Piece Description

Job loss, illness, a death in the family, there are a number of events that can lead homeowners into situations where they face losing their homes to foreclosure. And once there, it can seem like there are very few ways out. One hope is a mortgage modification—when a lender changes the terms of loan so a homeowner can afford the payments and avoid foreclosure. For years non-profit housing counselors have been the ones to guide struggling homeowners through those deals. Now some national banks are getting into the practice of modifying mortgages. But their approach has some experienced housing counselors seriously concerned about homeowners’ long term welfare.

In 1972, Ethel Mason bought her family a house. It’s white stucco with five bedrooms in the Austin neighborhood on Chicago’s West Side. For years, Mason kept her home going each month on a combination of social security, rent from a grown daughter who lives with her, and state aid for two foster sons. But that all changed late last spring.

TOWNSEND: Did you really think you were going to lose the house?
MASON: Yes, yes, yes, baby, I know I was. I know I lose it.

Mason, who’s now 79, says she couldn’t take care of her two foster sons anymore. She gave up guardianship, and the state aid that helped pay the bills. Like tens of thousands of other home owners in the Chicago area last spring, Mason decided to refinance her mortgage to get a lower monthly payment. There was no problem finding a mortgage broker. Records from the last time she refinanced were public, so lots of brokers had been calling.  She picked one.

MASON: I told them, 'You sure you’re being fair to me – I can’t pay no more. Oh no Ms. Mason, this is it – this is all you got to pay, everything is clear.' 

The broker quoted her a payment of about $750 a month.

MASON: He said I’m going to show what I’m telling you is true, I’m going to give you five hundred dollars out of my pocket. So I fell for it.

But when she got her first mortgage bill it was for $1500 dollars double what she’d expected. Turns out the mortgage Mason had signed up for was a payment option adjustable rate loan. If she didn’t pay the $1500 a month, her loan would actually increase.

MASON: I just got so depressed cause I didn’t want to lose my house after 30 years. And then I was losing weight, I couldn’t sleep so I goes to my doctor. I was having anxiety attacks, I went to the hospital.

Mason thought about suing but couldn’t afford the lawyer she met with.  Instead, he steered her to a counselor at the Northwest Side Housing Center. It’s one of about 30 such counseling centers in the Chicago area. 

Liz Caton has been working there since 2004. Caton says she’s always been busy, but over the past year the number of homeowners in trouble has steadily increased. When it comes to someone like Ethel Mason, Caton says she first tries to get a loan servicing company to change the terms of the loan so the owner can stay in her home.

CATON: We go to the servicer, we go with a very realistic approach cause I don’t want to set these people up to fail in a plan. It’s almost like you’d be giving them another bad loan all over again.

And she was able to work something out for Mason.

CATON: She’s still in the timeframe where she’s current and she’s making the minimum payment So we went to the servicer and they’ve come back with a short term modification. It’s a 3-year fixed where her payment actually went down some.

MASON: Now Liz got me paying 518, thank God. It’s just for interest alone. ‘Cuz see, but now it ain't gonna go no higher.

Ethel Mason’s happy. But Caton says this kind of fix can be part of the problem when it comes to the long-term good of homeowners, and the housing market.

CATON: We’re getting a lot of short term workouts, they’re just fixing the interest rate for a couple years, maybe even 5 years. It’s not really looking at what does this borrower need to stay in this property long term and to be a long term successful home owner. Where are we going to be in 5 years?  Can they refinance in 5 years? That’s a really big question mark I don’t think anyone can answer now. 

And there’s another twist. These days, some traditional big banks are contacting eligible homeowners directly to modify loans and keep the monthly payments coming in. Caton says she’s not worried about losing her job with homeowners. But she is concerned about the banks’ approach.  She thinks they won’t address the heart of the problem. Many people don’t have the information and support  to make major financial decisions.

CATON: I think the basic change that we really desire to see happen, is with our homeowners we work with. And that when they come in and we help them, that it’s not just a temporary fix. That they see this as ok, I’ve been educated and empowered to do something, well let’s take this and let’s go with it. And let’s keep learning and keep trying to make the right decisions.

A number of economists and analysts I talked with say that’s not the job banks are taking on.

PETERS: I think every foreclosure comes with a very sad story, there’s nobody who did not try to avoid that situation, but a bank itself is a financial institution that is looking at the bottom line.   

That’s Jaime Peters. She’s a banking industry analyst with Morningstar in Chicago. She says a bank’s main goal isn’t about keeping people in their homes.

PETERS: They’re going to look at a person and say foreclosure or modification based on how much they’re likely to lose. If they’re going to lose less with foreclosure, they’re going to continue to foreclose.

And Peters says, there’s something else to keep in mind. People at risk of foreclosure, often slip right back into trouble after their loan is modified.

PETERS: The numbers I’ve seen have varied from 20 percent of people are successful to 60 percent. It depends on where you look.

Counselor Liz Caton says that’s why she’s all about long term changes.

CATON: This is a process of learning. I have some who call back and maybe find themselves in another crisis. And we have to take another look at it. And we have to say, 'Is there a pattern here? Is there something you can work on?' It’s helping them through the process and giving them the tools they need to climb out of that.

As for homeowner Ethel Mason, she’s is happy to be staying in her West Side home. She’ll go back to see Caton in three years when her interest rate changes. But like many others in her shoes, she’s on to the next financial dilemma. Her furnace has stopped working. The house is chilly. And winter’s on the way.