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Deck Stacked Against Homeowners

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My wife and I have been involved in negotiations with our loan servicer, Ocwen for over a year now. Long before the Obama administration and US Treasury Department introduced the Making Home Affordable plan. We're getting close to the end, but the end might very well mean losing our home.

We weren't sub-prime borrowers, speculators or driven by greed. We moved from Seattle and bought a modest home in Salem, Mass. to be closer to family. One morning last year, we woke up and that modest 1200 square foot home lost 40 percent of its value. We've been fighting to keep it ever since.

Arianna Huffington wrote an article last week on how the deck is stacked against homeowners when it comes to legal representation in foreclosures and mortgage related cases. In the article she addresses not only the prohibitive costs of legal representation for most people, but also the point that even homeowners with representation face restrictions that are deliberately built into the system.

In her post she writes:

Remember the "Contract With America"? It turns out one of its provisions severely limited the ability of homeowners to get legal protection from predatory lenders. For instance, homeowners represented by the Legal Services Corporation are barred from bringing class action suits. Nor are they able to make the other side pay attorneys' fees even when the law would normally allow it.

Even something now as mundane and commonplace as bankruptcy can cost $3000 in legal fees. Not a small amount for someone who can't afford to pay the mortgage on a home that has depreciated in value by 30 to 40 percent. From a value, by the way, that was artificially inflated by the banks and lenders to begin with.

These same banks and lenders lobbied and fought like hell to kill the Helping Families Save Their Homes in Bankruptcy Amendment, which would have authorized federal bankruptcy courts to modify, or "cram down," the terms of mortgages on certain primary residences. They managed to convince enough senators to vote against the bill back in May by giving campaign contributions. A bill that would have created an added incentive for lenders to work with homeowners and might have pushed the industry into taking a different approach to the Making Home Affordable plan.

There are of course other channels of assistance for the foreclosure fiasco. Each of these comes with its own set of consequences and mine fields.

We first tried HUD, who referred us to Hope for Homeowners, a government agency, who in turn put us in touch with one of their sub-contractors, Novadebt. We had the distinct pleasure of dealing with Diane Esquera, who proceeded to tell my wife that it was people like us who had caused the economic meltdown and that we needed to "trim the fat." She instructed us to wear sweaters in the house during the winter months and cancel our phone service, among other idiotic suggestions. She then determined that we were lucky to have a 13 percent interest rate on a home that had lost 40 percent of its value over night and then promptly reported her findings to our lender.

As a result of the damage done by Novadebt and before knowing any better we hired a loan modification company that was "highly recommended" by people in the industry. Turns out that was a scam. We did end up getting our money back after several months of phone calls, e-mail, letters and more than a few calls to the Attorney General's office, but the months leading up to that were far from fun.

Another option is the media, according to an article in Propublica:

Qualified homeowners are being routinely denied loan modifications through the Obama administration's Making Home Affordable plan, but they have little recourse to correct the mistaken denials, housing advocates say. In the absence of an effective appeals process, some borrowers have improvised their own solutions: They turn to journalists or congressmen - or take Treasury Secretary Timothy Geithner to court.

And while the media can certainly help to get the word out and your particular problem noticed, the onslaught of cruel, insensitive, and insulting comments from angry and anonymous pro-corporatism wing-nuts could make you think twice before coming forward publicly.

If you're lucky enough to be represented by someone like Maxine Waters (D-CA) who has called banks on behalf of her constituents or Marcy Kaptur (D-OH) who stood on the floor of the Senate and said, "So I say to the American people, you be squatters in your own homes," you may have a chance.

But if you're like us and live in Massachusetts and call and e-mail your Congressman relentlessly for the past year, you get a half-hearted voice mail message from his office that says, "I didn't realize you required or expected some kind of action on it," in reference to the most recent e-mail updating him on the impending loss of your home.

Really? You didn't see the urgency of a call back to a family losing their home?

As for Barney Frank and Kennedy? They referred us to our congressman, John Tierney.

So when we're reading a proposed modification from self-proclaimed heroes of the loan servicing industry that includes statements like, "Any expenses incurred in connection with the servicing of your loan, but not yet charged to your account as of the date of this Agreement, may be charged to your account after the date of this Agreement," buried in Section 10 Article C of a three page "Standard Agreement" while leaving out other pesky details. You know, like the terms, an amortization schedule, or any disclosure of the possible fees, do we have any choice but to hire a lawyer for $200 an hour to look this over? It would appear that we'd be agreeing to any arbitrary charge from now until the end of the loan.

And what do you do when you ask for clarification and that same hero bank says they don't have a legal obligation to disclose the terms and if we don't like it they'll go ahead and foreclose and take our home? It seems that the deck, as Arianna points out, is most certainly stacked against us.

When contracts are written with this degree of sloppiness and ambiguity should the Treasury Department really be surprised that homeowners are turning down modification from banks they don't trust? And rather than working with behavioral economists, as mentioned in a recent HuffPost article, Mortgage Loan Modification: More Offers Extended, Fewer Homeowners Accepting -- Are Homeowners Losing Hope, shouldn't they be overseeing these contracts and talking with homeowners directly?

Maybe my next post will be "Why I Turned Down a 3 Percent Loan."

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