COLLEGE PARK – After nearly four years of wrestling with Bank of America, Jose Garcia was overjoyed to get a mortgage modification that allowed him to keep his house.
The deal cut the outstanding debt on his home in Lanham from $474,300 to $190,800, cutting his monthly payment by $1,000.
“I can barely believe it,” Garcia, 39, said in Spanish. “I tell people and they are left with their mouths hanging.”
Garcia is one of thousands of Marylanders who have received mortgage assistance under the terms of a settlement between five major banks and attorneys general in 49 states.
Following documented cases of foreclosure fraud, the banks agreed in February to pay $25 billion to help homeowners avoid foreclosure and improve internal practices for servicing mortgages.
Between March and June, more than 2,800 Maryland families received $224 million in mortgage relief from the five banks — Wells Fargo, Bank of America, Citi, J.P. Morgan Chase and Ally Bank — according to the Office of Mortgage Settlement Oversight.
But less than 10 percent of those families received a reduction in their remaining mortgage debt, also known as a “principal forgiveness modification.” Housing advocates said that type of relief – which Garcia received — is the best way to keep a family in their home.
“We have not seen more than four principal reductions with modifications through the settlement and we serve over 1,000 struggling homeowners,” said Mary Hunter, the director for housing counseling at the non-profit Housing Initiative Partnership. “I’m surprised that we have not seen more.”
The banks have until 2015 to complete the mortgage relief under the settlement. Bank officials said that they expected to see more principal forgiveness modifications over the next two years.
Wells Fargo, for example, provided $11.6 million in mortgage relief between March and June. More than half — $6.7 million — came in the form of short sales, which rids struggling homeowners of their mortgage obligation, but does not allow them to stay in their homes. $3.3 million went towards principal forgiveness modifications.
“We had to get the modification programs up and running,” said Tom Godya, a Wells Fargo spokesman, adding that he hoped to see more principal forgiveness modifications by November.
The Office of Mortgage Settlement Oversight is expected to publish the next progress report in November, which will cover actions taken by the banks between July and September. The settlement between the banks and the attorneys general created the office to monitor the banks through 2016.
In Maryland, the five banks have disbursed a quarter of the approximately $1 billion they are eventually required to pay out in the state.
Of the $224 million all the banks have paid between March and June only 8 percent has gone to principal forgiveness modifications. The settlement requires that at least 60 percent of the relief offered by banks be used to reduce loan balances, especially for homeowners who can’t make payments because of financial hardship.
“We want them to embrace this solution so families can stay in their home and remain intact,” said Marceline White, the director of the Maryland Consumer Rights Coalition. “Banks are doing these to work off the penalties of the settlement. They are not doing it out of the goodness of their hearts.”
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Between March and June, Bank of America provided $108 million in mortgage relief in Maryland. About 80 percent was spent on short sales. The bank did not provide principal forgiveness for any of its customers in Maryland during that period, according to the progress report.
Jumana Bauwens, a Bank of America spokesperson, said the bank has completed 4,000 principal forgiveness modifications nationwide since July, though it’s unclear how many were in Maryland.
“We continue working to reach eligible borrowers with these programs to prevent foreclosure, help our customers save money and support the recovery of the housing market,” Bauwens wrote in an email.
Garcia was one such beneficiary of a Bank of America principal forgiveness modification in Maryland.
The construction worker bought his 3-bedroom house near the top of the real estate market in 2005 for $330,000. He put down $25,000 and got an interest-only mortgage to cover the rest. He refinanced his mortgage in 2007 to obtain money to pay for a family emergency, bumping his debt to $351,000.
When he worked 60 hours a week, his $2,800 monthly mortgage payment was manageable.
“I put all my savings into that house,” Garcia said, adding that he invested another $25,000 of his savings to refinish the basement.
But in 2008, the construction company he worked for cut him back to 25 hours a week and he fell behind on his payments.
He called Bank of America to ask for a modification. That didn’t work. He hired a company that promised to obtain a modification for him. That didn’t work.
In 2010, he began working with non-profit housing counselors to obtain a mortgage modification he could afford.
Meanwhile, the assessed value of his house dropped from $320,000 to $220,000, according to tax records. But his outstanding debt kept on growing — in part because Bank of America rejected his payments after he fell three months behind on his payments, he said.
“After a homeowner falls behind on his payment for a certain amount, the lender stops accepting payments until the homeowner pays the outstanding debt,” said J. Scott Hutchison, one of Garcia’s counselors at the Housing Initiative Partnership, a nonprofit agency that offers housing counseling in Montgomery and Prince George’s counties.
It was only after the attorneys general settlement that he was able to work out a deal with Bank of America.
The bank forgave more than half of his debt, bringing the outstanding balance of his debt to $190,847—which now reflects the actual value of the house. The loan forgiveness reduced his payments from $2,800 a month to $1,800 a month. It kept his interest rate at 7.5 percent.
“I feel very relieved,” Garcia said, adding that he is telling everybody he knows. “There are so many people that have lost their homes. I am telling others before it is too late.”