I just participated in a mediation on a case that appears to be headed to foreclosure because the bank can only be made whole by the Federal Government by removing my client from his home. My client’s story is instructive about a simple thing the FHA can do to ease the foreclosure crisis and actually save millions of dollars for taxpayers.
Here is Bob’s story:
Bob was employed as a driver by DHL and lost his job a little over one year ago when they pulled out of the United States Market. Living on unemployment benefits Bob was unable to make his monthly mortgage payments and Wells Fargo, his lender foreclosed. Bob is divorced and has custody of his 10-year-old son who lives with him . Since he lost his job he has been unable to pay the mortgage payment He owns a home at in Garfield Heights, Ohio. .
Bob has recently been hired at FedEx earning approximately $11.50 per hour ( less than half of what he was earning at DHL)
Based on the new job and the residual unemployment benefits that Bob will receive we calculate that he would be able to make a mortgage payment in the range of $500 to $600 per month. His current payment is $1030 per month. Wells Fargo’s representative agrees with us that he would only be able to make a substantially reduced monthly mortgage payment.
Wells Fargo Claims that Bob owes approximately $128,000 on the house. The tax appraisal of the house is $83,500. In reality, having reviewed comparable properties, it appears that his house would sell for less than $40,000. Wells Fargo is unwilling to negotiate as it relates to the principal. They claim he doesn’t qualify for HAMP because his loan is more than one year delinquent.
The reason Wells Fargo appears to be unwilling to negotiate on the principal of the loan is that Bob’s loan is insured by FHA. If Wells Fargo forecloses on Bob’s house they will be paid for the entire mortgage amount by FHA.
Here is the outrage. If Wells Fargo proceeds to foreclosure, Bob and his son are thrown out of their home and Wells Fargo is made whole at the cost to the taxpayers of $80,000 or more.
If FHA were made a part of the negotiation and would agree to pay Wells Fargo some amount ( for example half of what they are likely to lose, $40,000) to allow the principal to be reduced, Bob could refinance at competitive interest rates and stay in his home, the Federal Government and ultimately the taxpayers would save $40,000 and Wells Fargo would have an interest paying borrower (who can afford the lower payment) and earn profits from the interest.
Everybody wins under this scenario.
There is no factual dispute between Bob and Wells Fargo, just a Federal Government agency that is apparently working against its own financial interest who’s failure to act to prevent the foreclosure is likely to cost Bob his home and the taxpayers tens of thousands of dollars.
All we need to do is find someone at HUD or FHA who is willing to confront this irrational situation and bring FHA to the table to save itself thousands of dollars.
It also might be a good idea to look at this in the bigger picture as I imagine that there are perhaps hundreds thousands of other borrowers who are facing the same scenario. FHA could intervene in foreclosure cases and take part in negotiations saving homes and saving the government millions of dollars in potential losses.
Law Office of Marc Dann
Cleveland OH 44115