The good news was waiting for Carrie Haskamp on her answering machine one September afternoon. Her bank had agreed to change the terms of her mortgage loan so that she could catch up on her missed payments and keep her rural Minnesota home.
"I remember calling my husband at work and telling him he had to come home and listen to the message," recalled Haskamp, 44. "It was like 'We got it. We made it. We're going to be okay.'"
What Haskamp didn't know was that a month later the bank would foreclose, despite her loan modification. Turns out, one arm of her mortgage company was reviewing her loan for a modification at the same time that another division was planning to foreclose, in an industry practice called "dual tracking." While there's no firm data on the number of borrowers who go through this, housing experts agree that it's routine and problematic. People who possibly could have kept their home with their bank's help instead end up on the street.
"I hear every week about homeowners all over the country facing foreclosure while applying for a loan modification or even while making payments under a modification," said Diane Thompson, counsel for the National Consumer Law Center, an advocacy organization.
The national foreclosure settlement announced last week includes new mortgage rules intended to stop dual tracking. But some housing experts are skeptical that the new policies will do much to curtail the practice, in part because they could prove to be difficult rules to enforce, said Kevin Stein, associate director of the California Reinvestment Coalition. "There are very individualized, day-to-day decisions happening when a mortgage company works with a borrower. And that's hard to monitor and enforce," said Stein, whose coalition of nearly 200 nonprofits serves low- and moderate-income Californians.
The rules also fail to address the communication problems that frequently cause the problem, said Melissa Huelsman, a Seattle-based attorney who represents homeowners. "The way the mortgage companies have it set up, they use a software system to keep track of foreclosures. The people doing the loan modifications are often in another location, completely removed from the foreclosure piece of the process. That's where there's a disconnect. They don't interact, and that leads to dual tracking.
"To fix that, the mortgage companies would have to completely revamp their whole computer system," Heulsman said. "Do I think they'll spend all that money to do that? No. Do the new rules make them do that? No."
But Derrick Plummer, a spokesman for the Department of Housing and Urban Development, said the communication concerns will be addressed through new guidelines requiring the mortgage companies to assign each borrower a single point of contact at the company. "There is going to be one employee responsible for walking that borrower through the modification process to avoid previous communication problems."
Additionally, North Carolina's banking commissioner, Joseph Smith, who will enforce the new rules, can impose penalties of as much as $1 million per violation -- or as much as $5 million for certain repeat violations, Plummer said. Smith "will look at samples of loans to test whether or not the [mortgage company] referred the borrower to foreclosure at a time when they shouldn't have or stopped the foreclosure process at the time they should have." Smith's team will also release reports to the public regarding the banks' compliance, according to Plummer.
Last week's settlement is not the first time the federal government has issued guidance designed to stop dual tracking. Since 2010, more than half a dozen federal agencies have released dual tracking guidelines, but they are weaker than the new rules issued last week, said Ira Rheingold, president of the National Association of Consumer Advocates.
"Last week's guidelines are much more detailed and much stronger in terms of changing mortgage companies' behavior," said Rheingold, a housing policy expert who is cautiously optimistic about the new rules. "There are rules about number of staff that must be hired, limits on their caseloads, baseline requirements on employees' educational level ... These rules should go a long way to ending dual track if the banks follow them. But we're dealing with banks that have proven their level of incompetence for a long time now."
Haskamp witnessed the effects of dual tracking firsthand. A mother of three, she runs a day-care service out of her three-bedroom, split-level house in Sauk Centre, a town of 5,000 in the middle of Minnesota. She and her husband purchased their home seven years ago for $135,000 and for five years they diligently made their $1,100 monthly mortgage payments. But in the fall of 2009, as the Great Recession seeped into small-town America, many of Haskamp's customers lost their jobs and subsequently stopped making their day-care payments.
"We don't live an extravagant lifestyle," Haskamp said. "My husband has a 1997 pickup, and I just upgraded to a 2002 van. We don't go on vacations. We're your average, go-with-the-flow, middle-income people. But when your paycheck depends on someone else, and they're not getting money to you, what do you do? We had some savings, and we used it first, but then that ran out."
The Haskamps, who have a total household income of roughly $50,000, spent most of 2010 repeatedly applying for a loan modification from their bank, PHH Mortgage. They were confident that they qualified for help under a federal program, run in partnership with banks, that President Barack Obama announced in 2009: They owned their home, they had obtained their mortgage before January 2009, their monthly payment was more than 31 percent of their household income, they were employed and experiencing a financial hardship.
"It was this never-ending process," said Haskamp. "I'd send them the paperwork, then they'd say they lost it or never got it and ask for it again a few months later."
A representative for PHH Mortgage declined to comment for the story, citing an ongoing lawsuit with the Haskamps.
While the Haskamps waited for a loan modification, they began receiving letters that the bank was preparing to foreclose. One day, a man appeared at their front door with an eviction notice. Soon thereafter, they received a phone message that they had been approved for the loan modification. And yet the letters warning of a foreclosure continued to arrive in the mail. Confused, Carrie Haskamp repeatedly called PHH Mortgage, she said, and was repeatedly reassured that bank officials knew she had been approved for a loan modification and that she needn't worry, that it was merely an internal miscommunication the company had yet to resolve.
Haskamp wanted to believe the bank, but then the day of the foreclosure arrived in September 2010. Haskamp went to the courthouse to plead her case, explaining that she had been approved for a loan modification. The sheriff agreed to postpone the foreclosure for 30 days so that the bank could resolve the confusion. PHH's lawyer advised Haskamp that she should retain an attorney. The Haskamps couldn't afford one, but eventually a friend from church helped them to secure pro bono help. After the 30 days, PHH foreclosed. Days later, the bank cashed the Haskamps' first mortgage payment under her loan modification.
Jane Holzer, a supervising attorney with the Minnesota-based Foreclosure Relief Law Project, represents the Haskamps and has filed a lawsuit against PHH as well as Fannie Mae, the government-owned mortgage giant that owns the Haskamps' loan. As part of the lawsuit, she succeeded in halting the pending eviction, but the two sides have yet to resolve the case. In the meantime, the Haskamps remain in a strange, suspended reality, living in a house that once belonged to them and that might one day be returned to them -- or taken from them.
"It's kind of like thinking the end of the world is coming," Haskamp said. "But you don't plan for the end of the world. You plan for the next day, so that's what we do. We plan for the next day, and we wait for a phone call saying this will be okay."
Clarification: An earlier version of the story, following a source, stated that the proceeding in September 2010 was an eviction proceeding; it was a foreclosure proceeding. This has been revised.