Bank Deal May Speed Up Foreclosures

The proposed settlement between Bank of America and investors in troubled mortgage-backed securities just might be the catalyst to end the impasse over foreclosures, that create a logjam in the housing market.

According to an analysis by The New York Times, the proposed deal will have the effect of providing a lifeline to the troubled homeowners whose situation is salvageable, while speeding the foreclosure process for those for whom foreclosure is all but inevitable. The settlement is being viewed as a possible prototype to speed resolution of the housing crisis.

But where does that line get drawn? The agreement, for example, doesn't set an exact income limit for those who can be helped, but servicers have, for the most part, have been using 31 percent of income as the upper limit for mortgage payments.

Lost in the shuffle

It's unclear where a homeowner like Raquel, of Murrieta, Calif., would fall. Both she and her husband are employed with fairly good jobs, though both have taken pay cuts in the last two years.

“I am desperate to stay in my house but just need my payment to be at or below $3,500 a month,” Raquel told ConsumerAffairs.com.

Here's the problem. Raquel said her current mortgage is for $600,000 while her home is worth $300,000. The current payment is over $3,700 a month. She says she and her husband tapped their savings and retirement account funds for two years to keep making payments before they finally ran out of money and missed a payment.

Trial modification

“At that time, 2010, they (Chase) placed us on a trial payment of $2,760,” she said. “I was told that if we made that payment successfully for three months we would move forward to the final stages of the modification and would get a new loan payment at or around that amount. In good faith I made that payment for one year. All along I was going $1,000 a month behind in payments and being reported to the credit bureau.”

When Raquel finally received a loan proposal, in December 2010, she said it was not the $2,760 she had been paying, but almost $1,000 higher than her original payment.

“If I was eligible for the trial amount – otherwise, they would not have even proposed it – then why were they coming back with a payment of almost $2,000 more?” she asked. “I re-applied and they again came back with a proposed payment of $4,500 a month.”

Million dollar question

Raquel then asked a question that millions of homeowners have posed over the last three years.

“Doesn’t it make financial sense to keep me in the home paying interest rather than take the loss?” she asked. “The houses in my neighborhood have been sitting for years, accruing penalties from the city for not being maintained. You can avoid all that by keeping me in the house paying. I can pay. I want to pay; I just can’t make a payment in the $4,000 range.”

The Times analysis suggests that, if Raquel's mortgage was with Bank of America, it would be one the lender would try to salvage. But as the way things now stand, Raquel's situation might look as hopeless as the next homeowner's. She can't understand the logic that has guided foreclosure policies since the start of the housing implosion.

“We have been in our home for 10 years as the original owners,” Raquel said. “We have both been in our fields for over 15 years and are very hardworking citizens. We want to do the right thing and pay what we owe. We are not asking the bank to forgive any of the money we owe, we area simply asking for them to come up with a payment lower than $3,500 a month. They will not work with us and seem more interested in foreclosure then negotiation.”