GSDC

“I knew enough to know that I’d have been signing my death warrant,” says recent GSDC home counseling client Alexis Smith. Smith, a West Englewood homeowner, knew the loan modification – or “loan mod” – she refused to sign and that a for-profit housing counseling agency negotiated for her with lender Wells Fargo was a sham. Facing foreclosure in August 2008 on a mortgage with an interest rate over 10%, a Cook County judge granted her time to pursue a workout with her lender: to keep the home, she would need a more affordable monthly payment.

Days after Smith’s case was finally – and successfully – resolved by a GSDC counselor in April 2009, Illinois Gov. Pat Quinn gave those in danger of similarly falling behind on their mortgages relief. With Southwest Side leaders standing alongside, he signed into law (signing pictured above) a grace period of up to 90 days before foreclosure proceedings may be initiated against borrowers who fall behind, a period granted if they pursue free government-certified housing counseling to seek a workout with lenders. The law’s chief sponsors were Sen. Jacqueline Collins (D-16) and Sen. Terry Link (D-30).

Smith’s story offers hope and a cautionary tale to borrowers in trouble and stands as testament to the work of GSDC’s housing counselors.

Seeking a Real Lender Workout

With Smith facing a court-ordered timeline and on the recommendation of a friend, she turned to a for-profit agency called the Homeowners Assistance Agency for help. She paid a $600 fee up-front for the agency to call her lender on her behalf and request a loan mod. After weeks of trying to follow up with the agency, the new, proposed loan terms she finally received were indeed a death warrant: had she signed it, her mortgage payment would actually have gone up from around $992/month to $1127. The mortgage would have been fixed at 10.65%, a rate she already couldn’t afford, and her principal would have been increased to include the amount she was in arrears.

When Smith called the agency to make sense of this proposal, a manager there told her that Wells Fargo claimed she was “high-risk” – meaning she was apparently out of luck in getting more favorable terms. When Smith bought the home in the first place, she had good credit and a stable, if seasonal, job working as a school bus driver, supplementing this income by working as a licensed day care operator. The high-risk claim was dubious: she was given horrendous loan terms to begin with, given her long term employment and credit history, and the agency she sought help at did not take the time to make her legitimate case for keeping the home.

The loan mod was proposed in late November ’08. Smith did not sign on to the loan but kept making payments according to the proposed terms while considering her options. By late February, Wells Fargo sent her notice that her loan mod was denied because she had not signed the agreement and that the payments she was making were not being applied to her account for the same reason.

At that point, Smith came to the GSDC REACH Center (6155 S. Pulaski) and was taken as a client by housing counselor Joyce Bonner. It was her last hope: Wells Fargo was set on foreclosure.

For Smith, homeownership meant taking control of her life; prior to her purchase, she had been living in an apartment building where, on her way to work, she’d have to walk by transients sleeping in the hallways. She wanted, moreover, as she says, “a place to call her own.” Going into homeownership, she did what she thought were all the right things: taking a homeownership class at Neighborhood Housing Services, looking for months to find the right home, and working with a broker to get a great deal and to help her navigate the loan process.

After finally choosing a home and just before closing in January ‘07, she went through an independent loan review required by Illinois law HB4050 – a law GSDC and the Southwest Organizing Project successfully advocated for in 2005 in the face of fierce opposition from the lending industry – and was told she had gotten too high a rate on her loan given her profile. At that point, however, it was too late to pull out without serious cost; Smith resigned herself to making payments for 6 months or so and refinancing into a more affordable loan.

Indeed, at this juncture – when borrowers realize how expensive their loan really is – many mortgage brokers convince clients that they will be able to refinance 6 or so months in, says GSDC housing counselor Joyce Bonner. In reality, borrowers fall behind before they can do so.

Sure enough, about 6 months into the loan, Smith falls behind. Though she has worked as a school bus driver since 1994 and is a day care provider, her work is largely seasonal and requires her to seek government unemployment assistance for a few months in the summer. The practice is common among many seasonal employees, especially in construction trades. In 2007, however, her unemployment assistance arrived late. With no positive cash flow and little savings because of the loan’s high monthly payment, she fell behind and contacted her lender about a workout herself.

