Troubled Homeowners Can’t Be Bothered with Helping Themselves

November 19, 2009 by  
Filed under Fools of Finance

In February, the Obama administration announced its $75 billion dollar plan to rescue 4 million homeowners (and I use that term loosely) from probable foreclosure. The concept was that these troubled homeowners would negotiate with their lender for a revised payment plan, test the plan for a few months, then make it permanent for five years. Taxpayer funds would support all of it. So far, this program has been a dismal failure and another waste of our money.

What the Obama team didn’t count on is how disinterested these troubled homeowners were in doing their part to complete the program. It turns out they were too lazy to submit the paperwork to establish their eligibility for a permanent loan modification.

OK, maybe they weren’t technically “lazy.”  Rather, they were too clueless to understand what was required of them. Either way, it is it any wonder why these homeowners were “troubled?” It’s not just that they were in trouble with their mortgages. They were “troubled”, period. That means that submitting the paperwork to help themselves out of a mortgage mess was just too much trouble.

Either way, according to the bailout funds “oversight” committee, only 1.26% of homeowners who started a trial payment modification were able to convert it to a permanent one. Here is the hard truth from the article:

“Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications,” said Guy Cecela, publisher of Inside Mortgage Finance, a trade publication. The president’s program “won’t result in a significant number of loans being modified and won’t put a significant dent in foreclosure rates.”

And about those silly documents needed from the homeowners:

At JPMorgan Chase, about 92,500 borrowers, or just over half of those in the president’s loan modification program, have made more than three payments. But only 26% of those have also submitted all of the required documents. “We’re not sure why we’re not getting the documents from people,” said Chase Spokesman Tom Kelly, who declined to say how many permanent modifications the bank has completed.

Some of the lenders have started going door-to-door and handing out gift cards just to persuade these stupid homeowners to turn in some basic paperwork so that the taxpayers can help them.

Are you kidding me?

Maybe we should be cutting their grass and taking their trash to the curb as a bonus benefit. “Please, sir. We want to lower your mortgage payment. Will you let us if we do some of your chores?”

Mr. ToughMoneyLove has been saying since forever that a root cause of many foreclosure problems is that we (not me) wrongly encouraged homeownership for people who should be renting. I also predicted that homeowner bailouts were destined to fail but that government mortgage bailout foolishness was unstoppable. (Thanks, Sheila Bair.)

They never listen to me. So we will just sit back and watch the evidence mount.


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12 Responses to “Troubled Homeowners Can’t Be Bothered with Helping Themselves”
  1. Evan says:

    TML,

    Posts and news stories like this anger the hell out of me. Why can’t the gov’t actually just think a program through and AT LEAST TRY to understand the unintended consequences?

  2. Duececlub says:

    Mr. ToughMoney

    It appears you failed to mention that these homeowners turned in paperwork multiple times. You also fail to mention how banks are losing documents.

    FYI….when they say paperwork is incomplete, that usually means the income verification is out of date. The paperwork requires income verification from the last 30 days, but the banks are talking longer than 30 days process the paperwork. See the problem? Personally, I think its a bit of both bank and homeowner. I appreciate the article, but please tell both sides.

    http://business.theatlantic.com/2009/06/missing_mortgage_modifications.php

    http://abcnews.go.com/Business/foreclosure-frustration-trouble-loan-modifications/story?id=8380778&page=2

  3. Money Beagle says:

    Actually, the correct course of action wouldn’t be to take out their trash for them, it would be to take their trash buckets back in after trash collection. It’s amazing the number of people that can pull in and out of their driveway for days, only retrieving the bucket when they need to put trash in it. If I were a betting man, my money would go to saying that these are probably the same group of people who can’t submit their paperwork.

  4. MasterPo says:

    Government helping people no loose their homes, ey?

    Let me tell you a story of two close friends…

    One close friend lost his job earilier this year. He immediately called his back to let them know he’s going to have trouble making his mortgage payments. Their suggestion: Nothing we can do now! They bank told him he would have to miss *3 payments in a row* THEN get the past-due notice before they would even TALK to him about a loan modification or some other payment plan! Fortunately he found another similar job and didn’t miss any payments.

    A second close friend and his family got into deep debt late last year due to other family issues. They missed several mortgage payments. The tried to contact the gov, the website Obama touted as being help for middle class people with mortgage problems etc. Didn’t qualify for anything! Even their lawyer (doing it pro-bono) representing them at the scheduled foreclosure hearing said they’re only hope was to go to foreclosure and then there *MAYBE* the bank *MIGHT* be will to do some modifcation or adjustment. Or they might not and be foreclosed on. In their case fortunately they found a private person to make a private loan and they are now happily back on track.

    How’s all that ‘hope’ and ‘change’ working for you?

  5. Len Penzo says:

    You are right on the money, Mr. TML.

    The housing mess started when the lending standards were greatly reduced, at the behest of Barney Frank and others who believed owning a home was a right.

    Many many people who managed to buy homes with little or nothing down at over-inflated prices (the price run-up largely thanks to the availability of ubiquitous cheap credit) had no business being given loans in the first place.

    And when the inevitable occurred, instead of letting the foreclosure process take its natural course, we got government intervention to try and save the un-savable. Complete madness.

