The continued rise in U.S. unemployment means the nation is also at risk of a fresh wave of home foreclosures — news that's generally bad for everyone involved.
Foreclosures displace homeowners and sometimes tenants, and hurt families' credit ratings. They're bad for neighborhoods, quickly compromising the value of homes nearby. Foreclosures hurt banks, too, because much of the time, the banks are stuck holding property that can be difficult to sell.
Making Home Affordable, an initiative announced by President Obama in February, is designed to help homeowners and banks rework mortgages and avoid foreclosures. But in its first months, the program has proved tougher to use than expected for some homeowners.
Jeff Nielsen, for one, thought he'd be a perfect candidate. Nielsen seemed to qualify on every score. He and his wife, Chiara, learned about Making Home Affordable while half-listening to CNN. Obama's voice caught their attention.
"Through this plan, we will help between 7 and 9 million families restructure or refinance their mortgages so they can avoid foreclosure," the president promised. Obama said there would be a special plan for people with mortgages owned by Fannie Mae or Freddie Mac, and that homeowners had to be putting more than 31 percent of their gross income toward their monthly mortgage payment to qualify.
Jeff Nielsen says it was as though the president were talking directly to him about his personal situation. He had just been laid off from his job as a lawyer. The Nielsens were making payments out of their savings. If they could wrangle a smaller payment until the recession eased and Jeff Nielsen got back to work, they could avoid foreclosure and keep their Salt Lake City home.
Like A Scene From 'Kill Bill'
Jeff Nielsen called the couple's lender, Wells Fargo, and said he'd like to apply for a home loan modification.
"The bank didn't quite know what to do with that," he says. He remembers them telling him, "We don't know anything more than you know. Just send in all kinds of documents and we'll get to it as soon as we get the details from corporate."
The Nielsens tried to guess what kinds of documents Wells Fargo might want and sent them in. Two months passed with no response, aside from a form letter saying the lender received the application. Jeff Nielsen began calling the bank twice a week. After another month, he heard that his file was on someone's desk, but no one could tell him who that person was or whether anyone had looked at his file.
"Do you remember that scene in Kill Bill where Uma Thurman is trying to fight Lucy Liu," he says, "but Lucy Liu has all these henchmen, so she has to fight all the henchmen and then Lucy Liu has like 50 more henchmen? But I feel that instead of being this samurai warrior, I'm like Jonathan Lipnicki with all these henchmen. So I have no chance to get to Lucy Liu."
A Call For Help
When I tried calling Wells Fargo, the press person took down the Nielsens' information — then I, too, heard nothing more. After more calls and e-mail requests, the bank told me its officials wouldn't talk about the matter.
Meanwhile, Jeff Nielsen had gotten himself trapped in a customer-service phone vortex. He and I reached out to a third party, Julia Gordon of the Center for Responsible Lending, who put the Nielsens' personal situation in a broader context.
She said loan servicers have been overwhelmed since the start of the economic crisis. What's less clear to her is why the incentives for lenders in Making Home Affordable haven't gotten a stronger response.
"That has been the mystery that has plagued us throughout this crisis," she says. After all, lenders stand to get money from the program for every dollar they save customers on interest, plus they get to keep loans in good standing on their books.
Gordon says it may be that the lenders just don't have a process in place to change payment amounts and interest rates.
Whatever the cause, the Treasury Department reports that loan servicers have modified just under 17,000 mortgages — far, far fewer than the millions Obama spoke of back in February.
'Struck By Lightning'
But it turns out there may be one way to cut through the administrative quagmire. I first reported on the Nielsens' situation on NPR's Planet Money podcast.
A couple of days later, Jeff Nielsen called Wells Fargo again.
"They told me something very different than they had been telling me for the last 10 days," he says. "They told me now I'm approved."
The message so surprised him that he called back to get confirmation.
When I asked Gordon about the sudden change, she called it the "struck-by-lightning option." If you want to be sure of getting your mortgage reworked under Making Home Affordable, she advised, get national media interested in your story — or a member of Congress. Otherwise, she says, join the line.