After speaking with different contacts at Wells Fargo and receiving promise of a loan mod, she tried saving what she could to catch up on payments. In Summer ’08, she ran into the same problem with unemployment assistance – this time, the lender began foreclosure proceedings after formally denying her first request for a loan mod, bringing her before the Cook County Judge.

Bonner pinpointed the seasonal cash flow problem immediately after going through Smith’s budget, a key and time consuming counseling step. Bonner determined that Smith could afford to stay in the house if the terms were changed to include a market rate interest rate, something closer to 5%.  At that rate, Smith would have enough surplus income during her employment period to save up for summer mortgage payments. After getting a full picture of Smith’s situation, Bonner was ready to make a case to the lender for a real loan mod and began following up about the case with Wells Fargo.

Her follow-up was so persistent that Wells Fargo sent Smith a letter saying Bonner could not talk to the lender on her behalf without a court order or power of attorney from the client. This was clearly an intimidation tactic, but within a week of this, the lender nevertheless agreed to new terms: a 4.875% fixed rate and a monthly payment of $676.38. Smith would be able to keep her home.

This resolution was far from easy: it took over 4 weeks of meetings, phone calls, and persistence on the part of both Smith and Bonner. Smith needed an advocate and adviser in dealing with the lender to find a workout, and she found one in Bonner. As she wrote in a touching thank you letter, Smith called her a person “…sent by God to encourage others and show them that there are people that care.” Smith and Bonner also filed complaint forms with State Attorney General Lisa Madigan’s office against Homeowners Assistance Agency and Wells Fargo, the latter for trying to intimidate client and counselor and the former for making false claims. (Pictured above left: Alexis Smith (on right) and Joyce Bonner (left) just after hearing news of the succesful loan mod)

Extra time for homeowners amid growing crisis

On April 5, in a widely covered press conference held at the Sisters of St. Casimir Motherhouse on the Southwest Side, Keep Our Homes Campaign partners GSDC, the Southwest Organizing Project, and Neighborhood Housing Services of Chicago Lawn/Gage Park welcomed Illinois Gov. Pat Quinn and a host of Illinois elected officials for the signing of SB2513.

The law provides up to a 90 day grace period for homeowners facing foreclosure, provided they seek housing counseling certified by the U.S. Department of Housing and Urban Development. By the time Smith received GSDC’s certified counseling, she was already in foreclosure, three months behind on her mortgage. What she needed immediately was time to get a qualified counselor and work with her lender.

This legislation requires that after a borrower falls one month behind on his or her mortgage, the lender send a letter to the borrower stating that if he or she obtains certified housing counseling within 30 days, he or she will receive another 30 day grace period to pursue a workout. After this period, if no workout is agreed to, the regular delinquency period for foreclosure begins, meaning that after three months of missed payments, foreclosure proceedings begin. In essence, borrowers get 90 days on top of the usual three months of delinquency after which foreclosure proceedings begin to find their Joyce Bonner and their own workouts.

This precious time comes as the foreclosure crisis continues to escalate in the context of a prolonged recession, exerting a collective toll on entire neighborhoods, block by block. Locally, the Circuit Court of Cook County is facing such a glut of foreclosure cases that – despite assigning additional judges and clerks – the court will suspend 2009 cases for July and August in order to catch up on older filings. In 2005, the court saw 16,494 case filings. In 2009, the court expects to see 52,000 filings. By the end of 2010, 92,000 cases are expected to be pending. Nationally, a December ’08 Credit Suisse report predicted that over the next four years, 16% of ALL mortgages will be in foreclosure – over 8.1 million mortgages.

Our state legislators, in partnership with community leaders, are helping to stem this tide with bills like SB2513, but more broad and swift action is urgently needed. The Keep Our Homes Campaign partners continue to work with government representatives, lenders, and community members to identify and take these actions – all while important one-on-one housing counseling continues to aid individual homeowners.