After The News Tribune asked to hear from readers about their experiences with mortgage companies, more than two dozen people called or emailed to share their stories. Here are a few who allowed us to share the challenges they faced during the Great Recession:
Mark Hergert, 51, Spanaway
Hergert and his wife have had at least four different mortgage companies in two years. They did what millions of Americans did at the height of the real estate boom: They pulled the equity out of their home with a mortgage refinance. Values were soaring. Work was plentiful.
"I built the house 17, 18 years ago, " he said. "I had lots of equity so they refinanced.
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"We painted the home. Paid debts. We didn't really buy any new toys, " Hergert said. Then, after a beat: "We paid bills from the toys."
Their home debt topped out at $340,000, he said. They now owe about $280,000. The house is worth about $230,000. Work dried up for Hergert, a contractor. His wife's coffee stand folded. Hergert has been trying for a modification for two years. He's dealt with EMC. Nationstar. Selian. And now, Kondaur Capital. "I built this house. I only owed $64,000 on it, " he said. "Then people started sending me stuff. Hey, God, get some money! Get some money!"
His voice is thick with regret.
Kondaur has told the couple they plan to start foreclosure in another 45 days.
Last week, The News Tribune featured Gary Palagruti, a Tacoma man whose mortgage company wouldn't acknowledge his loan modification despite six months of writing, faxing and calling. Less than a day after the newspaper got involved, Atlanta-based Ocwen Loan Servicing fixed the problem. Ocwen's executive vice president and general counsel, Paul Koches, spoke with The News Tribune on Friday. Here is that interview, edited and condensed:
Ocwen is the nation's largest subprime loan servicer. These are loans that aren't the cream of the crop. They have special challenges, then you add on the effect the recession has had on people. That said, mortgage servicing isn't like other businesses, where if people aren't happy with the service they're receiving, they can go somewhere else. Homeowners can't control who their servicer is. This is the basis for my questions today.
You're right. Our customers on the homeowner side, unless they refinance or sell, they don't have a choice.
To whom is Ocwen primarily responsible: company shareholders, loan investors, or homeowners?
All of them. We owe a duty to shareholders to maximize their return on investment. Then, to the owners or investors in the loans, the relationship there is governed by a contract called a pooling and servicing agreement, or PSA. Loans are bundled into trusts, and servicers, like Ocwen, bid for that business.
So we have a number of PSAs, more than 1,000 of them, that lay out our duties and responsibilities. The one thing all of them have in common is, the servicer shall service loans and resolve delinquencies in the best interest of the investor.
Then we have a relationship with the homeowners whose loans we service. We have a 15-point commitment to borrowers in terms of customer service.
Mr. Palagruti's situation was clearly a problem. He tried to correct it immediately and for six months before contacting my paper. Does Ocwen only correct mistakes when faced with bad publicity?
Let me respond in a number of ways. We appreciate you bringing it to our attention. It was escalated for special review. We have an ombudsman department that handles difficult cases, and they were able to get into account records and find initial information that either wasn't provided to us or provided in a way that wasn't self-evident. I'm hesitant to get too far into this gentleman's situation or any other borrower issue because of federal privacy concerns. I will say this: It appears there was a miscommunication, and it happens. It happened in this case.
Whenever we have human beings involved in processes, even though our processes are highly automated, it's not perfect. An error, if it's pointed out to us, we will work very hard to correct it.
Ocwen is growing fast. It bought loans from Litton in September; people were notified the same month, and their next payment was due to Ocwen, who people had never heard of. This raises questions for the recent purchase of loans to service from JPMorganChase. Why must the transfers happen so quickly? Why can't the transfer be more smooth?
Under applicable federal law, there is a 15-day minimum period for sending these transfer notices. They're called hello-goodbye letters. It's a matter of industry practice to follow that 15-day protocol. Could it be longer? I suppose. Is it feasible in transfers of this magnitude? Maybe not.
Once those contracts are finished, the parties generally like to move forward and complete the transaction as quickly as possible.
It feels too fast.
It's a fair concern. We spend a lot of time in preparation before service transfers to ensure it goes smoothly. A lot of it is handled electronically. We get data fields and loan tapes and so forth, and those can be rather quickly loaded on to our system.
Ocwen services roughly 700,000 loans and employs about 5,000 people. That's about 140 loans a person, and the rate clearly is higher because not all employees handle loans. How can the company provide good service on difficult loans at that rate?
We are very proud of our servicing platform. It is proprietary. We've built it ourselves over 20 to 25 years. If you do ask around in industry, government, community advocacy circles, most people will acknowledge we do lead the industry with our ability to handle large volumes with credit-challenged and distressed loans.
It doesn't feel that way to some people.
You're not talking to the 270,000 families we've saved from foreclosure through modification.
A lot of people get flummoxed in conversations with their mortgage company. They're worried, and intimidated, and afraid of saying the wrong thing.
We have spent a fair amount of time and money on consumer behavioral science research. We have a psychology department. We're trying to learn more about the words and the phrases, and some cases the actual order of words and phrases, that can lead to rapport and trust.
We have built into these servicing tools scripting engines that provide guiding words and phrases and discussion points for home retention consultants. Every situation is unique. But there are recurring patterns. There are things we can do in real time during the course of the discussion that will direct the consultant to screens that have scripts that will assist them on a more custom, tailored basis to the facts.
Then there's the consultant side. This is a difficult job, dealing with people who are worried about losing their home. We've tried to understand what makes for an ideal home retention consultant. We've developed protocols that we use in our hiring around behavioral characteristics and cognitive abilities. They're not litmus tests. But they're tools that help us identify a personality profile. Then we train them.
What is your response to those who say servicers are motivated to keep people in default so fees can be charged? What evidence can you offer that that's not happening?
It's a myth. At least as it might affect us. What fees would be accumulated? Late fees? We do collect them. We're entitled to them under the contract. However we would prefer late fees to be zero because the cost associated with servicing loans in delinquency far outweighs the late fees. And in a situation where there is a foreclosure, we're not able to collect those fees. Not one nickel in those cases. There's no rationality whatsoever to keep people in delinquency.
We started modifying loans before (the government incentive program). We saw this coming. In 2007, our board said we need more tools than special payment plans to address this.
Modifications are standard fare now, but then, no one was doing them. There was no precedent; no guidelines.
As a servicer you need to service the loan and delinquencies in the best interest of the investor. So we're not only allowed to do modifications, we're required to. We can find lower payment that works for the borrower while generating more cash flow for investor than they would otherwise get if we took that loan into foreclosure and recovered X cents on the dollar.
Do you plan to adopt any of the specific servicing requirements that were part of the recent $25 billion settlement between the states and the nation's top five banks? Specifically, giving people a single point of contact and making a decision on a completed modification application within 30 days?
The standards are probably going to become best industry practice that servicers should follow. We're committed to following them, at least those that apply to us. We have a schedule set up for doing that.
We will be going above and beyond the single point of contact with an appointment model.
Our objective is to give people enough advance information so they can get everything ready before the appointment. We hope to be able to work out the modification in real time, during that appointment.
People must provide the proper information. But we have robust technology. Once the inputs go in, we can get to a workable underwriting on the phone. We're not there yet but we will be there shortly.
Why should anyone fax things? It doesn't seem to work. Why can't servicers do a better job of hanging on to documents people send?
We're sensitive to that because the documents are essential. Not everyone has a scanner and can send email, which we prefer, because then we can respond in real time. We are working on that. There is some portion of the problem we've found that frankly just has to do with poor fax technology.
It does work in most cases. We've done over 200,000 modifications. Every one of them had documents submitted. Most transmissions do go through. We receive them.