Investigation: Loan Modification Benefits?

It was supposed to be a win-win for everyone. The banks got billions of dollars and in turn homeowners were going to get loan modifications to save them from foreclosure. But is the government’s plan working?

Kristine Westbury loves her quiet Uptown complex. But the Dallas teacher’s hours were cut just as she was hit with some major medical bills. So, she asked her mortgage lender for a loan modification.

“I was hoping they would reduce my payments significantly,” Westbury said.

Westbury said the Bank of Texas sent her paperwork. Months went by and then she received a letter of congratulations. The bank offered her a trial modification reducing her monthly payment by $40.

“I would have found some way to find forty dollars,” Westbury said. “I would have done something to make it work.”

Westbury laughed at the absurdity of the $40 reduction. But there’s nothing funny about what happened to her credit.

She said the bank told her she could skip payments while waiting for the modification, which the bank denies. Now she said she can’t refinance and may lose her home.

“It has been a big stress at a time when I am trying to do something worthwhile – teach. And it is very stressful being a new teacher,” Westbury said.

She is not alone. David Ouldhouse said he never missed any house payments but contacted Chase Bank after losing his job. He said for months he got the runaround.

His original monthly payment was $1,077. Now it’s $975.

Ouldhouse said even though he followed all of the rules and made every payment on time, he still got a foreclosure notice.

“I am curious why the foreclosure proceedings were even started since I never missed a payment on my plan,” Ouldhouse asked a Chase representative while on the phone.

Ouldhouse got on the phone with Chase and went round and round. The bank representative told him not to worry, the foreclosure had been suspended. But now other creditors are lowering his credit limit, even cancelling credit cards.

“My credit sure has gone down the tubes,” Ouldhouse said.

His principal balance has actually gone up from $84,000 to $87,000.

Chase would not comment specifically on Ouldhouse’s case but said it has done 280,000 trial modifications -- more than any other bank -- and that the process is complicated and time consuming. Chase also said it regrets when there are delays.

The process is on track, according to the U.S. Department of the Treasury. As of last month 20 percent of eligible borrowers have signed up, most of them in trial programs.

But is the loan modification program working? Is it keeping people in their homes?

Mike and Denise Hoard said they’ve been in limbo with Bank of America for months. The Hoard’s got behind on their mortgage when Mike lost his job. To catch up, the bank told them to mail in two payments and the late fees. They did. But the same day the checks cleared Hoard said they got a foreclosure notice.

“We were devastated,” Hoard said. “I was just absolutely furious. I’ve done what you said, tried to play by your rules. I call in again, ‘Oh, they were not authorized to make that deal for you.’ How was I supposed to know that?”

Bank of America is still working with the Hoards on a modification but is also set to foreclose on their home Dec. 1.

After weeks of calling Bank of America, FOX 4 also got the runaround. The bank had no comment on the Hoard's case, just that the bank is in the business of saving homes.

So, what recourse do homeowners have?

“If we sue them, then we get a good response,” said attorney, Jack Peacock.

Peacock said Dallas County judges can and will halt a foreclosure with a restraining order. He said many times the banks are not following all the rules and regulations.

“The right hand does not know what the left hand is doing,” Peacock said. “With these large lenders, now they have gotten so large they are losing touch. And with all the cutbacks they don’t have the personnel to properly respond to all these problems.”

Peacock also said homeowners need to understand that there are options. But hiring attorney costs money -- something most homeowners don’t have when they’re struggling to make a mortgage payment.

“I don’t think it was supposed to work this way,” Westbury said.

Her Bank of Texas said it followed the government’s guidelines and her $40 reduction was the best it could do. Westbury now wishes she had skipped the whole process and tried to refinance before her credit was trashed.

“Had they told me that in April I would have said, ‘Hey guy that is not going to work.’ I know that now. We don’t need to go through all of this,” she said.

Loan servicers get paid $1,000 for each modification. But if homeowners can’t make the new payment, there will be another wave of foreclosures.

The government reports nearly 30 percent of the loan modifications made in the first quarter of this year are now more than two months delinquent.

If you have a story tip for the FOX 4 I-Team to investigate, send and email to iteam@kdfwfox4.com or call 214-720-3361