees. Through securitization contracts, servicers are ensured their money.
The deal doesn’t work as well for investors either. They have little control over loan modifications, but bear the burden of loss through foreclosure.
Often when servicers agree to loan modifications, they are short-term and often end in foreclosure anyway. This is because, according to the Washington Law Review report, the “loan modifications servicers make reflect the interests of servicers, not of investors, and that too often loans that should be modified from an economic standpoint are foreclosed instead.”
As we enter the seventh year of the foreclosure crisis, the odds are stacked against the Luceros, Hernandezes and Coronas of the world. Despite government programs designed to improve the situation, the light at the end of the tunnel seems very far indeed. Thus the desperate turn to organizations like OFF.
Though the Hernandez family lost their home recently, OFF has had a few victories, said Marroquin. Early last year, OFF activists were able to get Bof A to return ownership to Dirma Rodriguez after she had already been evicted. They were able to save another home in Anaheim as well.
However, many of OFF’s victories have not been publicized because they have not required activists to stage audacious and attention-getting stunts. OFF activists have on several occasions dealt directly with the banks. In other instances, said Marroquin, they have obtained third-party assistance. These efforts, he said, have led to workable loan modifications and principal or interest reductions.
“We have come to solutions, outside of court, outside of any kind of protest and were able to keep those people in their homes,” he said. “There is so many things that we have been able to accomplish through direct conversation with the bank without using any form of activism.”
Activism, however, is still very much at the heart of OFF. The sit-in demonstrations and protests at banks continue. The group was able as well to participate in this year’s Rose Parade with their late-entry float, which featured the “Mr. Monopoly” character from his eponymous board game. It marks the second year that Occupy LA has had a presence at the parade.
“And it will serve as a reminder to the banks,” continued the statement, “of the thousands of homeless families that they have removed from their homes leaving them displaced. They’re fed up with these banks stealing the American Dream.”
Saturday, 5 January 2013
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