Foreclosure filings by home mortgage lenders have risen dramatically this year in Westchester County. The 1,910 court filings through August against borrowers in default represent a 62 percent increase from that same period last year. Foreclosure judgments that awarded properties to lenders rose 44 percent for the same period.
Residential brokers and attorneys in Westchester who represent homeowners struggling or unable to meet their mortgage payments said they expect the surge of foreclosure actions to continue for at least two years. Most point to uncooperative bank lenders as the cause.
“The jump in the foreclosures is not surprising to me,” said Julie A. Curley, an attorney in White Plains who represents debtors in bankruptcy, foreclosure and mortgage defense and mortgage loan modifications. “Last year and even leading up to last year, we had the increase in mortgage modifications.” That was largely driven by the new federal Home Affordable Modification Program (HAMP) and the National Mortgage Settlement, in which the country’s five largest mortgage servicers agreed to a $25 billion settlement, $20 billion of which was to be used for direct mortgage relief and refinancings for homeowners.
Yet banks that were required to work out mortgage reductions with qualifying homeowners “seemed very reluctant to do that,” said Curley, a partner at DelBello Donnellan Weingarten Wise and Wiederkehr L.L.P. “They continued engaging in their usual practices…I’ve seen the banks do everything to get out of their agreement before federal judges.”
One reason for the spike in foreclosures this year “is that the banks are not doing what they’re supposed to be doing under the national mortgage settlement,” she said.
The five servicers included in the settlement represent nearly 60 percent of the national mortgage market: Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Curley said in her practice she has found that of the Big Five, Wells Fargo and Bank of America “are the two worst offenders. They continue to stall and delay. Homeowners aren’t getting the modifications they’re entitled to.”
Curley said some banks have dodged compliance with terms of the settlement by transferring loans to servicers that are not participants in the agreement. Last spring, she said, she submitted modification requests to one of the Big Five for about 10 clients. She learned their loans had been transferred to another servicer, Nationstar Mortgages L.L.C., which left them eligible only for in-house modifications at less favorable terms.
Often those terms include no reduction in principal and a balloon payment at the end on deferred principal that can range from $100,000 to $300,000, Curley said.
With that best offer from a servicer, about 60 percent of her clients have chosen to stop mortgage payments, using that money instead “to build up a nest egg for the next house they purchase” and staying in their homes for the three to four years it can take to complete a foreclosure. But a foreclosure on their credit record can jeopardize that next purchase.
About 40 percent of her clients “will accept those onerous terms” of an in-house modification in order to keep their homes, Curley said. “It’s always against my advice.”
Because homeowners were not parties to the lawsuit brought by 49 state attorneys general that resulted in the national mortgage settlement, her clients cannot bring a bank to court for violations. Instead Curley builds up a record for each bank and reports it to New York Attorney General Eric Schneiderman and to the national monitor of the settlement, former North Carolina banking commissioner Joseph A. Smith Jr.
Schneiderman in May announced he intended to sue Wells Fargo and Bank of America for repeatedly violating mortgage servicing rules established in the settlement. He said his office had documented 339 violations by the two banks since October 2012.
“We are in the process of doing our work on that” lawsuit, Damien LaVera, spokesman in the attorney general’s New York office, said in late September. “These are long, complicated complaints coming against a very well-funded adversary.”
LaVera said the attorney general has been told of similar patterns of violations of mortgage servicing rules in other states since announcing his planned lawsuit.
Responding last May to Schneiderman’s charges, Bank of America in a press release noted it “has provided more relief under the National Mortgage Settlement than any other servicer. We take seriously and work quickly to address any problems brought to our attention.”
Contacted by the Business Journal regarding Curley’s claims that homeowners seeking mortgage modifications have had their loans transferred to servicers offering less favorable and often onerous terms, Bank of America spokeswoman Jumana Bauwens gave this statement:
“We carefully select and work closely with successor servicers to ensure they have the knowledge and proficiency to handle our transfers. Transfer activities include an evaluation of their capacity and capabilities, and all sales and transfers require approval or consent of investors, insurers, guarantors, rating agencies and related counterparties. Depending on which transfer program our successor servicers are participating in, they are committed to abide by our own strict servicing standards or those established under the National Mortgage settlement.
“With all mortgage loans that we transfer, we work diligently to ensure that customers have a smooth transition to their new servicer. We work with successor servicers to ensure modifications currently in progress continue after the servicing transfer, and that any modification commitments already made by Bank of America are honored by our servicing partners.”
Peter Spino Jr., a foreclosure defense attorney in White Plains, said bank attorneys told him the increase in foreclosure court filings “basically was due to the banks finally getting their paperwork in order” and establishing proof of “who actually owns” mortgage loans that have been sold and resold.
He said bank attorneys also attributed the rise in foreclosure actions to homeowners falling into default a second time on their mortgage payments after receiving loan modifications. “I have seen some of that,” he said.
In working to resolve the mortgage crisis, “All the banks are pretty horrific still,” Spino said. “It’s unbelievable that we still have this problem.”
Two years ago, it took one to two years to get a loan modification, he said. “Now it’s a minimum three months if you’re lucky as hell” and a six- to nine-month process is more likely. “Nine months to a year is still not unusual.”
“It’s still a mess in New York,” Spino said of the backlog of defaulted mortgages, “and we have a minimum of another two to three years” before the backlog is cleared.
At Keller Williams Realty in Bedford, associate broker Mark Boyland said short sales of homes by owners avoiding foreclosure make up more than half of his firm’s business.
A certified distress property expert, Boyland started a website, dontforeclosesellinstead.com, that has attracted callers from across the country. In Westchester and Putnam counties, “Homeowners who have been living in their homes without making mortgage payments are finally getting foreclosure notices” and “looking to do short sales,” he said. He has seen an increase this year in inquiries from owners of luxury homes with mortgages of more than $1 million.
“There’s a lot of folks who have gone through the HAMP program,” said Boyland. “They’ve been through it eight months, 12 months, and then they get declined or it’s not enough of a modification” to allow them to keep their homes. “In most cases the banks only reduce interest.”
With foreclosure filings on the rise in the county and state, “We’re not going to start to see the real impact of that until next year, maybe even into 2015,” the broker said.
Broker Kevin Brooks works with homeowners in Mount Vernon and Yonkers, the Westchester communities with the largest number of properties in the foreclosure process.
Short sales there “are on the rise,” he said. “Because of the economy, people are still losing their jobs and when they do get jobs, the jobs don’t pay as well. It’s just feeding the fire.”
“Unfortunately, the banks are heartless,” said the owner of Kevin Brooks Realty in Mount Vernon. “They would rather foreclose and get a little of their money than extend the loan and get all their money…The banks are out of touch with the people.”
“It’s a sad scene,” Brooks said.
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