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Working to Keep Homeowners In Their Homes
Interview with David Petrovich
Posted July 31, 2012

ForeclosuresMy guest today is David Petrovich, Executive Director of the Society For Preservation of Continued Homeownership [SPOCH].  Please tell our readers what SPOCH is and how it works.
Thank you very much for the opportunity to tell you and your readers about SPOCH. The real story, however, is about misinformation parroted by the fawning corporate media about how "lenders don't want to foreclose - they want to help!" which is total crap.

SPOCH is a non profit, tax exempt organization founded 12 years ago to provide at-risk (of foreclosure) homeowners a resource to learn the unvarnished truth about the foreclosure process,including foreclosure time frames, options and (non) foreclosure alternatives, and client-specific information so homeowners who experience emotional and financial hardship are able to make informed decisions .. not short sighted, knee-jerk, reactions. We are also able to assist homeowners (on a case-by-case basis) with specific hands-on help acting as a liaison between borrower, lender, and other third party stakeholders. Our Board of Advisors includes a CPA, a couple of MBAs, real estate and financial professionals, and an attorney who was an FDIC regulator. We work from a small office in New Jersey, but SPOCH's out-reach extends to 48 states.

Right up front, I think its important for you to know SPOCH is independent and doesn't accept funding or compensation from the loan servicing industry or any government sponsored agency. We rely on occasional, small, tax-deductible contributions, dedicated royalties, and fund-raising activities. Without an "employer/employee relationship" which is shared directly or indirectly by MOST counseling organizations dependent upon government or industry funding, SPOCH can fully advocate for its clients. We don't have to worry about loss of funding from "the hand which feeds us" simply because we recommend challenging the lending industry for its predatory practices including the circumvention of Truth In Lending laws, and running roughshod over consumers' rights in its pursuit of unconscionable profits. But I'll get back to that.

The majority of borrowers at risk of losing their homes to foreclosure are truly unaware of what lead to the current mortgage crises, including but not limited to the financial industry's deregulation, its unconscionable profits, the shortcuts taken by the profiteers, and how the government and its agencies are protecting bed-partner Wall Street's interests while facilitating financial terrorism on Main Street.

I'm glad to hear that SPOCH doesn't accept funding from the industry. That certainly strengthens your independence. Before we jump further into the foreclosure mess, please tell our readers a little about your background, David. You worked in the real estate field for many years before starting SPOCH, didn't you? How did that experience help you do what you're doing now?
Sure, but please call me Dave. My mother calls me David, in a tone that sets me on edge.

My folks, who were schoolteachers, had a part-time, general contracting business while I was growing up. Each year they selected a single, uniquely desirable, residential building lot. They would then design and cause a house to be built upon that lot during the summer, and try to sell it before school began in September. I spent my summers working with and learning from the various tradesmen all aspects of the process... including site acquisition and finance,cost-estimating, construction loans, purchasing materials, subcontracting, project management, etc.

I mixed concrete, laid block, learned framing, roofing and siding, electrical, plumbing, HVAC, flooring and painting. I learned about code inspectors. Years later, after a particularly bad experience with an abusive building code inspector, I studied and sat for the state subcode officials exam. Though I never used my license, I vowed never again would I let an overreaching subcode official take advantage of my ignorance, and willingness to comply.

By the time I was in college studying psychology and finance, I was spending more and more time working than in school. I dropped from full-time to part-time to no-time, but began what seemed a lifetime of evening classes. I took the real estate exam in 1985 and tried to sell houses at a time interest rates for an FHA or VA loan exceeded 22%. I had a great real estate mentor who taught me to identify motivated sellers, which included those who were forced to relocate due to job change, those mired in divorce, families settling estates, and those who faced mortgage foreclosure.

I write about many of those career shaping moments in my recent book, Fight Foreclosure: How to Cope with a mortgage you can't pay, Negotiate with your lender, and Save your home (Wiley & Sons). 25 years ago, my father-in-law faced mortgage foreclosure. I was watching a train wreck in slow motion, powerless to stop it.

I got a mortgage solicitors license, a P&C insurance license, and certification from The Appraisal Institute. With help from my folks, and my new bride, I set out to acquire, rehabilitate and resell existing, distressed homes. I concentrated on purchasing from homeowners who faced mortgage foreclosure who had VA or FHA (then assumable) loans which I did, successfully, until a serious injury and subsequent surgeries forced me to hang up my hammer. I had become quite proficient in purchasing foreclosures by working with the sellers (and their lenders) to resolve their housing and finance problems. In more cases than not, I was able to resolve their mortgage difficulties which allowed them to keep their homes. Those successes, though financially unrewarding, were satisfying and, years later, became the basis for SPOCH's mission which was to preserve continued homeownership.

