Avalanche of paperwork buries hopes of halting foreclosures

Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November.

“I don’t know what happened,” says a customer service officer who identifies himself as Chris. “I don’t know if there was a glitch in the system, whether it was transferred from one call center to the other.”

No mention if the paperwork was sent by certified mail – or any system requiring proof of receipt.

Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households.

Daylife/Getty Images used by permission

Yet in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure. For now, progress is constrained by the limited capacities of mortgage servicing companies, said Michael S. Barr, the assistant Treasury secretary for financial institutions. He offered the first signs of the administration’s impatience with the institutions that control home loans.

“They need to do a much better job on the basic management and operational side of their firms,” Mr. Barr said. “What we’ve been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet.”

The administration still does not know how many mortgages have been modified under the program. In a recent interview, Mr. Barr estimated the number at “over 50,000,” explaining that precise figures must wait for a soon-to-be-completed tracking system.

By the end of August, the program should produce 20,000 loan modifications a week, he said.

Tom Kelly, a spokesman for JPMorgan Chase, which now owns Washington Mutual, affirmed the administration’s criticism.

“We’ve done a lot,” he said, noting that the bank has added 950 loan counselors since the beginning of the year, bringing the total to 3,500. “But we’ve got a lot more to do.”

RTFA. This is what you should expect from years of unregulated, unlicensed mortgage-brokering. All the sleazy storefront “mortgage companies” sold their paper on up the food chain. Original loan agreements are missing. Appraisals ditto. No one was ever required to provide the service now needed. Did you think that getting someone with a modicum of honesty into office would mean he could wave a magic wand and make 15 years of crud vanish? There is no mortgage Oxyclean.

And, yes, this all includes the people who got the mortgages. There’s only the one reason they went the sleazy route in the first place – they couldn’t get past the standards of a legitimate bank or mortgage company. They got what they paid for.

The same holds true for people who whine about property values dropping. Values determined by today’s market – aren’t values. They’re only market prices. Speaking with some knowledge of both home building and mortgage lending, I still think we’re not down to what a ton of houses actually are worth. They’re being propped up by the flippers who have already moved back in and are gobbling up foreclosures.

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