ShareThisFederal mortgage modification programs aimed at keeping financially at-risk homeowners from being foreclosed on are instead fueling consumer bankruptcies in Florida, according to several housing experts.
Some homeowners on the state's Treasure Coast who were denied mortgage modifications through the federal Home Affordable Modification Program say bankruptcy was the only way they legally could get out of their homes and protect future assets from mortgage servicing companies and lenders.
After nightmare experiences and enormous frustration with the modification program, they feared lenders might go after their assets to recoup losses years after a foreclosure or short sale, which is selling a home for less than the remaining balance on the loan.
While there are success stories of the modification program -- which has kept some residents in their homes and out of foreclosure -- the number of people helped is small.
The problem is illustrated on the Treasure Coast, midway along Florida's Atlantic coast.
As of October, lenders had granted a meager 2,156 permanent modifications to Treasure Coast homeowners 384 in Indian River Count, and another 1,772 in Martin and St. Lucie counties combined.
According to RealtyTrac, foreclosure filings were reported on 11,880 homes in the tri-county region through this year. Another 18,998 were recorded in 2009 and 15,631 in 2008.
Meanwhile, bankruptcies on the Treasure Coast continue to pile up.
In 2008, there were 1,723 consumer bankruptcies filed in Martin, St. Lucie and Indian River counties. That spiked to 2,562 in 2009. This year, the Treasure Coast is on track to surpass those numbers with 2,202 local consumers already filing for bankruptcy through September alone.
"Some people are being put into a position of bankruptcy because their modification did not take place," said Richard Peek, president of the Florida Association of Mortgage Brokers. "Not everything is being done as far as assisting people in being able to maintain their homes."
Karen Lehmann is one of those people.
She vacated her Vero Beach home in September and filed for bankruptcy after nearly a two-year modification struggle with Litton Loan Services, the company servicing her mortgage owned by banking giant JPMorgan Chase and Co.
With two part-time jobs as proof of income, Lehmann said, a modification was approved on her $188,000 mortgage, bringing it down to $146,000 in 2009. The modification was later revoked by Litton despite on-time mortgage payments, months of repeated phone calls, mounds of paperwork, court hearings and mediations.
The reason? She no longer fit the modification guidelines of the loan's investor.
"When they reneged, that was it. I was so tired, I didn't have any fight left in me," Lehmann said. "I had done everything I could. Bankruptcy was my last resort. It was not something I took lightly."
Lehmann, who paid a reduced monthly mortgage of about $700 before the modification was revoked, said shortly before she moved out of her home of 11 years, Litton and Chase wanted her to agree to a short sale for $94,000.
"I thought, this is never going to stop. They wanted me to sign a quit claim deed and if the house didn't sell by December, they wanted me out by January," Lehmann said. "On top of that, they were trying to come after me for more insurance and property taxes. They wanted almost $5,000 more to insure (the home)."
Out of desperation and to prevent further monetary demands from Chase and Litton -- Lehmann turned to bankruptcy to protect her finances.
Some financial experts say the events leading up to Lehmann's bankruptcy aren't unique. Her ordeal is likely shared by thousands of homeowners nationwide.
Michael Larson, a real estate analyst with Jupiter-based Weiss Research, described Lehmann's experiences as an unforeseen consequence of the Treasury's failed modification program.
"The government was overselling this program, over-promising and under-delivering. It was not designed to take care of the key problem and fix the problem of upside-down homes and the structure of those loans," Larson said. "There's a fundamental problem with these modification programs and many more people will foreclose, go bankrupt or both as long as there is no long-term change to its design."
Treasury spokesman Mark Paustenbach said the agency is aware there are problems with the program, but "breaking a contract between a borrower and a servicer would be illegal."
"We talk to families every day that are at risk of losing their homes and are terribly frustrated by their inability to communicate with their lender and get the help they need," Paustenbach wrote in an e-mail.
"We have worked tirelessly for 18 months to stand up a ground-breaking program that has given half a million of these folks permanent mortgage relief. But we know that we have only begun to address the problem. We will not stop until we make mortgage modifications easier, shorten decision time, reduce paperwork and give homeowners greater peace of mind."
(Nadia Vanderhoof writes for Scripps Treasure Coast (Fla.) Newspapers, The Stuart News, Fort Pierce Tribune and Vero Beach Press Journal.)
