Countrywide’s Sham Borrower Rescue Programs

The New York Times’ Grectchen Morgenson, in “Can These Mortgages Be Saved?” looks at Countrywide’s loan modification operation (in typical bureaucratic doublespeak called HOPE: “Helping homeowners, Offering solutions, Preventing foreclosures and Envisioning success”) and finds it wanting.

Unlike some recent Morgenson pieces, this article is remarkably free of snide remarks or swashbuckling prose. Instead, Morgenson offers some examples of homeowners who were given the runaround by Countrywide when they tried to get their loans modified. These vignettes are intespersed with Countrywide’s defenses of its practices (which are remarkably unconvincing) and comments from organizations who work with delinquent borrowers, all of whom confirm that Countrywide is the less willing than other mortgage servicers to mod loans, and by a considerable margin.

But mortgage mavens will still likely find fault with the piece. Even though Morgenson gives specific details about how and when the borrowers got in trouble and how their overdue amounts escalated, she doesn’t give as much information as one would like as to how things spun out of control. It sounds as if she did, or could easily have, gotten documents from the victims. She could have put them to better use.

In addition, in one of Morgenson’s examples, it sounds as if the borrower was defrauded. Countrywide charged one Shannon Rivas-Spivey for flood insurance for reasons that turned out to be bogus, yet it appears Rivas-Spivey never got the charges reversed. Something doesn’t add up, and Morgenson didn’t get to the bottom of it.

Nevertheless, some of the quotes and factoids are compelling:

Countrywide strongly disagrees. Last week, it described its efforts on behalf of troubled homeowners. “Our No. 1 priority is to help borrowers stay in their homes,” said Steve Bailey, a Countrywide executive, in a news release. The company said it has saved 39,582 mortgages from foreclosure so far this year….

Even so, the workouts that Countrywide boasted about last week include two types of deals that wind up forcing borrowers from their homes. Almost 14 percent of its homeownership preservation efforts involved borrowers who agreed to sell their homes for less than their loan amounts, called a short sale, or involved homeowners turning over their deeds to Countrywide to prevent a foreclosure. Countrywide did not disclose in its news release that such arrangements were included in its workout figures.

“When you look under the surface, they are counting deeds-in-lieu as a modification,” said Martin Eakes, chief executive of the Center for Responsible Lending, a nonprofit and nonpartisan research organization. “When you’ve taken someone’s house, even without the foreclosure process, to count that as a modification is worse than fiction.”….

Even as Countrywide maintains that helping its borrowers modify their loans is its top priority, its investors have heard a slightly different story. In a conference call with analysts and investors in late July, Kevin Bartlett, Countrywide’s chief investment officer, counted about 2,000 loan modifications done in June. Most of those, he said, involved deferring overdue interest or adding the past due amount to a loan. The company rarely provides workouts that reduce interest rates on loans, Mr. Bartlett told investors.

Yet reducing rocketing interest rates is exactly the relief that many borrowers are seeking because, consumer advocates say, that is the only way they can afford to stay in their homes. Loan experts say that when workouts involve deferring overdue interest or tacking amounts owed onto the back of a loan, borrowers often wind up in trouble again in just a few years.

Mr. Bailey said that while Countrywide has historically done few interest rate reductions, it will be doing more. “Right now we have just about 1,000 loans facing interest rate reductions,” he said. “The pendulum is swinging that way.”

But Mark Seifert, executive director of Empowering and Strengthening Ohio’s People, a consumer advocacy group in Cleveland, is dubious. He said his experience with Countrywide, one of the dozen or so lenders and servicers with whom he works on behalf of borrowers, has been unsatisfactory.

For the first eight months of this year, he said, his group took in 132 cases in which Countrywide was the loan servicer. Of those, two ended up in what he called “very good” workouts from the company. One involved forged documents when the original loan was made, Mr. Seifert said, and the other involved a borrower who received her deal from Countrywide the day before she was set to testify before Congress last July about her problems with the company.

“We have experience with Citi, Chase and a whole litany of other lenders,” Mr. Seifert said. “Some are better than others, but we are successful more than half the time with all of them. Except Countrywide.”….

Bruce Marks is founder of the Neighborhood Assistance Corporation of America, a nonprofit advocacy and mortgage company that helps troubled borrowers get new, low-cost loans. He sees problem mortgages from across the country and works with a variety of lenders. He said that his organization has resolved 3,500 cases for imperiled borrowers this year, and that none have had to leave their homes.

Mr. Marks, too, characterizes Countrywide as the lender most unwilling to help borrowers.

“Homeowners who are desperate to keep their homes are trying to restructure the mortgages to the payment before the rates reset,” he said. “Countrywide demands their last dollar and their retirement funds to stop a foreclosure on unaffordable loans.”