Bailout foreclosure pitfalls

January 14, 2009 3:04:49 PM PST
There are questions about the financial bailout that was supposed to make it easier for people to get loans and stay in their homes if they were facing foreclosure.An Eyewitness News investigation found that many homeowners trying to modify their mortgages are running into a financial catch-22.

What we are hearing over and over is that if you are not three months behind in your mortgage payments, already in default, banks won't even consider modifying the terms of your mortgage loan.

So, the bottom line is, it doesn't pay to be proactive. And it seems you have to ruin your credit in order to ask for help and have banks work with you.

"I've worked so hard for this house, and to watch it go breaks my heart," Joann Williams said.

Williams isn't looking for a bailout to save the two-family home she owns in the Bronx. She just wants to modify her $475,000 loan so she can afford it. She has two mortgages with Chase, one at a whopping 12.8 percent adjustable interest rate on a rental unit. The other is 9 percent. Keep in mind, the average fixed rate is now about 5 percent.

"All I'm asking is for Chase to cut me some slack," she said. "Lower my interest rate to lock in my loan and combine it into one."

Williams, a full-time babysitter who goes to school at night, is also raising two children, one of whom is in college. She says Chase has repeatedly refused to modify her loan, saying she doesn't make enough money to be considered. She's paid even while her rates keep going up.

Williams: "I borrowed to make sure my mortgage is paid."
Eyewitness News reporter Sarah Wallace: "You've never been late?"
Williams: "Never."
Wallace: "Do you think there's a time when you might not be able to pay?"
Williams: "I know it. They'll have to take the house."

She says she lost a year of rental income from the unit when a tenant stopped paying and refused to move. There were funeral expenses for her mother, and the interest rate on one of her mortgages jumped again.

"In the next three months, if something is not done about my mortgage, I am going to go into foreclosure," she said. "I see me and my children going out on the street."

"It's the low-income people who are stuck in these mortgages who need the modifications in the first place," real estate attorney Rita Dave said.

Dave says there's an ugly secret taking place in the banking world, where people like Joann Williams are concerned.

Wallace "What are you hearing from the banks?"
Dave: "Sarah, they won't ever consider modification until you're 90 days late."

In a Chase statement, a spokesman said, "We asked the borrower to provide further financial information to determine what options are available."

Williams: "If Chase doesn't do anything, I'll have to walk away."
Wallace: "So whenever you hear politicians saying we're helping people stay in their homes, what do you say?"
Williams: "They do nothing. I guess you have to ruin your credit and fall flat on your face before they even think of helping you."

And that's exactly what happened to a single mother in Levittown, who found her credit wrecked,after the bank made it look like she had defaulted on her mortgage. But she hadn't. Watch Eyewitness News at 5 p.m. Thursday to hear her story.

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WEB PRODUCED BY: Bill King

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