One of my workout proposals was noticed by a new VP at GE Capital Mortgage (then the second largest mortgage loan servicer in the US). He flew from St. Louis to NJ and (despite my then and now shaggy, thinning hair and white beard)hired me for his prototype program to deal with non-performing mortgages. I worked a portfolio that included about 7,500 "bad" loans in New Jersey, New York, Pennsylvania...and New England on as "as-needed" basis.

In addition to field responsibilities, which included establishing borrower contact, devising and implementing loan workouts, assessing market conditions, and reviewing appraisals, I became the regional mortgage loan servicing expert who represented the lender in Federal Bankruptcy Courts. My role was to testify to the Court specific on debtors loan origination, servicing (collection and application of payments, attempts to resolve delinquencies, etc.), and foreclosure.

I traveled periodically to the St. Louis HQ for meetings with FNMA (Federal National Mortgage Association) FHLMC (Federal Home Loan Mortgage Company) and the FHA (Federal Housing Administration). The result of these meetings between the country's second largest loan servicer and GSEs (Government Sponsored Entities) and HUD became the basis for loss mitigation practices still in use today. Not to say GE was the sole contributor... Citibank's HQ was just across the street. Early on, I saw the cozy relationship between government and Wall Street capitalists.

I worked for GE until the loan portfolio to which I was assigned was "fixed" and sold to another servicer. Though GE offered me a similar position for a portfolio in California, I found myself out of work with a unique skill set. I had seen foreclosure from both sides of the table. I learned what power the loan servicer had, and saw first-hand how foreclosure and the threat of loss of homeownership devastated families. Unnecessarily.I had learned through experience most mortgage foreclosure were avoidable. Sadly, the real help distressed borrowers needed wasn't available.

As a private, independent fee consultant, I began reaching out to distressed borrowers and offered to help them in their fight against foreclosure to preserve their continued homeownership. There was no shortage of people needing help (then or now) but unfortunately, the very people who most needed help were unable to pay for the indicated services. I often (then and now) found myself working for virtually nothing.

In 1998 my wife, Lynn, a newly certified public accountant, and I decided to form a 501c3 organization (SPOCH) which would solicit grants and contributions to fund socially necessary services to financially distressed homeowners. Persevering night classes, independent study, and work experience for credit, I earned an executive MBA with a concentration in real estate, and certification in non-profit management. Whew.

So, Dave, I have a much better sense of how your life experience has made you absolutely the right guy at the right time. How is what you're seeing now in foreclosures different from before the economic melt-down on Wall Street?
Well, certainly there are more of them. I think one in every eight homes with a mortgage loan are in some stage of collection or foreclosure. One in eight!

In years past, borrowers with a problem were able to pick up the phone, call their loan servicer, and then speak immediately to a company representative. This representative was able to identify the caller and have the loan info on their computer screen within a couple of minutes. The representative was able to listen to the borrower, classify the borrower's problem, and work to resolve the problem. Depending upon that particular loan's servicing criteria which is imposed by the loans owner, the rep could easily set up a forbearance (suspend payment for awhile), implement a temporary payment plan, waive late fees, or mark the file for a specialist's attention.

Now, it can be a 45-60 minute process just to get through to someone IF the borrower is lucky enough to not have the call disconnected, and reach a live person without winding up in a voice-mail-jail. Getting to the right person - meaning a representative empowered to offer meaningful help can take weeks, months, or in many cases, never.

Picture a funnel. Distressed borrowers making a call into their loan servicer enter the large end of the funnel. To get help one must navigate through the different levels of servicing to get through to the small end. Along the way the borrower must satisfy each level of collection activity before being allowed to proceed to the next level. Miss a call, miss a deadline and the borrower is sent back to the large end of the funnel. There are tens of thousands of people who have called their loan servicer, done everything asked of them by completing applications with financial disclosures, tax returns, pay stubs, bank statements, copies of bills, etc., only to be told "You haven't complied with our request for information. Go back to the end of the line and reapply if you want but the foreclosure continues." Oh yeah, begging for relief doesn't help. Pleas for help fall on deaf, well-trained ears.
In my opinion, this commonplace practice is not the incompetence of an individual clerk or the commonly held excuse the servicer is overworked, overwhelmed or ill-prepared for the volume of work.

It's not incompetence. It's their policy!
Loan securitization and the sub-subcontracting of servicing rights from one "foreclosure shop" to another have made things much, much more difficult for the borrower. A major obstacle for both the borrower and for the country's recovery from this nightmare is this: The loan servicer's interests and the borrower's interests are in conflict. Simplistically, loan servicers are paid more when a loan is delinquent, in default or in foreclosure. It is in the loan servicer's best, financial self-interest to keep loans in perpetual default. They hit the jackpot when they foreclose.

