Orion Wisness tried to control his temper as a Wells Fargo representative delivered the bad news: No, Wisness did not qualify for a new federal program that would give him a break on his monthly mortgage payments.
Five months had passed since Wisness, 35, lost his job at a Minneapolis law firm and asked to enroll in the Obama administration's foreclosure-prevention program, and the bank's reason for his denial -- lack of employment -- was difficult for him to accept.
"Let me get this right -- I am an unemployed person and I can't afford my house," Wisness recalls saying, his voice rising.
"So, because I can't afford my house, you won't make my house affordable!"
Wisness is but one of thousands of struggling and frustrated homeowners nationwide stonewalled in their efforts to receive loan modifications under a $75 billion federal program that was once viewed as a key piece of President Obama's effort to stem the tide of foreclosures.
Only a fraction of homeowners who are eligible for relief under the program -- called the Home Affordability Modification Program, but often referred to as simply "the Obama plan" -- have been enrolled and are receiving relief in the form of lower monthly payments.
Consumer advocates blame the banks, which have the final say of whether a homeowner qualifies for relief under the program. Those who don't often are steered toward the banks' own programs, which advocates charge are more complicated and costly.
Many of these proprietary bank plans come with features -- such as large upfront fees and back-end payments -- that are not allowed under the Obama plan, and can leave some borrowers even deeper in debt than when they sought help, consumer advocates and loan counselors say.
Ellison schedules town hall
Frustrated by the slow pace of relief and the high cost of many loan modification plans, many homeowners have been calling, writing and e-mailing Congress. This evening, Rep. Keith Ellison, D-Minn., will hold a town hall meeting to address complaints from local homeowners facing foreclosure about the slow pace of modifications. His office expects at least 200 people to attend the event at the Center for Changing Lives facility at 2400 Park Av. S. in Minneapolis.
Meanwhile, national consumer groups are calling for new rules, including a prohibition on upfront fees and a requirement that banks cease foreclosure proceedings once a modification plan has begun. At minimum, they argue, consumers should be told what program they're being offered or why they have been denied a loan modification.
"Right now, too many borrowers are calling their banks and going into a black hole," said Tara Twomey, an attorney for the National Consumer Law Center in Washington. "It would be nice if there were a clear set of guidelines and more transparency."
When the Obama administration unveiled its loan program in March, many hoped that it would slow the rising tide of foreclosures and help stabilize the economy.
Under the program, banks were required to cut interest rates for qualified borrowers until their monthly payments were reduced to 31 percent of their gross incomes, which can include unemployment benefits. If that level could not be reached through interest cuts, the banks could extend the term of the loan to as long as 40 years, or roll unpaid interest and principal onto the back end of the loans.
"It was better than any other federal [foreclosure relief] program that has ever been implemented," said Cheryl Peterson, mortgage foreclosure prevention manager for Twin Cities Habitat for Humanity. "For the first time, borrowers knew what they were getting into."
But the Obama plan gives banks lots of wiggle room to deny homeowners relief. Under the program, banks use a complex computer model to determine the likelihood of a borrower redefaulting, and whether it would be more profitable for the bank to foreclose. If they decide on the latter, the bank has no obligation to modify the loan.
Hundreds of thousands of loan modification requests came pouring in this spring and summer. Through August, the Treasury Department said only 12 percent of those who qualify for relief under the Obama plan have been approved for so-called trial modifications -- in which loan payments are reduced temporarily while the bank evaluates whether a borrower qualifies for a more permanent loan restructure.
Wells Fargo, the country's largest home lender, offered trial modifications on 11 percent of all mortgages that qualified for the Obama plan, according to the Treasury Department.
'A lot of people in limbo'
Peterson estimates that her organization has helped enroll more than 100 people in trial modifications this year under the Obama plan; not one homeowner has been offered a final modification. "There are a lot of people in limbo," she said.
The Obama plan prohibits banks from collecting upfront fees or "balloon payments" -- lump-sum payments at the back end of a temporary loan modification.
No such protection is offered under many of the myriad plans banks offer to borrowers outside of the Obama plan.
Some attorneys and loan counselors in Minnesota said that it's not unusual for lenders to ask homeowners to make $5,000 or more in "good faith payments" or "cash contributions" just to be considered for a bank modification plan. Borrowers may pay this money thinking that it guarantees them lower monthly payments or goes toward paying down the principal of their mortgages; lenders, however, may use the cash for other purposes, such as paying off unpaid fees or taxes, counselors said.
"The term 'cash contribution' keeps coming up," said Thomas Bloomquist, a supervisor of financial counseling for Lutheran Social Service in Minnesota. "I don't know what it is, but it shouldn't be allowed. ... No one should have to dig themselves deeper into debt to pay for a loan modification."
Terry Cornwell, 40, of Coon Rapids, said that he still hasn't determined what happened to the $2,000 he sent to Wells Fargo last fall.
Cornwell said he called the bank looking for help with his mortgage after being laid off in 2007 from his job as a butcher at Cub Foods. He said a Wells Fargo customer service representative recommended that he send $2,000 to "further the process" of lowering his monthly mortgage payments.
Determined to keep his house of 18 years, Cornwell that same day rushed to the bank a cashier's check via certified mail, copies of which he provided to the Star Tribune. But Cornwell said the bank ultimately withdrew its offer of a loan modification, and his house is now in foreclosure. "It seems like Wells Fargo was more interested in squeezing money out of me than in modifying my loan," he said.
After looking into Cornwell's complaint, Wells Fargo spokeswoman Teri Schrettenbrunner said the bank only allows for upfront payments in "rare cases" when the bank is servicing a mortgage that is owned by a private investor and that investor demands it. In Cornwell's case, the $2,000 collected from him went to satisfy back taxes and insurance, she said. Schrettenbrunner noted that Wells Fargo "worked with Mr. Cornwell on different options to try to help him retain his home."
For some borrowers, the biggest struggle is just getting consistent answers. Calls are bounced from one department to the next, often across the country. And many don't know if they qualify for Obama plan or whether the bank is even trying to get them into the program.
Wisness, the unemployed homeowner from Minneapolis, said Wells Fargo only recently offered him a modification plan that cuts his mortgage payments in half for three months before requiring a balloon payment of $5,846 in January -- a figure about $1,800 more than the sum of the reductions. There was no mention of the Obama plan, even though he has asked for it repeatedly.
"It's a joke," he said of the offer. "Even if I got the world's best job tomorrow, there's no way I could come up with $5,800 in January."
Two weeks ago, however, Wisness got a surprise letter from Wells Fargo saying that he "may be eligible" for the Obama plan.
Wisness said that he plans to call Wells Fargo again, but that he's not getting his hopes up yet.
"It's like watching some kind of bizarre play," he said. "It would be funny if it weren't happening to me."
Chris Serres • 612-673-4308