The following story is produced in partnership with The Dylan Ratigan Show's week long "No Way To Live" series on the financial crisis and its impact on ordinary Americans, and in collaboration with Meetup.com, which is hosting HuffPost Mortgage Modification Madness Meetups across the country, where homeowners can meet others who've had similar difficulties with lenders.
After nine months of dutifully making lowered mortgage payments under the Obama administration's foreclosure-prevention program, Bea and Terry Garwood of Pinckney, Mich., are all set to move out. Despite the promise of relief, they are losing to foreclosure the two-story house that has been their family home since 1994. They say the administration's initiative has effectively pushed them out the door.
The Garwoods are among nearly 800,000 American households that have managed to enroll in the program before failing to secure permanently lowered monthly payments. Their experience underscores why many housing experts and lawmakers have proclaimed the effort a failure. Though President Barack Obama promised it would help three to four million homeowners avoid foreclosure, only 522,000 had successfully secured so-called permanent loan modifications by the end of last year, according to the Treasury Department.
More homeowners have actually been bounced from the program than have been helped, the data show. Despite widespread anticipation that foreclosures will only accelerate in 2011, breaking a record set last year, the number of new borrowers entering the program has been slowing to a trickle: Most of the potential new applicants lack sufficient income to qualify for lowered payments. The program was designed to help people confronting mortgages whose low promotional interest rates give way to much more expensive terms, and not for the circumstances at hand, with holders of traditional loans losing jobs and income.
A Treasury spokeswoman said the HAMP program was never intended as a cure-all for the foreclosure crisis. "It wasn't designed to prevent every foreclosure," said the spokeswoman, Andrea Risotto.
The Garwoods--who live with their two children, a 13-year-old daughter and an 11-year-old son--complain that they wasted their money making payments on a trial basis, hoping this would deliver permanent relief, only to find themselves on the verge of losing their home of more than 16 years.
"I feel like I am in hell," said Bea Garwood, 41, who works as an accountant at the University of Michigan in nearby Ann Arbor. "The last thing we ever, ever wanted was this to happen. We don't even want to be there no more. We don't feel comfortable no more. We don't feel like it's our place."
The Garwoords' experience with their bank - the unexplained delays; the conflicting advice; the lost documents; the difficulty in finding a human being to talk to, let alone one familiar with their case; the inexplicable fees and letters of rejection - is familiar to millions of homeowners who have sought mortgage modifications either through HAMP or a bank's own program. Based on hundreds of hours of interviews with homeowners over the past two years, a strikingly clear picture emerges of the similarities between the many experiences of homeowners that are unique only in their details. A homeowner lost in the maze of a bank's phone system may feel alone but, in reality, is lost with millions of others. To connect homeowners who've had similar trouble with their banks, HuffPost is teaming with Meetup.com and MSNBC's Dylan Ratigan to launch Mortgage Madness Meetups across the country. Get a Meetup in your neighborhood going here.
Last week, Republicans in the House introduced a bill that would end the program, known as the Home Affordable Modification Program, or HAMP. Though few observers anticipate the measure has any real chance of becoming law, Democrats are hardly eager to defend it. In a written statement, the administration said homeowners would suffer if Congress repealed the program, but the President made no mention of it in his recent State of the Union address.
Obama's initiative enables homeowners to lower their monthly payment by decreasing the interest rate on their mortgage, extending the life of the loan, and, in some cases, deferring large amounts of principal to the end of the loan. But the program depends upon the cooperation of mortgage companies, whose participation is voluntary. The institutions that collect monthly mortgage payments--servicers, in industry parlance--control the process through which homeowners receive assistance, under contracts with the Treasury. In return for incentive payments, banks administer the program and try to place homeowners in new mortgages to avoid foreclosure.
Many homeowners who have tried to avail themselves of the relief program complain that they have fallen prey to a never-ending run-around in which they are frequently told they qualify for debt relief, then make on-time payments and submit the necessary paperwork, only to eventually be informed that their payments have been lost or their documents never received. Finally, they are kicked out of the program, with their houses placed in foreclosure.