    As I have said many times before, there is absolutely no shame in renting. But there are still folks in Washington DC who continues to think otherwise.

    Best,

    Len
    Len Penzo dot Com

  6. Lefty33 says:

    TML,

    I read your blog regularly and you are usually right with most of what you post but on this one you are completely off base.

    I am a Chase customer who has tried for a modification due to a job loss and extended unemployment and I will say that in my experience your Chase example is not reality.

    The truth is pretty much what Duececlub wrote. I have called more people at Chase than I can remember and have received at least 8-9 stories of what documents they wanted and how long it would take and how the process would go.

    It is impossible to speak to the same person twice and each time you have to start over since they have always “misplaced” something. When they don’t have just one document they tell you that the rest don’t count and you start over.

    The income verification part that Duececlub wrote about is spot on. If I send then something today, guaranteed I will not get any response within 30 days and when I do get a response or when I finally am able to speak with someone with decision making abilities 30 days plus will have past and then you start by having to send the whole packet again.

    Yes, I’ve contacted Obama’s website and yes I have tried the attorney route and Chase pretty much couldn’t care less about either.

    I’m not going to debate the politics about whether this program should or shouldn’t exist because it does and apparently it’s not going anywhere.

    But at least with Chase there are no gift cards, no one is chasing me down, I am not lazy, and I sure as hell am not a stupid homeowner. I believe now that Chase has paid back the TARP money they are more or less flipping the bird to the Feds by no longer actively participating in Making Home Affordable and by making the process hell for the homeowners who are trying to make this work.

  7. cjbr549 says:

    I think the program was designed from the getgo just to make the politicians who passed it look like they were doing something, not to actually do anything. I think combinations of several things are combining to keep the number of conversions low. I suspect the paperwork burden is quite high, and I imagine that this was done intentionally to keep the expenditure on this program low. The banks are not interested in modifying loans, so they are not resourcing the program adequately and finally the homeowners either don’t have the fortitude to own a home or they are frustrated by the process and are just ready to set fire to the damned thing and leave. I’m not some fat guy that still lives in my moms’ basement thinking up conspiracy theories, but I think that this was all anticipated by the parties who crafted this bill. Remember the power of the banking lobby, they didn’t want to modify a bunch of loans, they wanted people to pay them.

  8. MasterPo says:

    Goes back to the main issue: *Why* should a bank take the risk and financial loss to modify a loan?

    Someone borrowed money on certain terms.
    They can’t live up to those terms.
    The bank takes back the collateral.
    Period.

    No one would cry over someone loosing their car for the same reason. But doesn’t a person need transportation to get to/from work? School? The doctor? The supermarket?

    I’d bet a week’s pay that half if not more of these people are in their first house bought with in the last 5 years for zero-down.

    • Lefty33 says:

      Master Po,

      The answer is simple.

      In the area I live in there are so many foreclosure auctions going on and the prices that mortgage companies are receiving are so ridiculously low that you would think it’s more cutting off your nose to spite your face.
      I guess it’s easier for them to just take a huge loss and be done than try to modify and maybe get double/triple the return.

      >Someone borrowed money on certain terms.
      They can’t live up to those terms.
      The bank takes back the collateral.
      Period. <

      In normal times your example makes sense but right now with how many homes are out there and the amount of collateral that is in play you would think it would make sense for these companies, where it makes sense, to try for a higher rate of return on their investment instead of just seemingly just pushing the dump button all of the time.

      • MasterPo says:

        Lefty,

        I think the hard reality is that if someone can’t pay their mortgage today, then modifying the loan is just prolonging the inevitable (i.e. foreclosure). And in the mean time the bank is carrying high risk/low cahflow debt. Not a good thing.

        The banks aren’t as dumb as Obama et. al. have panted them. They see the economy – especially the jobs market, particularly for high paying jobs – just isn’t going to rebound in the foreseeable future no matter how glowing Obama speaks of “creating or saving jobs” (still looking for the proof he saved even 1 non-gov or gov contractor job!).

  9. FedUp! says:

    It is so easy to sit there and judge when you are not the one wearing the shoes. We had two years savings in the bank when the economy started to crash — an no, it wasn’t when the news started reporting it. Our investments were in commercial real estate. We put 35% down on our home. The payments and our spending was set up on my husband’s income. He was in commercial real estate. For the past two years commercial real estate has taken a beating with very little income produced. He is self employed and does not qualify for unemployment though we paid our taxes every year! My income alone will not cover the mortgage and other expenses. We let both our cars go back in order to keep the home. Unfortunately we are now house poor. No money for emergencies such as going to the dentist, doctors, buying a pair of shoes. You need to get off your royal fanny and take a reality pill before you run off at the mouth how stupid homeowners did this and that… We were doing fine until the BANKS pulled out of our real estate deals. Our clients did not pull out. The BANKS did. Now, they want us to pay up! So don’t lump all struggling homeowners into the same category. Go figure!

  10. red rabbit says:

    One thing to consider:

    Doctors can be sued for malpractice and lawyers for malfeasance, why can’t the real estate agents who whoever was encouraging and approving these people for these toxic ARM/NINJA mortgages also be sued for malfeasance? Of course the consumer has to do their homework, but when someone is given terrible advice or information is withheld by the alleged professional in the relationship, the fault lies with the professional.

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