JEFFREY BROWN: And we turn once again to the ongoing foreclosure crisis, as NewsHour economics correspondent Paul Solman looks at a government program to get struggling homeowners into more affordable mortgages. The story is the fourth in Paul's ongoing series on the mortgage crisis and part of his regular reporting Making Sense of financial news.
PAUL SOLMAN: How to fix the foreclosure crisis? The key answer was supposed to be President Obama's $75 billion Home Affordable Modification Program, HAMP, announced early last year.
U.S. PRESIDENT BARACK OBAMA: And this will enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.
PAUL SOLMAN: Under HAMP, mortgage principal usually stays the same, but the interest rate can be dropped to as low as 2 percent, the terms extended to as much as 40 years. The catch, if your payments still exceed 31 percent of income, you are denied.
So far, barely half-a-million Americans have received permanent HAMP loan modifications, out of the millions the program was supposed to help. And the approval rate is now shrinking, no surprise if you listen to the folks we interviewed. And we had plenty more to choose from.
LAURAINE YAFFE, homeowner: It's a nightmare, just trying to get a simple answer from these people.
MAN: You call them at breakfast, and, by the time you reach somebody, it's time for your midnight snack.
SARAH PORTER-BRAUN, homeowner: I can easily understand how people just go bonkers.
MAN: I wish you all the best.
PAUL SOLMAN: HAMP aims to prod banks that service mortgages by offering them $1,000 per loan modification. It may not be enough.
SARAH PORTER-BRAUN: We're at this now 16 months here. And our eligibility has not even been determined.
PAUL SOLMAN: Sarah and Lee Braun applied to their servicer, Chase, for a HAMP modification when Sarah was laid off, Lee's hours cut back.
LEE BRAUN, homeowner: The first person who was assigned to our case wouldn't return our phone calls. And, since that time, we have had nine different representatives. And you try to contact them, you don't hear back from them. You call the general number, you find out you have been reassigned to somebody else.
PAUL SOLMAN: From the get-go, the Brauns documented their efforts, some would say compulsively.
SARAH PORTER-BRAUN: There's been countless numbers of time, which he has well-documented, where we have been told you're denied because you have not provided the documents requested, when in fact we have never received a request.
PAUL SOLMAN: Meanwhile, the Brauns now make the mortgage with the help of family.
WOMAN: You think are you getting help.
PAUL SOLMAN: Lauraine Yaffe had nothing to fall back on when she lost one of her two jobs last year. In January, Bank of America said she qualified for the standard three-month trial HAMP modification. Four months later, she called about the permanent mod.
LAURAINE YAFFE: And they said, well, it's still under review. Keep sending those payments.
So I did. June 2, I got a letter from Bank of America stating that I couldn't qualify under the Making Homes Affordable. And then, come July of this year, I hadn't heard anything still as to what my options might be. And I called again. And she said, well, it's still under review. And I said, well, I just got a letter from your law firm stating that you are going to auction off my house August 27. So, how can it be under review?
PAUL SOLMAN: Yaffe was able to get the auction stayed until November 26, but now owes even more in arrearages and fees.
LAURAINE YAFFE: So I'm roughly, I would say, approximately about $23,000 behind.
PAUL SOLMAN: It turns out she even pays for ads the bank puts in the paper announcing she's in default.
LAURAINE YAFFE: This is the ad that they charged $700 an ad.
PAUL SOLMAN: "Notice of mortgagee's sale of real estate," $700, Bank of America, Harman (ph) law offices, that you pay for.
LAURAINE YAFFE: It ends up getting tacked on to what I end up owing the bank.
PAUL SOLMAN: Yaffe's sister, Mary Meaden, helped their brother James apply for a HAMP modification through Wells Fargo after he lost his job. The loan was even backed by the VA.
MARY MEADEN, sister of Lauraine Yaffe: ®MD-BO¯I worked with my brother consistently. Probably two, three times a week, he was at my house. He was sending things certified, faxed. Every single week, a letter went to Wells Fargo and to the Veterans Loan Servicing Administration.
PAUL SOLMAN: But foreclosure came before modification.
MARY MEADEN: They began eviction proceedings on him. And he had a move-out date of April 15. And he passed away. He had a heart attack at the end of February. And, after that happened, his widow couldn't get out of bed for about three or four weeks after that.
And she was under court order to get out of the house by April 15. And I said, look, can you give her another month or two? What's the difference? They said no. I couldn't believe it. I was floored.
LAURAINE YAFFE: Well, you are put under a lot of stress when you are trying to -- I'm getting emotional when I think of my brother. You get put under a lot of stress trying to get help. And it's not there.
MARY MEADEN: The house is now empty. It's up for sale for about $60,000 less than what he owed on it. They have had a couple of auctions and they have had no luck in selling it. And he was willing to work with them and stay there. And right now, right off the top, they are taking a $60,000 hit.
PAUL SOLMAN: Attorney Kevin Costello represents homeowners in cases against J.P. Morgan Chase, Wells Fargo, and Bank of America, a NewsHour underwriter, arguing that, when servicers drag out the HAMP trial process, then reject the homeowner, they're breaking a contract.
