Michael Short/California Watch Gayline Hudson of Oakland is ineligible for a principal reduction under the Keep Your Home California program because her lender, Wells Fargo, does not participate. She owes more than $19,000 on her mortgage, an amount she says is impossible to make up.
On June 15, Wells Fargo is set to auction off Gayline Hudson’s home in Oakland’s Fruitvale District. Hudson, who bought the two-bedroom house for $370,000 in 2005, lost her job as an adult education teacher when the Oakland Unified School District laid her off last June.
The 44-year-old now owes more than $19,000 on her mortgage, an amount she says is impossible to make up. Hudson, who has secured part-time work as a teacher, said she makes about $1,600 a month, the same as her combined monthly mortgage payment, including property tax and insurance.
“I’m fully aware that I lost my job and I need to find other gainful employment, but at the same time, people need help,” she said. “And everywhere I go, the door is closed in my face.”
Hudson is the type of borrower that a $2 billion government program called Keep Your Home California was intended to help. But more than two years after President Barack Obama announced the delivery of the first $700 million installment for the initiative, the California Housing Finance Agency, which administers the program, has spent just 5 percent of the money – $93 million, according to the agency’s most recent filings with the U.S. Treasury Department.
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Fewer than 8,000 borrowers have received help out of 101,337 Californians the agency estimated would receive assistance in an agreement with the federal government 18 months ago.
Keep Your Home California is designed to subsidize mortgage payments for unemployed borrowers and reduce debt for people whose homes significantly declined in value during the housing crisis.
But the program’s success relies on the good will of the banking industry, and most are balking at rewriting mortgage agreements. At the same time, the program has eaten up an unusually large portion of its fund to create and promote the largely unsuccessful program. Of the nation’s five largest mortgage servicers, only one, Bank of America, is participating in the principal reduction program.
“The banks got the money that they needed, but homeowners haven't got what was promised,” said Christy Romero, special inspector general for the Troubled Asset Relief Program, which funds the program. “Ultimately, TARP was not supposed to be a bank bailout; it was supposed to help homeowners.”
According to the agency’s most recent monthly filing with the federal Treasury Department, more than a quarter of the federal funds spent so far have gone to administration, including marketing; leased office space, furniture, outside, legal and professional services; and salaries and travel for program staff.
In the private sector, overhead costs on mortgage origination typically average about 1 percent of the cost of the mortgage, said Kenneth Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at UC Berkeley’s Haas School of Business.
“It’s embarrassing,” Rosen said of the mortgage program. “It seems like a lot of bureaucracy where they are not getting anything done.”
In an interview, Diane Richardson, legislative director of California Housing Finance Agency, agreed that the program has been slow to take hold.
Richardson said a major hurdle has been getting banks involved. To date, most large banks – including Wells Fargo, JPMorgan Chase, Citibank and Ally Financial – have refused to participate in the $779 million principal reduction program. Under the original plan, the housing agency would provide up to $50,000 to write down a borrower’s debt if the bank matched it.
The program, which had helped just 221 borrowers as of April 30, according to agency’s Treasury Department report, was modified May 7 when the agency announced it was removing a requirement that banks match the taxpayers’ contribution to a mortgage write-down. The maximum taxpayer contribution also was increased to $100,000.
“I thought, honestly, when we said, ‘We’ll match you,’ that there would be takers. I thought they’d be jumping up and down, but the interest wasn’t there,” Richardson said.
The move spurred the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to announce May 7 that it would instruct the government-supported mortgage companies to participate in the program. The two firms own more than 60 percent of California mortgages.
Officials said they hoped the change would jump-start the program.
“It will make a huge difference because there are a great number of people who have loans that are owned by Fannie and Freddie who are distressed and struggling,” Richardson said.
“It makes a much greater number of people potentially eligible,” she said.
But the move has not yet resulted in a similar response from banks.
In an interview, Tom Goyda, spokesman for Wells Fargo, said it was too early to tell if his company would join the program. Susan Fitzpatrick, spokeswoman for Ally Financial, said in an e-mail only that GMAC Mortgage would “offer programs to our customers that follow our investor guidelines.”
Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said he understood why many banks were reluctant to sign on. Even if they do not bear the cost of the principal reduction themselves, mortgage lenders stand to lose the “prospective income” of interest payments on that debt – an amount that often exceeds the amount of the debt itself.
Evan Gerberding, a spokesperson for the California Housing Finance Agency, said in an e-mail that the agency was in discussion with “all of the major lenders” and believed it would “see an increase in lender participation.”
Fewer homeowners to get help
With the taxpayers bearing the full cost of each mortgage write-down, the California Housing Finance Agency cut by two-thirds the number of troubled homeowners it can afford to help – from more than 25,000 to less than 9,000, according to its most recent filings with the Treasury Department.
Romero, the special inspector general, said the California Housing Finance Agency’s reduction in the number of homeowners it intends to help represents a failure of its overseer, the Treasury Department, to provide proper oversight.
“The state goals are moving targets,” said Romero, who functions as the Treasury Department’s in-house watchdog. “If you have no goal post, then there's no accountability.”
In April, the inspector general issued a report showing the program largely had failed to help homeowners across the country. Although the Treasury Department had earmarked $7.6 billion for 18 states and the District of Columbia, only $217 million had been spent nationally as of this year, and only 30,640 homeowners had received assistance.
According to the report, the Treasury Department allocated money without “producing measurable goals” for states on how many homeowners would be helped. The states have until the end of 2017 to spend the money. And the report criticized the Treasury Department for approving state programs, including California's, before large banks, Fannie Mae and Freddie Mac had agreed to participate.
But Tim Massad, an assistant secretary of the Treasury, said the report “misses the mark by not acknowledging the hard work of participating states and the innovative ways they are preventing foreclosures in their local communities.” He said the program is crafted “in ways that suit local conditions and have already kept tens of thousands of families in their homes.”
Waiting for aid
Since the start of the program, the California agency’s Treasury Department filings show, just 27 percent of applications for Keep Your Home California programs have been approved, while 35 percent have been denied. The remaining third have either withdrawn their application or still were waiting for an answer.
“It’s crazy,” said Hudson, the unemployed Oakland teacher, who is ineligible for a principal reduction under the Keep Your Home program because her lender, Wells Fargo, does not participate.
“My house has lost most of its value, so it’s not like they’re going to make any money on the foreclosure,” she said. “Why won’t they let me live here – especially if the government would pay for it?”
In the meantime, homeowners across the state face the loss of their homes.
“I’ve done everything that I asked them to do, faxed them and called them, and I keep getting denied,” said Raymond Rivera of Chula Vista.
Rivera, who was laid off from his job as a substance abuse counselor in 2009, still owes $369,000 on a three-bedroom condo he bought in 2006 with a loan from the California Housing Finance Agency.
Last June, Rivera declared Chapter 7 bankruptcy, and in January, the agency declared him “conditionally eligible” for a principal reduction under Keep Your Home California, in part because his home has lost half its value and is now worth just $181,000, according to real estate website Zillow.
Five months later, however, the housing agency still has not given final approval for his principal reduction. Instead, the agency is pushing for a short sale.
“This makes no sense to me,” Rivera said. “If I don’t make enough to cover the loan, then why aren’t they using their funds to get me the government assistance that’s available?”