John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... The move by the Obama Administration to pressure lenders to make more permanent loan modifications, could help thousands of people in Colorado.
Nationally, about 650,000 people have been given trial loan modifications, as part of the administrations’ $75 billion foreclosure-prevention plan, but few of those have been converted into the permanent loan reductions.
“I do not think Colorado is driving this debate – it is being driven by bigger states with even bigger problems with this issue,” said Ryan McMaken, spokesman for the Colorado Division of Housing.
“But the reality is that it would have to help thousands of people in Colorado,” McMaken added. He noted about 12,000 new foreclosure filings in the third quarter state-wide, and “at any given time, there are probably in the neighborhood of at least 15,000 people in the process.”
Still, it is hard to get an estimate on a more precise number.
“I have no idea,” said Shannon Peer, director of housing counseling at the non-profit Brothers Redevelopment in Edgewater.
Peer said he is in favor of anything that allows people to keep their homes, “as long as it is a long-term fix, and not a short-term fix.”
He noted that the “original plan was to get homeowners approved so if they could make three payments at the lower interest rate, they would then do the modification on a permanent basis,” Peer said. “There has just been some problems getting those temporaries into permanents. Getting people into the temporary loan modifications took longer than we would have liked to see, and now getting them into the permanent loans is taking longer than we would like.”
If Michael Gunstanson and his wife, Dru, can get a permanent loan modification, they could see their monthly loan payment on their Lakewood home drop almost 44 percent to $950 from $1,690. They have been making monthly payments of $1,090 under the trial program, but J.P. Morgan Chase has not yet converted it to a permanent reduction. And the permanent program would carry an initial rate even lower than what they were paying under the temporary program.
“We’re kind of between a rock and a hard place,” said Gunstanson, an out-of-work journalist, who picks up the freelance work whenever he can.
He said he is dealing with both “loan modification people and foreclosure people,” at Chase, and he’s not sure the two sides talk to each other. He’s already had to re-submit all of his documentation, such as two years of W-2 forms, because the lender can’t find the original documents, he said.
“Because we were 90 days past due, they put us on this modification program, which is supposed to stop the foreclosure,” he said. The loan modification side wants him to stop making payments until February, while he worries if he does that, the other side of the bank may foreclose.
But he supports the efforts to speed the process, which could include fines for loan servicers that do not make enough permanent modifications quickly.
“It would do two things for me,” he said. “First, it would make it easier for me to afford the monthly payments while I look for work here and until the economy improves. Second, if I’m able to find a job in Florida, for example, it would allow me to rent my house out and not lose it.”
Still, it is questionable if people with no jobs will be helped by loan modifications, said McMaken of the housing division.
The first round of foreclosures were caused by bad loans, but the current wave of distressed homeowners is being driven by people losing their jobs, he siad.
McMaken said he has seen statistics that the “recidivism rate” – the number of people who get their loans modified, but still end up in foreclosure – is extremely high.
“In some cases it is 50 percent or higher,” he said. “That is seldom discussed, but it is important to watch. If you don’t have a job a loan modification might not be for you.”
Both he and Peer strongly urge anyone fearing or facing foreclosure, should speak with a HUD-approved housing counselor for advice on whether a loan modification will help.
“Counselors have worked on hundreds and hundreds of cases,” McMaken said. “And when you first received your loan, the lender did all the work for you. They just said, “Skim this and initial here.” Now, everything is in the homeoner’s lap and it is complicated.”
McMaken said lenders and loan servicers complain that homeowners don’t fill out the forms properly, which does not allow them to process the modifications. A counselor can help people make sure they cross their t’s and dot their i’s.
Along the same lines, Peer noted that there are often “communication breakdowns between the borrowers and the loan servicers. A counselor can step between them and straighten out the issues.”
Homeowners seeking free advice from a counselor can call the Colorado Foreclosure Hotline at 1-877-601-HOPE. For more on the loan modification drive, go to this link.
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