KEVIN COSTELLO, attorney: I think it's clear that servicers have not invested the time, the energy and the resources in creating an infrastructure within their shops to adequately discharge their duties under the HAMP program.
It may be that the financial incentive isn't enough. There are all sorts of fees that mortgage servicers are collecting while the limbo for the homeowner drags on and on.
PAUL SOLMAN: According to a recent report by the National Consumer Law Center, servicer fees based on a percentage of outstanding balance provide incentives to increase the loan principal by adding delinquent amounts and junk fees.
Don Madden says he was surprised to see his loan grow after he was rejected from HAMP by Bank of America after a six-month trial that cut his payments from $1,400 to $656.
DON MADDEN, homeowner: Now, on the mortgage statement that I receive, it's telling me that I have six months' delinquent mortgage.
PAUL SOLMAN: You have six months' delinquent mortgage?
DON MADDEN: Delinquent mortgage.
PAUL SOLMAN: Well, because of the six months in which you paid the $656?
DON MADDEN: Correct. What they are looking for is the difference between the $656 and the $1,400.
PAUL SOLMAN: You had idea you could be charged retroactively?
DON MADDEN: No. It was never stated in any of their paperwork.
PAUL SOLMAN: The main problem, according to attorney Costello, servicers haven't been pressured to make permanent HAMP modifications.
KEVIN COSTELLO: What stick is the federal government bringing to bear against servicers who are failing to comply? The data is there that folks are not getting permanent modifications who appear to be entitled to them. What is Treasury doing to enforce the rules of HAMP against servicers?
HERBERT ALLISON, Former Assistant Treasury Secretary For Financial Stability: We don't, Under the law, have the authority to require servicers to be part of the program. And we cannot fine the servicers for not complying.
PAUL SOLMAN: Until his recent retirement, Herb Allison oversaw Treasury's TARP program, which funds HAMP.
HERBERT ALLISON: These are voluntary programs. We have to strike a fine balance between getting very tough with them and making sure that they are active and involved in our program.
PAUL SOLMAN: We asked for interviews with the three banks involved in the cases we have reported. Bank of America was the only one to grant us interviews on camera.
JOSEPH BROWN, Bank of America: It never gets easy.
PAUL SOLMAN: Joseph Brown came to Bank of America last year after a career in carpentry.
JOSEPH BROWN: A lot of times, we have a lot of different specialty departments that handle various cases. So, I mean, that could lead to the misrouting and, of course, the frustration.
PAUL SOLMAN: Rebecca Mairone says, nationally, the bank has added 10,000 loan servicers in just the last year, more than doubling capacity. It now handles 14 million loans, most inherited from an acquisition, Countrywide Financial, two years ago, at 25 locations. This one is in California, two floors the size of football fields crammed with cubicles.
REBECCA MAIRONE, Bank of America: We have several thousand people here, associates in the Simi Valley center, most of which are working on loan modification solutions for our customers.
PAUL SOLMAN: Moreover, she says, the bank has made many of its own modifications after a HAMP denial, though the terms usually aren't as good.
REBECCA MAIRONE: Since January of 2008, we have done over 680,000 modifications for customers. And, of that, 80,000 of those are HAMP modifications.
PAUL SOLMAN: The latest numbers, 700,000 modifications, including 5,000 more in HAMP, which is now up and running.
REBECCA MAIRONE: But, in the early start, building the process, adding new technology, adding new underwriting capabilities, as well as building the capacity, was definitely challenging.
PAUL SOLMAN: J.P. Morgan Chase, which declined an on-camera interview, said the industry was taken by surprise at first.
"Once the president announced HAMP," they wrote us, "our call volume exploded." Wells Fargo has yet to respond at all.
So we asked Bank of America's Tricia Helf (ph), who has been modifying loans for four years, was her bank overwhelmed?
WOMAN: Bank of America: No. We take control of our calls and our customers and try and get the help that they need and be the one point of contact for them.
PAUL SOLMAN: But then why do so few HAMP applicants get modified? For one thing, customers regularly misrepresent their finances when they first apply over the phone, says Mairone, like the very customers we spoke with.
REBECCA MAIRONE: You have a discrepancy between what the customer stated up front and what we were able to verify in those documents.
PAUL SOLMAN: We relayed the response to Lauraine Yaffe, awaiting foreclosure, and Don Madden, rejected for HAMP. Both vehemently denied the bank's claim, saying they can prove they submitted everything in print right away, accurately.
DON MADDEN: Absolutely. I have the paperwork right here.
PAUL SOLMAN: Last week, Bank of America told Madden his mortgage had been lowered 40 percent. The Brauns, however, got rejected by Chase shortly after the bank was told we were reporting their case, 18 months after the Brauns first applied for HAMP.
JEFFREY BROWN: Today, the Treasury Department reported that more than half of the homeowners enrolled in the HAMP program have been disqualified.