Contrary to what we hear or read, loan servicers drag out the "modification" process as long as possible, then foreclose because they get paid more to do that than modify loans and keep people in their homes.

Loss of equity and tightening of credit is a problem. In years past, when homeowners had equity in their homes (equity is loosely described as the difference between a home's market value and what is owed on the home) and suffered a temporary financial hardship they possibly could refinance (at higher rates), or sell. The devaluation of housing and the tightening of credit have made refinance difficult. Selling a home is tough, too, especially when sellers owe more than their homes are worth. Buyers are cautious, too, since unemployment looms around the corner. Real unemployment levels are about 20%.
To save millions of homes from foreclosure we need to immediately implement specific strategies similar to what Ireland did to avoid its recent mortgage crises.

Welcome back for the conclusion of my interview with David Petrovich, author of Fight Foreclosure:How to Cope with a mortgage you can't pay, Negotiate with your lender, and Save your home. Dave, we've been talking about the apparent lack of real help from the government. The logical, perhaps naive question is then, what does our government actually want? Does it want one in eight households to find themselves out on the street? Is that in the national best interest? And if not, why are they not jumping in with two feet to turn this situation around?
It should be obvious to all thinking people our government is doing more to protect corporate profits than its citizens' welfare.
It is clear to me year after year after year our government, our (s)elected representatives ignore the wants and needs of the majority in favor of their corporate masters' interests, the one percent who own and control eighty percent of the nation's wealth including its tools of production.

Why else would our "consumer protection" laws permit the perpetual pollution of our air and water and earth for profit? Or the manufacture and distribution of unsafe, non-nutritious sometimes deadly food? Or restrict our citizens' access to affordable health care or life-saving medicine by instead empowering a middleman to take 30% of every health care dollar when our own government run programs charge less than 4%? Or spend trillions sending our armed forces to bomb the crap out of people whose natural resources are wanted by American capitalists. Or reward financial giants billions of dollars in taxpayer money while watching as millions go without work, without health care, and who are positioned to lose their homes.

I say "selected" representatives because we really don't have much choice but to vote for whoever the party bosses trot out in front of us each November. You don't become a party-boss horse unless you are willing to run the race in the way the party boss wants. I don't see much choice. I see the two major parties as the left and right wing of the same bird of prey: capitalism. They all represent corporate interests above the needs of the majority. There are a few exceptions like Bernie Sanders and to a lesser degree, Dennis Kucinich. We need more like them. There may be others but they don't get mainstream media attention. According to my daughter's textbook, The Law of Democracy (she's a third year law student) the two-party system is rigged to protect itself from meaningful challenges from third parties who have alternative views.

I hope the government doesn't want massive unemployment or widespread homelessness. In one regard, it would serve to help create a cheap labor pool " where people will work for a few bucks an hour. That would stop the inflow of illegals, and allow our corporate masters to have their pick of skilled laborers for cheap without having to go offshore. When Americans do go back to work no doubt many jobs will come without benefits including health care, pensions, paid vacations, etc. But it creates a problem, too. If the "middle class" is abolished, who would buy the expensive cars, expensive houses, etc.? American capitalists would need to secure new markets for their products. Perhaps, overseas?

No, I think things got way out of hand and upset the balance of things. Historically, capitalism doesn't solve its problems" it just redistributes them. But this is a topic for another day.

Ireland had a mortgage crises, too. From what I read, the government bought up (almost) all the toxic loans from investors and, as owners of the mortgage and loans, were able to "unbundle" and then modify them without having to navigate the complexities of securitization. That's what we should have done. In fact, one justification for early bailout strategies was for the government to purchase and then repair toxic loans but this plan has not yet materialized as it was promoted. Instead, the investors who already made billions were further compensated for losses sustained and their subsidiary servicers are still making money hand over fist on the plight of victims of unscrupulous lending practices, and a failed economy.

In order to "jump in with both feet" to fix the mortgage finance/housing mess (or fix industry-favored environmental laws, or fix anti-consumer agricultural policies) our government's first priority has been to appease Wall Street while telling Americans they must "suck it up" and endure a hypothetical recovery period.
At this point, simply modifying toxic mortgage loans may be pointless for the millions who are out of work, or working less than full-time. In addition to a mass modification program, we'll need a simultaneous national moratorium on collection and foreclosure. We'll also need an incentive for those who are paying their mortgage loans and think it unfair to reward people they view as irresponsible.

There are some good ideas floating around, but their implementation is painfully slow and may be a case of too little, too late.

