Pity the poor loss mitigation staffs at the mortgage servicers everywhere: They’re damned if they do and damned if they don’t.
Take Bank of America, which has not one, not two, but three major initiatives underway to keep underwater borrowers from losing their homes to foreclosure and still very few takers. Chalk it up to “borrower fatigue,” says Ron Sturzenegger, the legacy asset serving executive at B of A, who told a group of housing writers that borrowers are just plain worn out by the whole experience.
Under the $25 billion settlement with Uncle Sam and attorneys general from 49 states, B of A and four other major servicers have agreed to write down the principal for thousands of borrowers who have been trying to stay afloat even though they owe more than their homes are worth.
At B of A, 200,000 of its customers are eligible for principal forgiveness of $150,000 on average. Typically, the writedown will cut loan balances by a third and reduce payments by 30%-35%. But some could see their loans cut by as much as $600,000, Sturzenegger said at the National Association of Real Estate Editors’ annual conference in Denver.
Better yet, “it’s a one-doc mod,” the Bank of America executive said. “All you have to do is show us an income statement that’s enough to support the new payment.”
Admittedly, the principal forgiveness program has been in effect for only a short time, just five weeks or so. But to date, said Sturzenegger, who leads the bank’s efforts to offer help to customers in need of assistance, “it’s surprising how feel people are engaged.”
The big bank servicer also has a mod-to-rent program underway in which severely tardy borrowers are allowed to hand over the keys to their homes, which they then can rent from B of A for three years at the going rate for houses of their size and location. And it has a short sale program which offers late payers a lump sum cash payment of from $5,000 to $30,000 so they can make “an orderly, dignified” transition out of their underwater digs into something they can afford.
In both cases, though, the response rate from borrowers “has been very low,” Sturzenegger reported.
The Bank of America executive, who came from Merrill Lynch, where he was managing director of gaming and real estate, said borrowers “are disengaged.” They’ve received so many offers from people offering to help them “that they don’t know who to trust.”
Marietta Rodriguez, director of national home ownership programs at NeighborWorks America, told the housing writers that underwater borrowers usually are not just dealing with trying to make their house payments. Rather, she pointed out, they’re dealing with a number of other “life events,” a major illness, perhaps, a death in the family or the loss of a job. And as a result, they are simply overwhelmed.
Rodriguez, who leaders NeighborWorks’ efforts to education and foreclosure prevention efforts, also maintained that “it takes a very sophisticated borrower” to figure out all his options. “It’s complex,” she said. “It’s hard to figure out even when the borrower is given a clear path.”
And another thing: Some people who tried to have their loans modified months ago “now find it very hard to accept” that their servicers are finally willing to give them a break. “They feel like they’ve been fighting upstream, and they’re just plain worn out by the entire experience,” she said.
