Modifying Your Mortgage

Angie Acevedo is the type of consumer who holds on to paperwork. She reads the fine print. And when she talks to a customer service rep, she always writes down the person's name. That attention to detail has come in handy during the past three months, as she's struggled to get her mortgage service company to lower her adjustable-rate mortgage. Acevedo is one of the thousands of people currently engaged in the daunting process known as "loan modification."

The Acevedos' story begins in 2005 when Angie, a systems specialist, and her husband Raul, a Navy chief petty officer, purchased a home in Pensacola, Fla. The couple was careful to find a home they were convinced they could afford. They offered $205,000 on the property and went online to find a 30-year fixed-rate mortgage, putting no money down. In the weeks before closing, everything went smoothly. Their mortgage broker had offered them a fixed-rate loan at 8 percent, with a "piggyback" loan at 11 percent to make up for their lack of down payment.

Then, at the closing, Angie began looking over the documents. It turns out their primary mortgage would feature an adjustable rate. "This is not what we agreed to," she said. She and her husband refused to sign. Acevedo's real estate agent, Gen Zwayer, confirms that "we definitely had some issues with the lender. It was pretty shady."

The seller, however, was unsympathetic. He'd already bought a new home, vacated the property and moved his family out of state. He insisted that the Acevedos had no right to back out because they didn't like the terms of the mortgage they had secured, and he threatened to sue. Their mortgage broker assured them that they'd be able to refinance the mortgage before the interest rate began to rise. So the Acevedos signed.

For the first two years in their new home they faced a combined mortgage payment of around $1,700, which they could manage. But they knew they'd face trouble in February 2008, when their adjustable rate would reset, raising their monthly payment by more than $200. So in December Angie began calling Countrywide, the servicer on her primary mortgage, to talk about a refinancing. Since then, she estimates, she's spent some 25 hours on the telephone with customer service reps, signing and mailing documents, trying to get things squared away.

At first Countrywide seemed ready to let them refinance, but the company balked when the numbers showed that the couple—thanks to the housing bust that has caused home prices to slide around the country—owed slightly more than their home was worth. So instead, the Acevedos began talking with Countrywide about a loan modification. By early February everything seemed on track, and Countrywide sent a notary to their house to have them sign a stack of paperwork, converting their mortgage to a fixed-rate at 8 percent for five years. After they signed, the notary took the paperwork.

A few days later Countrywide called to ask why they hadn't mailed in the documents. Angie told the company, "The notary took it." They told her to call back in a few days. Eventually the paperwork surfaced, but over the next few weeks Countrywide reported that she hadn't paid her February or March mortgage payments and, despite her insistence that she had, reported her to a credit agency. Then followed a stack of loan modification documents listing penalties and late fees. The Acevedos, who track their credit rating closely, were especially upset about the dings on their record. "My concern was, if they're doing this to me, how many more are they doing it to, too?" Angie says.

It's hard to put a precise number on it, but the Acevedos' experience is hardly uncommon. In recent weeks MSNBC has been reporting that homeowners who call mortgage counselors at the Hope Now program, touted as an integral part of the Bush administration's response to the mortgage crisis, tend to endure a succession of bureaucratic obstacles: long hold times, poor customer service, and lack of follow-through. The Acevedos' experience is a different facet of this problem: even when homeowners choose to try to do a modification themselves—without a counselor and directly through their loan servicer—the odds of a snafu are great.

Countrywide doesn't dispute that problems in the process are commonplace. Spokeswoman Jumana Bauwens says consumers need to remember that doing a loan modification is almost as complicated as getting a mortgage in the first place, so there does tend to be lots of paperwork. In most cases Countrywide doesn't actually hold the homeowner's loan, it merely administers it on behalf of an investor that also must sign off on modification plans.

Bauwens says Countrywide is working hard to process the swelling number of modifications. In February 2008 it modified 9,200 loans, up from 1,361 the prior year. To handle the dramatically increased volume, Countrywide is hiring more employees. Her advice to people who find the process frustrating: "Call back at least once a week," and be especially attentive if you've been relying on fax machines to send the paperwork.

But, of course, the problems may not always be quite as complex as the company would have its customers believe. Within hours of NEWSWEEK calling Countrywide to inquire about the Acevedos' case, a company representative had called the family. "They've straightened everything out," Angie wrote in an e-mail on Tuesday.

That may not be a huge consolation to the thousands of other borrowers who are biding their time on hold. But as home prices continue to fall and more borrowers find themselves in need of a modification, correctly dotting the i's and crossing the t's has rarely been more important.