A Mortgage Nightmare’s Happy Ending

 

Marcus Yam for The New York Times

Amy and Robert Ahleman in their home in Bensalem, Pa. They say the modification they received on their mortgage has given them a life-changing second chance — and has left them thriftier.

TWO and a half years ago, Robert and Amy Ahleman, a construction contractor and a financial services employee, were mired in a mortgage nightmare. After missing just one loan payment on their modest, well-kept bungalow in Bensalem, Pa., the couple began receiving notices from their lender. Default fees and eviction threats followed.

Mr. Ahleman at home. They turned a corner when a loan servicer cut their interest rate in half and waived late fees.

As the amounts they owed ballooned because of mounting late fees and other dubious charges, their lender refused to take their payments, claiming they were insufficient — which put the Ahlemans even further behind.
The couple soon realized that filing for bankruptcy was the only way to save their home. At the time, the Ahlemans had two mortgages, one for just under $200,000 and a second for $50,000, and the debt was smothering them.
Today, however, the Ahlemans have a happier story to tell. Not only did they survive their harrowing experience with their home intact, but they say they have emerged happier and thriftier for it.
“Given how much we love the house and our neighborhood, being able to go through that and get out of it makes you look at life totally different,” says Ms. Ahleman, 33. “We can wake up every morning now and not worry about our house being ripped out from underneath us.”
Back in July 2008, when the Ahlemans’ troubles were first detailed  in The New York Times, their experience was less common than it is today. Since then, of course, millions of average Americans have been sucked into a foreclosure maelstrom that is ruining their finances and their lives.
This disaster has been accompanied by a still-unsettled debate about how best to stem the foreclosure crisis. When the federal government first stepped in to shore up the economy in 2008, it chose to buttress Wall Street and the banking system with hundreds of billions of dollars in taxpayer bailouts while largely leaving homeowners on their own.
Now that the foreclosure mess continues to hamstring the economy and has upset political expectations, policy makers have focused more closely on it. But a divide remains: Should homeowners simply be foreclosed upon en masse, or should banks work with them to modify mortgages and reduce the loans to levels that homeowners can manage?
The Ahlemans can attest to the fact that a modification, when properly engineered, can offer a less financially painful solution for everyone involved in a potential foreclosure. Yet while the couple’s default survival tale is uplifting, it’s hardly the norm. The terms they received on their loan modification are rarely offered to troubled borrowers today, and so their journey — and their escape from the possible consequences of a foreclosure — remain unusual.
Some analysts and leading economists have cited a failure by banks to provide loan modifications as a signal reason that the foreclosure crisis continues to drag on so ruinously, years after it began. Each month, roughly 250,000 new foreclosures are started, while 100,000 are completed, according to a recent report by the Congressional Oversight Panel, which was created in 2008 to monitor financial markets and those who regulate them.
Figures like these have a huge effect on almost everyone in the country, experts say. Foreclosures blight neighborhoods, put financial pressure on families and drive down local real estate values. Investors who hold the loans in securitization trusts are also hurt by foreclosures, because recoveries on these properties are low. And consumers, made more cautious by a crippled housing market, spend less freely, curbing the economy’s growth.
SOME are prospering from foreclosures, particularly loan servicers that administer mortgages for banks and investors who own the underlying properties. As the report from the Congressional Oversight Panel noted, loan servicers can profit significantly by pushing borrowers into foreclosure. It gives the servicers more opportunities to keep charging lucrative fees and little incentive to seek a modification.
Another obstacle to loan modifications arises if imperiled borrowers have second liens, like home equity loans, on their properties. These liens are often held by lenders who are also servicers on the first mortgage. They, too, have little interest in seeing any modification because it would harm the value of their holdings and reduce their income from fees.
Because of these realities, the Home Affordable Modification Program of the treasury has been largely ineffective when it comes to helping borrowers get loan modifications from their banks, according to the Congressional panel.