A federal auditor noted in October that the program's drawn-out trial modifications waste the resources of homeowners who have no shot at securing permanent relief, leaving them with "more principal outstanding on their loans, less home equity (or a position further 'underwater'), and worse credit scores."
"Even in circumstances where they never missed a payment," the report added, "they may face back payments, penalties, and even late fees that suddenly become due on their 'modified' mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent."
That is precisely what the Garwoods say happened to them.
The Garwoods say they never even asked for a loan modification, but applied only after their bank, JPMorgan Chase, contacted them in early 2009 and identified them as ideal candidates. According to the Garwoods, the bank noticed that they were one month behind on their mortgage, owing to the seasonal nature of Terry Garwood's roofing business.
Chase, through a spokesman, declined to comment on the family's history, but noted that it has willingly postponed planned sheriff's sales of their home pending resolution.
"We try to help homeowners stay in their homes whenever possible through programs like HAMP and our own modification programs," said the Chase spokesman, Tom Kelly. "We have helped nearly 500,000 families avoid foreclosure."
Under the program rules, homeowners who are delinquent or at risk of falling behind on their mortgages are eligible for lowered payments if their current monthly payments amount to more than 31 percent of their existing income. Chase put the Garwoods in a trial plan that saved them about $500 per month.
Homeowners that succeed in making three timely trial payments and are then able to document their continued eligibility are supposed to be approved for permanent modifications. But last March, after making trial payments for nine months, the Garwoods say they received a letter from the bank informing them that they had been rejected for a permanent modification. Worse, the bank said they now owed an additional $12,000--the difference between their reduced payments under HAMP and what they would have been paying without it, plus fees. If they failed to pay, the result would be foreclosure, Chase said.
Since then, the fees and arrears have only multiplied. According to the Garwoods, Chase now demands $26,000 to catch up--a number far from the realm of possibility. They say they have enough to move into a rented apartment, but nowhere near enough to settle the account.
The Garwoods owe roughly $140,000 on their mortgage, and similar homes in their neighborhood are going for about $100,000. That places them among the one-fourth of all American mortgage-holders who are underwater, meaning they owe the bank more than their home is worth. Researchers say homeowners who fall underwater are significantly more likely to default on their mortgage.
The administration's program, though, was not designed to address this. Experts say the only way to give underwater borrowers an incentive to keep making payments is to cut the size of their loan principal to restore their ownership stake. The average homeowner with a permanent HAMP modification owes $1.18 on their mortgage for every $1 their home is worth, according to the Treasury Department. Most HAMP modifications push borrowers even deeper under water by tacking on late fees and delinquent payments to their overall mortgage, raising the total amount due.
Meanwhile, home prices are falling, adding momentum for more defaults, more foreclosures and--completing a feedback loop--further drops in home values. Fitch Ratings, one of the three major credit rating agencies, forecasts a 10 percent decline in home values this year.
Experts criticize the Obama administration for declining to pressure mortgage companies to write down the value of outstanding home mortgages, which has left homeowners in untenable positions while shielding lenders from losses they would otherwise have to absorb.
"HAMP is a failure," said Joshua Rosner, managing director at independent research consultancy Graham Fisher & Co., adding that the only way to transform it into a meaningful support for homeowners is to shrink principal balances.
The Garwoods say their experience has been bewildering. Every week, says Terry Garwood, 39, a different Chase representative calls him with a different account on the status of his application.
"They call and leave numbers to extensions that don't exist," he said. "You can't talk to anybody. You can't get anywhere with these people."
Even as he has made payments on time on a trial basis, he complains, Chase has reported him to credit agencies as delinquent.
"I didn't know I was getting a black spot on my credit," he said. "It completely destroyed my credit and the chances of owning a home or buying a car."
The Garwoods have not made a mortgage payment since last spring, when they were confronted with the ultimatum--hand over money they do not have or submit to foreclosure. Now, they are preparing to pack up and move into a nearby apartment. But when they will have to leave remains as uncertain as every aspect of their frustrating experience with their bank.
"It's got to be borderline criminal," said Terry Garwood. "Basically it allowed them to steal my house from me."
Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.
Arthur Delaney is a reporter for The Huffington Post. You can reach him at email@example.com or find him on Twitter at ArthurDelaneyHP.