Bea Garwood has been bracing for foreclosure since May, but she says she's been told three times to expect a sheriff's sale in the next month and it still hasn't happened.
"We really at this point do not know where we are in the process," said Garwood, who lives in Pinckney, Mich. with her husband. "We have no clue. We haven't even heard from Chase bank in three weeks."
The Garwoods may have had a lucky spin in the game that industry analyst Sean O'Toole calls "Foreclosure Roulette."
Banks don't want to recognize losses by having to put homes on the market at foreclosure-sale prices, but they don't want to encourage borrowers to quit making payments either, so, O'Toole believes, they randomly foreclose on some people to prevent widespread "moral hazard." The rest are left hanging with the help of the government's "extend and pretend" approach to the collapse of the housing bubble.
"We just don't have the political appetite to bail homeowners out," said O'Toole, CEO of ForeclosureRadar.com. "On the other hand, we don't have the political appetite to kick them out."
Last year the Garwoods tried to modify the mortgage on their Pinckney, Mich. home under the Obama administration's Home Affordable Modification Program, which is supposed to put eligible borrowers into a three-month trial period before making the modification "permanent" for five years. The Garwoods' trial period dragged on for nine months before they received a letter of rejection in March. They've been waiting anxiously since then for the day they will finally lose their house.
It may be a while. The average foreclosure now takes 469 days, according to Lender Processing Services, whereas it took 319 days at the beginning of 2009. Many industry analysts say that is due to the Troubled Asset Relief Program, HAMP, and federal accounting-rule changes.
"We weakened accounting standards to allow banks to keep non-paying mortgages in their books at full value," wrote economist Dean Baker, co-director of the progressive Center for Economic and Policy Research. "Banks also know that they are looking at glutted markets right now, so they have little incentive to take possession of a home and then try to sell it. And, the HAMP and other programs mostly delay foreclosures and hand money to banks, instead of keeping people in their homes."
American Banker reported last week that the procrastination on foreclosures could backfire: "With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults."
Of the 1.5 million trial offers made by servicers participating in HAMP, 616,839 have resulted in cancellations, while only 434,716 have resulted in permanent modifications, according to government data released in August. But Treasury officials have said even if a person isn't able to stay in his or her home, HAMP is a success if assists that person in "transitioning with dignity to more suitable housing."
Borrowers rejected from HAMP are sometimes confused, as the Garwoods are, about the reason for their rejection. (Chase has declined to comment on the Garwoods' situation.)
"There's still a lot of uncertainty about why certain homeowners are receiving help in HAMP and others are not," said Diane Standaert, legislative counsel with the Center for Responsible Lending. Standaert said policymakers should consider allowing bankruptcy judges to write down mortgage principal (a process sometimes known as "cramdown"). "I think this new game of casino that lenders and servicers are playing with homeowners...is not going to cut it."