HELENA -- For people behind on their mortgages and facing possible default and loss of their homes to foreclosure, there is still hope, although the fight to save a home can be long and frustrating.
Many homeowners in trouble figure that they can try to call up their loan servicer and try to modify the terms on their loan, tacking missed payments onto the future and reducing interest rates.
But that process often turns out to be far more lengthy and troublesome than many expect, and even the government programs designed to push that process have not been as effective as hoped.
Flint Murfitt, an attorney with the Montana Legal Services Association, said a person buying a car at a local dealership can get approval on a loan in 30 minutes or less, but that doesn't happen when people are trying to change the terms of a home loan to suit their ability to pay.
"Some of the people who walk through our doors have been tortured for one, two years or more," he said.
Among the common complaints: People have to provide the same financial documents to loan servicers again and again; and they speak with a different person on the phone every time that they call.
"It's just beyond belief to me," he said. "The right hand doesn't know what the left hand is doing sometimes at these companies."
Chuck Munson, an assistant Montana attorney general, said his office also hears that type of complaint repeatedly.
"It's as if they're overwhelmed with applicants and they lose documents," he said.
Meanwhile, the distressed homeowners keep on accumulating fees and interest on loans they can't keep up with.
"It's not an isolated thing," he said. "It's like an epidemic to the process."
There are several possible causes for such problems. Most simply, the companies that service mortgages have been overwhelmed since the housing crisis began about five years ago.
"This is unprecedented territory," said Jumana Bauwens, a Los Angeles-based spokeswoman with Bank of America, the top mortgage servicer in the country, handling about 14 million mortgages -- 95 percent of them owned by other entities.
Bank of America gained control of Countrywide Home Loans, which was servicing a massive number of subprime, high-risk loans, in 2008.
"No one could predict what was going to happen," Bauwens said.
She said the company has made major improvements, now offering customers seeking loan modifications a single point of contact, and has set up customer assistance centers in the 50 cities hardest hit by the housing crash -- although none of those is in Montana.
In some cases, Munson said, people are told by the loan servicer that they may qualify for a loan modification, but only if they withhold payments. But, once the homeowner defaults, his or her credit score suffers, and the process toward foreclosure accelerates. That encouragement to go into default, he said, is never made in writing.
"Whether it's done blatantly or whether it's just passively suggested, consumers are pressured to go into default," Munson said. "It's one of those things you hear way too many times."
It's hard even for attorneys handling the situations to understand exactly what's going on within the loan servicers, he said, or why some applications happen more quickly than others.
Generally, the loans themselves are heaped in complex packages by large investors, ranging from pension funds to government chartered corporations Freddie Mac and Fannie Mae, with the day-to-day servicing of the loan handled by companies like Bank of America, Wells Fargo and JPMorgan Chase.
Diane E. Thompson, an attorney with the Washington, D.C.-based National Consumer Law Center, has explained before Congress and elsewhere that servicers may actually profit from foreclosure.
"Servicers, unlike investors, generally recover all their hard costs after a foreclosure, even if the home sells for less than the mortgage loan balance," she wrote recently in the state of Washington Law Review. "Servicers may even make money from foreclosures through charging borrowers and investors fees that are ultimately recouped from the loan pool."
Plus, even the investors themselves hedged their bets on the success of the mortgage, further reducing the incentive to renegotiate a payment plan.
"Often, subprime junk mortgages, mortgages that could never be expected to perform, were turned into gold through the use of bond insurance," she wrote.
Homeowners falling behind can take some actions to try to recover.
The Montana Legal Aid Association and NeighborWorks Montana can give advice, as can the attorney general's office. And the earlier one seeks help in the process, the better.
Keep all your paperwork, say advocates, and carefully document every phone call.
And, while some loan servicers aren't calling in the loan even after several missed payments, Munson warned that some people don't realize how quickly a single missed payment can escalate into a tough situation.
"It's kind of like their treating the servicer like an old hometown bank, and it's not," Munson said. "If their home is sacred to them, then their home loan payment should be equally sacred."
For some people, suffering a long-term income loss or major expenses, there is simply no way to restructure a loan that they will be able to pay. Even in those cases, however, some measures can be taken to prevent bad credit -- by selling the home back to the lender at a negotiated price, for example -- or to delay and smoothe the ultimate loss of the home.
Munson and Maureen Rude, director of operations at NeighborWorks Montana, said their offices have skills and contacts with loan servicers that regular consumers do not.
"We've been aggressive with them," Munson said. "We can't get success for everybody, but we've had good successes for people."
"We have some success with that, but, boy, I tell you it's a struggle," Rude said. "Some of our counselors, they just don't give up."
Some of the programs designed to help consumers haven't worked as planned. The billion-dollar federal Emergency Homeowner Loan Program, for example, was designed to help consumers for up to two years on arrears and fees.
NeighborWorks saw 400 pre-applications for the program in a three-week period, with 305 eventually completed, and, so far only 27 approved.
"At this point in time, to be quite honest, we're thrilled to have 27," Rude said. "A lot of the programs that have been created sound really good in logic, until you go in and you find most people don't fit in a box."
For those who think their loan servicer has done something illegal, such as breaching a contract, there's always the option to seek a private attorney and negotiate or sue. Litigation in state court generally stops the foreclosure process.
Another option is bankruptcy. Chapter 13 bankruptcy creates a restructuring of debt and a new payment plan to creditors lasting up to five years -- but people have to have some income ahead to do it, said Steve McCue, a Helena bankruptcy lawyer.
In such cases, unsecured debt (such as credit cards and medical bills) sometimes gets reduced to just pennies on the dollar, he said. Montana allows a $250,000 homestead exemption, meaning that much equity in a home cannot be touched in such a proceeding.
People without income may end up in Chapter 7 bankruptcy, which is a liquidation of assets without a payment plan, but the house can still be saved.
McCue noted that bankruptcy rights go back to the U.S. Constitution, giving Americans the right to a fresh start, and people shouldn't be ashamed of it.
"They should be able to get back on their feet, and that's what the framers of the Constitution thought, too," he said. "It's a very beneficial thing for a lot of people. Usually when people find out how it works, they're very relieved."