Monday, August 11, 2008

Another Modification Horror Story

by Tanta on 8/11/2008 10:27:00 AM

A few days ago we encountered the Pestanas, who are suing WaMu for failing to modify their loan. In that case, the Pestanas allege that WaMu told them they couldn't be considered for a modification because they had only missed one mortgage payment, so they tried again after having missed several payments, only to find WaMu initiating foreclosure.

Today we encounter the Harrises. In this case, the Harrises allege that Countrywide told them they couldn't be considered for a modification because they were never delinquent. Rather than going ahead and becoming delinquent, like the Pestanas, the Harrises called the Chicago Tribune to find out how they could join the Illinois Attorney General's fraud suit against Countrywide. It appears that it will not be necessary for the Harrises to allege in court that Countrywide defrauded them, since after the reporter called Countrywide, the borrowers were offered a rate reduction modification.

I wish to observe that I am of two minds about this phenomenon. On the one hand, this is the power of the press that we should all be in favor of: its ability to side with the little guy, threaten the big corporate interests with exposure and bad publicity, and get things done for the little guy. Afflict the comfortable, comfort the afflicted, mission accomplished.

On the other hand, any motivation that at least some little guys might have had to tell a complete and unvarnished story to a reporter has a tendency to disappear when the reporter is being used by the little guy as a negotiator with the big bad corporation. We all know the rules by now: the servicers cannot tell their side of the story, because of confidentiality rules that limit them to the ubiquitous "we cannot comment on the facts of this borrower's case." The borrowers, on the other hand, are free to tell as self-serving a story as they want to the reporter, sans rebuttal by the servicer. Unless the reporter displays a pretty good degree of skepticism and curiosity, the reporter (and hence the rest of us) is likely to get spun.

Here's the saga of the Harrises, per the Tribune. I know I have my unanswered questions about this. Does anyone else have a few?

The root of the Harrises' dilemma goes back to 2004, when they decided to refinance the home they bought in 1994.

Lisa Harris and her husband were entrepreneurs who had recently bought an Evanston laundromat and a Park Ridge tanning salon. They didn't have two years of regular income to report, but their credit score was a high 720, so they qualified for a low-documentation, 30-year adjustable-rate loan. The interest rate was 7.95 percent for the first three years.

The rate would then adjust every six months and could go as high as 14.95 percent. The Harrises borrowed $193,500, making their monthly payment roughly $1,800.

But the Harrises' businesses closed and Lonny went to work selling cars; he brought home only $30,000 in 2006 and $60,000 in 2007, not enough to allow them to refinance with another lender. Lisa Harris, 39, has a small business in her home that brings in about $500 a month. Their 6-year-old has special needs, making it difficult for her to work outside the home.

Their interest rate jumped in June 2007 and again in January 2008, reaching almost 11 percent. Lisa Harris called mortgage lender Countrywide's "home retention" department in January and asked to have the interest rate reduced and fixed.

She wrote a hardship statement. She faxed bank statements showing cash deposits from her in-laws. She filled out a detailed budget. After getting no answer for months, the Harrises were informed that they didn't qualify for the program because they aren't delinquent on their loan.
It may or may not have made much sense for Countrywide to decline this mod request; I couldn't say because there's too much missing information, like how much misrepresentation the Harrises originally made on their original loan application. But I confess I am curious about what grounds the Harrises thought they had to sue Countrywide for "fraud."

I suspect the reporter doesn't explain that because . . . she got spun.

(Thanks, Gene!)