Homeowners plead for help at foreclosure summit

Emotional testimony from a man whose friend recently took his own life at Western High School punctuated his call Friday for action by lending institutions and government policymakers to come up with a realistic solution to the housing foreclosure crisis.

So far, nothing seems to be providing relief. There's the $75 billion Home Affordable Mortgage Program, the Home Affordable Foreclosure Alternative, loan modification efforts, state-mandated foreclosure mediation and $194 million in "hardest hit funds" allocated for Nevada that nobody has seen.

Still, Nevada continues to lead the nation in foreclosure filings per household, unemployment is at an all-time high and more people are in danger of losing their homes, their family foundations and, for many, the single largest investment of their lives.

One problem with loan modification is it delays the inevitable, said Vicky Henry, operations specialist for the Department of Housing and Urban Development.

"We need a Darwinian flush for the housing market to recover," Henry said at a Foreclosure Prevention Summit sponsored by the city of Las Vegas at Historic Fifth Street School. "We cannot start recovery from the middle. We have to start from the bottom and I think it's reasonable to say we haven't reached the bottom yet. We need to let the foreclosure process work with some regulation and let the market come down as far as it's going to go."

An audience member asked why lenders won't mark loans down to market value for the estimated 80 percent of Las Vegas homeowners who are "underwater," or owing more on their mortgage than the home is worth, to give people incentive to stay in their home.

"There really isn't a checkbook big enough to write down that loan if you have to do it again and again," said Mike Drawdy, senior vice president of Bank of America. "Sometimes we've seen principal reduction with HAMP, but typically you're not going to find anyone to do that."

Drawdy said Bank of America owns about 20 percent of the mortgages it services. The other 80 percent are owned by Fannie Mae, Freddie Mac, the Federal Housing Authority and private investors, and their answer has been "no," he said.

HAFA was designed to provide incentives for banks and lenders to approve more short sales, or sales for less than the principal mortgage balance. That's helped bring the share of short sales from about 8 percent of the market a couple years ago to 30 percent today.

Brenda Scott, assistant vice president of Chase Bank, said the bank was the first to open a loan modification center in Las Vegas two years ago to work with delinquent homeowners and give them a number of options to foreclosure.

Chase puts borrowers on a three-month loan modification trial period and has approved more than 500,000 permanent loan modifications, she said.

"Even if we cut the mortgage payment in half and the homeowner still cannot sustain financially, what good is it for us to do a loan modification?" Scott asked.

Getting a lower payment for someone doesn't mean they'll stay in the home, said JK Huey, senior vice president of Wells Fargo Home Mortgage .

"We always look at HAMP first, then other internal proprietary modifications," Huey said. "In cases where neither modification will help, we look at other options. Once we've exhausted all efforts, we talk about a short sale or deed in lieu of foreclosure."

At the heart of the foreclosure catastrophe is pervasive fraud that runs deeper than anyone can imagine, said John Kelleher, chief deputy for the office of the attorney general.

His office has been cooperating with the FBI, IRS, Mortgage Bankers Association and other agencies to investigate the epidemic in Las Vegas, often cited as "ground zero" for mortgage fraud.

Kelleher said we need legislative help in reforming criminal penalties for such activity. "Like it or not, you get more jail time for stealing $750 from the 7-Eleven than you get for stealing $750,000 in mortgage fraud," he said. "There's a lot of good statutes to charge people with, but unfortunately they're misdemeanors."

Las Vegas Councilman Steve Ross, who set up the summit, said his office gets "hammered" with calls from constituents every day.

"There are solutions out there for a lot of people," he said. "Maybe there's no answer for some people. Just like buying a car or getting a credit card, they don't qualify."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.