Mortgage buoy sinks some homeowners in Hampton Roads

Michele McBeth was not behind on her house payments and never had been. But money was tight for the Norfolk elementary school teacher in 2009. She hadn't seen a raise in years, and her son would soon be starting college.

McBeth was looking for any way to relieve some of the strain on her budget, so she contacted her mortgage company to see whether it could lower her payments.

The company offered help through the U.S. Treasury Department's Making Home Affordable program, and McBeth signed on to a trial loan modification.

Now, almost a year later, McBeth is facing foreclosure.

On Aug. 27, her lender's attorneys plan to auction her Bayview home on the steps of the Norfolk Circuit Court.

This wasn't how the Making Home Affordable program was supposed to work. The goal was to help people stay in their homes by modifying their mortgages and reducing their payments. But, in its haste to reach out to millions of homeowners, the government made several missteps. The rules kept changing, the calculations were complex, and many of the banks and mortgage companies tasked with implementing the program didn't fully understand it or have the staff to handle it.

The mortgage companies often did what was easiest for them, even if it wasn't exactly following the guidelines, said John Rao, an attorney with the National Consumer Law Center, based in Boston.

"The harm is significant for the consumer," he added. "In some respects, they're worse off than they were before."

Such is the case for many who signed up for trial plans that reduced their mortgage payments for several months while they waited to see whether they qualified for a permanent reduction.

Homeowners who didn't qualify were left with hefty bills for late fees and missed mortgage payments and a quick deadline to pay once their trial plan ends. Many face foreclosure.

Since the program began, about 1.3 million home-owners have been placed on trial loan modifications. About a third have become permanent.

McBeth, 42, and her husband, Jeff, 44, weren't the typical customers looking to reduce their mortgage payments. They purchased their Bayview home in 2003. Despite the housing boom, which swelled the value of their home, the McBeths resisted the urge to refinance and cash out their home's newfound equity or take out a line of credit against the property.

But by the early months of 2009, Michele McBeth, who handles the finances for the family, began to worry about their money situation. Encouraged by the new national programs to help struggling homeowners, she called EverHome Mortgage Co., the Florida-based company that handled her mortgage.

"I just wanted to see if there was anything to help average working-class people," she said. "Anything to help out before things got worse."

An employee told her that the family was eligible for the Treasury Department's modification program and that the program could reduce her monthly bill by about $50.

It wasn't a huge savings, but McBeth said she was happy to have it. The next thing the woman said, however, was surprising.

"She told me to hold off on making the August payment and not make my next payment until September."

McBeth had never missed a house payment before and didn't want to start. The woman from EverHome explained it was just part of the process, McBeth said.

For several months thereafter, McBeth made the lower mortgage payments.

Then in November 2009, EverHome informed her that her application for a permanent loan modification had been denied. The company offered her two options. She could pay back all of the $2,000 now due, which included several $50 late fees for each month that she had paid the lower amounts under the trial plan.

The other option was to accept a six-month plan that would lower her payments even more each month.

"I was disappointed," she said. "But I felt safe. They were offering this other option."

A little uncertain and stung by the earlier process, McBeth took the paperwork to the nonprofit The Up Center in Norfolk, where a foreclosure prevention counselor also agreed the six-month plan was her best option.

After McBeth sent in her paperwork and agreed to participate in the new program, EverHome also instructed her to skip the December payment, she said.

McBeth was skeptical but did as she was instructed. This time, though, she socked away the extra money each month.

Then the letters began arriving. EverHome warned that she was past due on her mortgage and threatened to foreclose. So she called the company.

"They acted blasé about it," she said. "They just said not to worry about it, that it was just a computer-generated letter."

But the letters kept coming.

By the end of the six-month plan in June, she had saved $3,500. She called EverHome to see what her next step would be.

The news was not good. EverHome had discontinued the mortgage work-out program.

The company again gave her two options: reapply for the federal modification program or pay all of the money now due. That total, which included her July payment, had climbed to nearly $7,000.

EverHome also informed McBeth that it would continue foreclosure proceedings.

"Initially, I thought they were looking to help me out," she said. "Eventually, it began to feel like they wanted to take my house."

EverHome should never have offered to put McBeth on the government program, because it brought her payment down only $50, according to housing counselors. And the company should not have advised her to skip a payment.

"They did that most likely because it's easier for them," Rao said.

The Treasury Department's program was designed primarily for home-owners who were already in default of the mortgage. Home-owners who are current can apply if they believe they are in danger of defaulting, but that means more paperwork for the homeowner and the servicer.

"That is a perfect example of the abuses going on," Rao said.

A spokeswoman for EverHome, which is an affiliate of EverBank, declined to comment on McBeth's case and the modification program.

Local housing counselors expressed frustration with the federal loan modification program, too. They said that fewer than 10 percent of their clients have achieved permanent loan modifications through the program. Most have been placed in the temporary payment plans and strung along.

"I'm having anniversaries with people," said Dotty Acampora, a foreclosure prevention counselor at the nonprofit Virginia Beach Community Development Corp., of her experience with clients. "I never thought that would happen when I started this."

Many of the homeowners who apply for federal modification program have been denied with little to no explanation, Acampora said.

Shannon Riggs, a Norfolk homeowner, had similar problems with a private program. She paid under the terms of her loan modification plan with Chase Bank for nearly a year before the default notices started to appear. Riggs learned that her temporary plan had not become permanent, and each month she had made reduced payments, her past-due bill increased. Over the course of a year, Riggs accumulated a past-due balance of $9,400, more than $2,000 in late fees.

Chesapeake resident Randy Beverage has sued HSBC Bank for not processing his Making Home Affordable application correctly and ultimately foreclosing on his property.

John Allen, who is in charge of the foreclosure prevention services at The Up Center in Norfolk, said few clients have received outright denials.

"Most people are just left in this state of limbo," Allen said.

Andrea Risotto, a spokeswoman for the Treasury Department, said part of the problem is the overwhelming number of homeowners who needed help at the outset of the program.

"The size of the demand compared to what the industry was set up to offer - there was such a disparity," she said. "You could only put so many things in place at once before overwhelming the system."

The Treasury Department's hundreds of pages of documentation and rules also don't help, foreclosure prevention counselors said.

For example, the mathematical equation used to determine whether a homeowner will get a permanent modification takes up to half a page of calculations and requires a 36-page manual.

A recent change aimed at preventing cases like McBeth's requires mortgage companies to complete the calculations before starting a homeowner on a trial modification.

"This is not simple stuff," said Christine Holevas, a spokeswoman for Chase Bank, the second-largest servicer that participates in the federal program. "In addition to servicers adding additional people, the workers need to be trained, then they need to be trained again."

In recent weeks, McBeth has spent many hours at The Up Center trying to save her home. With attorneys fees and late charges and more, McBeth needs almost $10,000 to stop the foreclosure. She offered to pay the nearly $5,000 she had now saved, but the mortgage company told her it would not accept a partial payment.

The Richmond attorneys hired by the mortgage company began running foreclosure ads in the newspaper this month.

"I never ever dreamed it would have gotten to this point," McBeth said. "It's consumed my life, all of my energy, for a year."

She tries to stay hopeful, but the stress brings her to tears.

"I have a sale date on a house I never intended on losing," she said. "All of this never really needed to happen."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com