A year ago this week, the financial crisis sent the stock market off a cliff. At the heart of troubles was a plague of bad home loans. Millions of people couldn't pay their mortgages, and banks were losing billions of dollars.
The foreclosure mess hasn't improved. The numbers keep getting worse, with foreclosures at record highs and rising, despite a major effort by the Obama administration to prevent them.
At Bank of America, which manages more home loans than any other bank in the country, Senior Vice President Ken Scheller is in charge of "home retention" — an effort he says is designed to "keep as many people in their homes as possible."
His offices are in the middle of a giant call center in Plano, Texas. It's the front line of the foreclosure crisis: If somebody can't pay his or her mortgage and calls Bank of America, the call gets routed through these offices. Scheller says this group and others like it are receiving about 2 million calls a month.
8,000 People Focused On Foreclosures
In June 2008, Bank of America bought home lender Countrywide, which was at the center of the mortgage storm and was quickly collapsing. As a result, Bank of America now manages Countrywide's loans, too.
Scheller, who used to work for Countrywide, says the bank now has 8,000 people who are dealing specifically with the foreclosure crisis. He says that number doubled in the past year.
Tiffany Palmer, who works on the call center floor, says more and more homeowners are in trouble because they've had their hours cut at work or because a spouse has lost a job. With the recession, a lot more middle-class people with decent credit can't pay their mortgages. Nationally, one-third of the people who are falling behind on their mortgages are in traditional "prime" fixed-rate mortgages.
The Bottom Line
Cutting people deals often makes good business sense, because lenders can lose tens of thousands of dollars if they have to foreclose. Scheller says in most cases, modifying the interest rate on a loan, which gets the customer making payments again, "is a much better financial situation for everyone."
Economists, including Federal Reserve Chairman Ben Bernanke, have repeatedly said that preventing foreclosures is good for the housing market and the whole economy. But, in many cases, loan modifications aren't going through.
The U.S. Treasury Department has started issuing banks foreclosure report cards. The most recent one, out Wednesday, found that under the president's plan, Bank of America had modified 7 percent of loans that were more than 60 days delinquent. JPMorgan Chase extended loan-modification offers on 25 percent of its delinquent loans. CitiMortgage was at 23 percent, and Wells Fargo had modified 11 percent.
Janine Emlinger, a 48-year-old homeowner in Curtice, Ohio, says she's been trying for a year to get a loan modification, but Bank of America keeps losing her documents. So she keeps falling further behind on her payments.
"It's very, very stressful, and it weighs heavy on you," she says. "I don't know where we're going to go."
Emlinger has been in her house for 22 years. She says she thought she was getting a fixed-rate loan but wound up with an adjustable loan that made her payments skyrocket.
The mortgage company that made the loan went bust. Bank of America is now managing, or "servicing," the loan, so it basically decides whether Emlinger gets to keep her house.
The Perfect Candidate?
Bank of America Senior Vice President Ken Scheller is in charge of "home retention." His office fields thousands of calls every day from homeowners who are behind on their mortgage payments.
Bank of America Senior Vice President Ken Scheller is in charge of "home retention." His office fields thousands of calls every day from homeowners who are behind on their mortgage payments. Chris Arnold/NPR
Emlinger seems like the perfect candidate for a lower interest rate. She got hit by a truck while mowing grass for the city and will get disability checks for the rest of her life.
Lenders and investors say they don't want to make loan modifications in cases where the borrower is just going to default again. But Emlinger is one of those cases in which everybody would win. She has a stable income to keep paying a mortgage at an affordable interest rate.
When NPR inquired about her case, Bank of America said it was starting to negotiate a loan modification. But it's unclear why she was denied so many times over the phone.
Problems With Major Banks
"I see everyday people who are denied for loan modifications where we don't quite understand what the rationale is behind it," says Mark Pearce, a deputy banking commissioner in North Carolina who is part of a nationwide foreclosure task force.
Pearce says it's not just Bank of America; banks are making these decisions inside a black box in their computer systems. It's not transparent.
What's more, he says, homeowners often aren't told why they don't qualify. "Oftentimes we find that the rationale is that the paperwork didn't get filed, or they lost a document, or they needed updated financial information and didn't get it," Pearce says.
A lot of people think the banks are just overwhelmed by the millions of people who're in trouble, and that they haven't put the right technology and training in place. Others think the banks may be skeptical that these modifications are actually going to work. Whatever the reason, Pearce says, even now, a couple of years into the mortgage crisis, the systems to prevent foreclosures often seem scrambled.
Mistake At The Call Center
At the Bank of America call center, I sit next to Crystal Ingram as she takes a call from a homeowner who is losing one of his two jobs. He's having trouble making his payments. So she plugged his financial information into her computer, explaining that she's going to see about a recommendation for a loan modification. But, after a few seconds, the computer says the person doesn't qualify.
"I'm not getting a recommendation for a modification," Ingram tells the homeowner. "You are going to have to come up with some more income."
She tells the borrower he has to be able to support even a reduced mortgage payment, and he doesn't make enough money to do that. That sounds reasonable. Except that as I look over her shoulder at the borrower's income, he still makes $2,400 a month, and judging by what he owes — around $200,000 — it appears that he actually should qualify for help through the government's Making Home Affordable plan.
I ask Ingram about this, but she says that that isn't right. "No, he does not qualify," she says.
But, in this case, too, after NPR inquired further with supervisors, it turned out that the homeowner actually did qualify. So, even just while I was at the call center, either the computer or somebody made a mistake, and a homeowner got rejected when he shouldn't have.
In the end, the bank did offer the homeowner a loan modification. Bank of America says that while NPR's inquiry may have expedited that decision, the bank would have come to the same conclusion through its own review process.
Housing advocates say major banks are denying help to thousands of people who should qualify, and many don't get saved by a second look.
Meanwhile, this year alone, 2 million people are on track to lose their homes through foreclosure — the most since the Great Depression.