I wish I could disagree with your take on the current situation. Let's go back and talk about SPOCH and the advise you offer those facing foreclosure. Once the foreclosure process begins, is the homeowner doomed?
No, the homeowner isn't doomed, but not all who face foreclosure will do everything which is necessary to maximize the chance to save their home. Some families won't be able to save their home no matter what they do due to their own financial pickle. The bottom line is in order to save a home from foreclosure the borrower must be able to establish communication with an uncooperative loan servicer, and then negotiate an affordable workout.

Generally, to qualify for "conventional" relief, the borrower must have experienced a qualified financial hardship, the home must be owner-occupied, and the borrower must demonstrate sufficient income to make monthly payments. The proposed workout must be more financially advantageous to the servicer than foreclosure. If it makes better financial sense for the lender to foreclose" it will. That's why we need to immediately overhaul how our nation's financial giants are responding to our foreclosure nightmare. Hell. We need to change the entire system to an economic democracy!

I recommend clients play the loan servicers' game by faithfully submitting all requested information in a timely fashion. Keep all FAX transmission verifications, and all correspondence should be in the form of certified mail with return receipt requested. Assume your documents will be lost, or be declared "stale" several times during this process, so never send originals, and be prepared to send multiple copies multiple times. I recommend borrowers whose lenders have refused to accept payment set up a separate savings account and make deposits weekly or biweekly. Do not make any withdrawals. You'll need this money for legal expenses, loan reinstatement, or moving expenses.

Don't get upset with any lender rep you speak with.. Don't make promises you can't keep, don't threaten to abandon the house or you will file bankruptcy (unless you mean it). Lenders love when borrowers file for bankruptcy because they can use the bankruptcy court as their collection agent in the case of Chapter 13, or to expedite the foreclosure process in a Chapter 7 (unless a borrower wanting to keep the home reaffirms personal liability). It is important to understand your poor treatment isn't personal. It's designed to keep you frustrated, off balance, and grateful for any relief that may be offered to you.

Recently I had a client disregard my advice After working with him for almost six months seeking a loan modification which sought a reduction of principal, and reamortization of the 30 year loan at a 2.5% fixed rate of interest consistent with an attractive FDIC loan modification model. I had documented the predatory characteristics of the original loan" and had gained some leverage. The favorable workout was within our reach.

My guy panicked. The loan rep circumvented speaking to me (a seasoned professional), and instead called the (frightened and ill-informed) homeowner directly and told him he would never qualify for the government-sponsored plan we were seeking. Instead, the lender offered my client an in-house loan modification which would tack the missed payments, foreclosure fees, attorney fees, and accumulated late fees onto the end of a new loan which was reamortized from 30 years to 50 years at an interest rate of 10% (down from 11.5%). He was told he had to accept the deal right then and there for it was a one-time offer. If he didn't accept the proposed workout, the loan would be referred to the foreclosure attorney. The new loan was 200% of the home's as-is, fair market value. What a deal! I can't tell you how disappointed I was when I learned what he had done.
There are ways to slow the process, and gain some leverage, but the homeowner must be proactive, and willing to challenge the lender and foreclosure every step of the way. Most folks don't. Unfortunately, most housing counselors don't publicly encourage the borrower to dig in their heels and fight by challenging the lender's practices. Privately, though, they might.

For example, if your mortgage loan was originated within the last seven years and had exotic terms including interest only payments, pay option arms, negative amortization, adjustable rates, chances are your loan has been bundled with thousands of other mortgages, securitized, and then split into various income or benefit producing tranches. There is a good chance the mortgage became separated from the mortgage note (promise to repay).

Consequently, mortgage holders may not be able to produce the note necessary to establish it has the right to foreclose. When indicated, I recommend my clients demand the lender "produce the note" and a history of lawful assignments. If the lender does produce a note, or a record of assignments, make certain they haven't been forged. I recommend my clients carefully examine and understand their mortgage loan documents including the origination application, appraisal, closing statement, and any records of transfer or assignment of servicing rights. Carefully understand any collection or foreclosure notices, and pay attention to timeliness and deadlines.

My advice? Play along with the servicers' game as you mount a separate challenge to fight foreclosure. Don't assume the workout you may be offered is the best one you can get. The servicer is trying for the best deal for itself - not for you. The fight may not be easy, and you may not win. But there are some folks willing to help you in the fight and I recommend you consider help from several sources. Not all non-profit organizations are acting in your best interest, and, conversely, not all independent consultants are looking to screw you. SPOCH offers free for the asking telephonic advice. You can contact SPOCH via email at: NJSPOCH@aol.com and provide as little or as much information as your comfort allows.

I'm glad to know that SPOCH exists. Readers should encourage anyone facing foreclosure to contact SPOCH before tossing in the towel.