By Gloria Carr
June 6, 2010
When Daniel Taylor met Illinois U.S. Sen. Dick Durbin, the Elgin man shared his experience as he struggled to keep his home and talked of his effort to obtain a home mortgage modification that could help him avoid going into foreclosure.
Months later, Taylor is still waiting to hear whether he will qualify for a permanent modification under the Home Affordable Modification Program (HAMP), a federal program that reduces a homeowner's mortgage up to 31 percent.
His life remains in limbo.
"I have no idea what's going on," he said.
It has been the same story for months. He is exhausting his savings trying to keep his Mariner Drive home. Initially, Taylor was told he didn't qualify for the program because he had money in a savings account, which he said is for emergencies. He later received a letter indicating he had received a temporary modification.
Still, he's not sure what's happening with the mortgage. The mortgage is up to date, although late fees are being added every month because he's not paying the full amount, he said. He gets differing information from bank officials about whether the temporary modification will become permanent.
"It's up in the air," Taylor said. "I'm paying what I am supposed to pay, but they have me sitting in limbo."
Taylor is the new face of those caught up in the mortgage crisis, which is entering into a new phase that likely will affect thousands more homeowners. While President Barack Obama's administration unveiled the HAMP program a year ago, homeowners caught in this latest wave may find themselves without much help -- meaning the crisis will continue to evolve and affect families and neighborhoods into the foreseeable future.
Taylor's home is not one of those McMansions that were the fad a few years ago. The house is comfortable, of average size and in an average neighborhood. He bought the home seven years ago following a divorce. Taylor has joint custody of his 12-year-old daughter.
Lately, he's noticed more and more vacant houses on his block. He's counted three or four within a block, including one just around the bend from his home.
Taylor is hoping to avoid the same fate.
He finds himself surprised to be in this situation. He never missed a mortgage payment, and he even paid a month ahead. He has excellent credit and has managed his debt. But a year ago, he lost his job as a salesman with a St. Charles car dealership when General Motors closed down dozens of dealerships.
For a while, he paid his mortgage with his savings, but now, he needs that cash for everyday living expense and emergencies, Taylor said. He's been trying to find a job but needs to find one that pays close to what he used to earn -- more than $30 an hour. Given the continuing high rate of unemployment in the area, it won't be an easy task. So far, he has had no luck finding a job.
His mortgage is "under water," meaning the house is worth less than the mortgage balance -- by about $16,000. Selling the house is not a financially sound option, which is why he applied for a HAMP.
A mortgage modification would mean he could take a lower-paying job and still pay the mortgage. But he is becoming more frustrated about the process of applying for the HAMP program. Taylor has a friend who tried three times before receiving a modification.
"The banks aren't willing to work with anybody," Taylor said. "It's like someone's got a noose around your neck and you're just waiting for someone to kick the chair. Everyone says you can live the American dream." The banks, however, "take the American dream away from you," he said.
Depends on the bank
The American dream is turning into a nightmare for homeowners trying to save their homes.
Foreclosures involving subprime rates were the first wave, which hit in late 2008, said Johnny Placeres, executive director of Neighborhood Housing Services of the Fox Valley.
"I think we saw more than 50 percent were subprime loans," Placeres said. "I'd say the majority of the subprime lenders went belly up ... (they) were not doing" home loan modifications to keep delinquent homeowners from foreclosure.
Placeres recalls the real estate boom of just five years ago. Back then, banks would give anyone a loan, even a "no doc" (no documentation) loan. Those loans -- prospective homeowners didn't even have to show proof of employment -- were the norm, he said.
Homeowners caught up in the first wave had no help, Placeres said. Some of the banks were doing loan modifications on their own, but the banks would only help people who were on the verge of losing their homes, he said. HAMP was created in early 2009 to assist homeowners in reducing their mortgage payments and stave off foreclosure.
According to Chicago-based Woodstock Institute, which studies foreclosure rates in the city and suburbs, of "the top 10 metropolitan areas with the most HAMP activity, Chicago is fifth in converting trials to permanent modifications."
"Most lenders are participating in HAMP. There are some who are community lenders who do not participate," Placeres said. "It's really based on the banks."
"It's not very efficient right now," Placeres continued. "Banks are losing documents. We're having to send and resend documents, in some cases resend for a third time because they lose it. The banks are overwhelmed. A lot of times, we deal with people in the loss mitigation department who will tell you one thing. You call the next week and someone tells you another thing. They just don't have the staff to handle the volume."
Geoff Smith, senior vice president of the Woodstock Institute, is not sure why permanent modifications are lagging in the Chicago area. He has heard the same feedback from other community-based programs that NHS has experienced working with homeowners to get HAMPs.
The biggest problem with HAMP is there's no real "stick," so to speak, involved in getting service providers to comply with different program guidelines, Smith said. Without that stick, there's been lukewarm participation and limited success for the program, he said.
No job, no eligibility
What has been heralded as a program to help many homeowners may actually only apply to a select few caught up in the latest wave of foreclosures.
These are the people behind the double-digit unemployment rate announced every month. They are considered middle to upper class -- people who've been able to hold off foreclosures until now.
HAMP is "a good program, but because the second wave of foreclosures has a lot to do with job loss, people who are unemployed are not going to be eligible," Placeres said. "If you have no income, they can't work with you. However, we do see if one spouse is unemployed and the other one is working, the unemployment income will be considered."
"Right now, there's no help for those people other than time is on their side," Placeres said.
The sheer number of foreclosures has banks, courts, sheriff's departments and housing counselors muddled in stacks of paperwork and files, he said. "The normal foreclosure process takes a year from missing your first payment," Placeres said. "Now, people have been in homes a year and a half to two years and not been foreclosed on."
The Treasury Department announced changes to HAMP to deal with the changing nature of the mortgage crisis, such as looking to help the unemployed and homeowners who find themselves under water on their mortgage, Smith said.
But he believes the HAMP program itself needs to be more sound. Adding changes is "sort of like building an addition to a house that's built on a cracked foundation," he said. Such changes "won't necessarily be any more successful. It's just adding another layer to a flawed program."
Onto 'next stage'?
Continuing high unemployment rates means it's hard to figure if the housing crisis is winding down, Smith said. There are all sorts of variables to keep in mind, such as the bad loans, jobless economic recovery and under-water mortgages, he said.
"I could see where we might see the number of foreclosure filings stabilizing or declining. It doesn't mean the crisis is over. It may mean it's moving onto the next stage," Smith said.
Now it's a question of getting vacant properties filled and preventing the kind of blight that puts neighborhoods in a more rapid spiral of disinvestment and ruin, Smith said.
This housing crisis also will create other consequences, he said, with the ripple effects staying with people for many years to come. "These communities with high concentrations of foreclosures will lag behind, and the existing wealth gap is really going to be exacerbated."
"Middle-income folks (will be) dealing with issues that were traditionally issues that low- and moderate-income folks dealt with, like damaged credit," Smith said.
"You will see these kinds of issues affect middle-income families more," Smith said. "It is, again, something to keep in mind as this crisis evolves and goes beyond just foreclosure and housing and touches on other aspects."