Instead of helping, bank compounds couple’s housing nightmare

Like thousands of Nevada homeowners, Mel and Yvonne Klien are underwater on their mortgage.

And like many, the retirees were hopeful that they could get some relief from the federal Home Affordable Refinance Program, which would refinance their mortgage at a lower rate even though the Great Recession wiped out their home equity.

But their hopes quickly dissolved in frustration when they learned that Mel, 73, would have to void his will and the couple would have to temporarily give up their state homestead tax exemption in return for a $75 cut in their monthly payment to Wells Fargo & Co.

The price of that relief, they said, was just too high.

"We've been trying to refinance our home under the HARP program, which has become a nightmare," Mel Klien said.

They walked away from HARP when he learned of Wells Fargo's demand that he revoke his will because it has a "life estate" provision for his 67-year-old wife, allowing her to remain in the home for life while the property would be deeded to his daughters, Susan Burgoyne and Lynn Shea, upon his death.

He said that signing the single-page "Revocation of Deed Upon Death" he was presented by the title company handling the refinance paperwork would effectively give up all interest in the home. Klien said the bank also demanded he revoke his homestead exemption on the property, though he would be able to re-file with Nye County after the refinance closed.

"It's a pain, why should I have to do that," the retired plumber and U.S. Army veteran said.

Nor does he understand why the bank would demand that it, rather than his daughters, take the house after he's gone.

Representatives of Markem Title Co. and the Federal Housing Finance Authority, which oversees HARP, said they have no idea how those provisions ended up in the Klien's HARP paperwork.

In a statement, Wells Fargo said Klien couldn't refinance his mortgage without agreeing to the provision.

"We abide by all investor guidelines and in this instance, life of estate transactions are not eligible per investor's underwriting requirements," Wells Fargo said. "The guidelines apply to loan transactions in all states."

A request Las Vegas real estate attorneys find unusual.

"I don't see a lot of those," said Will Kemp, a partner with Harrison, Kemp and Jones. "A lender can impose almost any conditions they want. If you agreed to it, you've agreed to it."

Kemp said legally the "Revocation of Deed Upon Death" would be "valid if he had signed it, but it's unusual."

Mark Connot of Fox Rothschild said banks can do what they want as long as they don't violate federal lending requirements.

"I've not heard of that," Connot said. "It doesn't mean they have to sign it, but (the Kliens) are stuck between a rock and a hard place. "

PROGRAM HAS HELPED 1.1 MILLION PEOPLE

Since its inception in the second quarter of 2009, Fannie Mae and Freddie Mac have refinanced more than 1.1 million loans through the HARP program, the Federal Housing Finance Agency reports.

That's well short of the Obama administration's goal of having 4 million to 5 million HARP mortgage refinances, though the program gets high praise from some mortgage brokers.

"It's been beyond my wildest dreams that we have been able to help so many people," said Linda Ward, owner and president of Red Rock Mortgage in Las Vegas. "I'm usually skeptical of government programs, but (this) has helped so many people."

HARP was actually designed to help people such as the Kliens: responsible homeowners who have never missed their monthly mortgage payment of $555.36. In that respect, the couple is in good company: about 61 percent of homes in the Silver State are underwater, but 82 percent or more of homeowners are current on their mortgages, according to the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas.

The Kliens, who maintain a high credit score, bought their modest, single-story home in 2005 for $161,500 after moving to Nevada, where they wanted to retire.

"This town was booming when we bought this house," Klien said, "We've always wanted to live (out) West, so we chose to move here from Florida."

No one imagined the economic devastation to come. Today the home is valued at $35,000. The mortgage balance is about $69,000.

UPDATED PROGRAM HELPS MORE NEVADANS

The goal of HARP is to help homeowners save money and fend off foreclosures by lowering their monthly payments.

The government's initial effort in 2009 to ease refinancing rules met with mixed results because it allowed homeowners to refinance only if their loan was no more than 125 percent of the home's value. That loan-to-value ratio didn't help many homeowners in Southern Nevada, where a home bought pre-recession might have a loan balance twice its current value.

In March, the government launched HARP 2.0, which allows homeowners with loans held by the federal government's mortgage entities, Fannie Mae and Freddie Mac, to refinance to current interest rates without meeting typical appraisal requirements and without regard for the loan to value ratio.

The two agencies own more than 50 percent of the mortgages in Nevada.

The updated program also waives some fees, and promises lenders a break for the warranties they sign when they originate certain loans.

The requirements for eligibility are straightforward:

■ No more than one missed payment in the past year.

■ Proof of income sufficient to cover the new monthly payment.

■ Automated appraisals for most applications, though some Las Vegas and Pahrump residents were required to pay for appraisals if the lender requests it.

What's not required?

Voiding wills and homeowner tax incentives.

Klien said the experience and his deal, which was pulled four days before closing on April 13 after he refused to sign the documents that would have voided his will, has left him frustrated.

"I've paid my mortgage every month," Klien said. "Now the president and Congress set up this program for people like me that are underwater and the bank turns me down. I can't get help anywhere."

After everything, Klien still doesn't know whether he'll ever be able to refinance his home.

"I just don't want others to go through what we have gone through," he said.

Contact reporter Chris Sieroty at csieroty@review
journal.com or 702-477-3893.