Jen Ngai Lavallee, Staff Attorney

Over the last couple of years, thousands of homeowners facing the threat of foreclosure have been trying to get loan modifications through the federal government’s Home Affordable Modification Program (“HAMP”). Numerous articles have highlighted some of the problems involving bank compliance with program guidelines. But a recent report published by Pro Publica indicates that, in addition to compliance issues at the servicer bank level, the lack of government enforcement and oversight of the program has also significantly limited HAMP’s effectiveness. The Pro Publica report summarizes findings regarding the quality of HAMP enforcement by Treasury and Freddie Mac against major banks, concluding that one of the main reasons the administration’s flagship foreclosure prevention program has been largely ineffective in helping homeowners get loan modifications is that “[t]he government’s supervision of the program has apparently ranged from nonexistent to weak.”

While bank non-compliance and ineffective oversight of the government’s loan modification program affect all struggling homeowners, the impact of these problems is significantly magnified when it comes to low-income homeowners, who often have limited or no access to internet, fax machines, phones, and copiers—many or all of which are necessary resources in the “paper chase” that has come to define the loan modification application process. Low-income homeowners are also among the most likely to become homeless after foreclosure.  On the flip side, when loan modification does work, it can have an enormous positive impact on the stability and livelihood of families living on the edge of poverty.

The experience of Legal Aid client, Ms. L, demonstrates both the hurdles that loan modification applicants face, as well as the enormous difference that a successful modification can have on the lives of those living in or near the brink of poverty. Ms. L came to Legal Aid fearful that she was about to lose her home of 21 years. After her mother had moved out and was unable to continue contributing to the household expenses, Ms. L fell behind on the mortgage and struggled to make ends meet for the four children she cared for on her own, including one child with permanent and severe disabilities.  She had tried to apply for a loan modification, but her bank had provided her with false information regarding her eligibility and blocked the review from moving forward.

Legal Aid reviewed Ms. L’s financial situation, which indicated that she was likely to qualify for a loan modification, and re-submitted a new application for loan modification on her behalf.  The bank again denied the application, however, claiming that Ms. L’s income was insufficient to support her mortgage even with a reduced interest rate. After investigating the matter further, Legal Aid determined that the bank had failed to count approximately $300 in food stamps as part of Ms. L’s income—even though loan modification program guidelines clearly indicated that food stamps were to be counted—and that the exclusion of Ms. L’s food stamp income was the determining factor in the denial of her application. When the bank persisted in refusing to count the food stamps, claiming that investor guidelines prohibited their inclusion, Legal Aid escalated the matter to the Fair Housing Administration, the U.S. Department of Housing and Urban Development, and the HAMP escalations team, highlighting the bank’s failure to comply with applicable program guidelines and arguing that a failure to count public assistance income under these circumstances was a violation of the Equal Credit Opportunity Act.

Despite Ms. L’s apparent eligibility and Legal Aid’s multiple attempts to get the attention of bank supervisors and government regulators with authority to review the situation, it took months of back and forth to obtain and complete a successful trial modification plan. Shortly thereafter, Ms. L finally obtained a permanent loan modification involving a reduction in her interest rate by more than two percent and the transfer of a portion of her loan balance to a no-interest subordinate loan with the Fair Housing Administration. Ms. L is now current on her mortgage and stable in her family home. Legal Aid congratulates Ms. L on obtaining her modification and for her tenacity in continuing with her foreclosure prevention efforts despite the multiple barriers the bank placed in her way.

While Ms. L was ultimately able to obtain a loan modification and stay in her home, thousands of other homeowners—including many low-income homeowners—continue to struggle.  Legal Aid is committed to continuing its advocacy on behalf of low-income DC homeowners facing foreclosure and to increase access to justice for those who need it most.

Jen Ngai, Staff Attorney

For homeowners in the District who are behind on their mortgages, paying attention to the mail is now more important than ever before.

Thanks to the Saving DC Homes from Foreclosure Act — a piece of emergency legislation passed by the DC Council last fall — lenders are now required to send mediation packets to homeowners offering them the chance to participate in mediation prior to moving forward with foreclosure.  The goal of the mediation program is to preserve homeownership and avoid foreclosures where alternatives, such as loan modification, are feasible.  In addition, the new mediation law requires lenders to prove their standing and to review homeowners for loan modification in good faith.

Although the mediation law technically took effect last fall (causing foreclosures of residential mortgages in DC to be suspended because the contents of the required mediation packet were not yet available), the accompanying regulations and forms issued by the Department of Insurance, Securities and Banking went into effect on May 25, 2011 – meaning that lenders may now resume foreclosure activity so long as they comply with the rules regarding pre-foreclosure mediation.

Now that the mediation program is “live,” it is only a matter of time before the immense backlog of loans in default begins to resurface – and many DC homeowners, especially those with lower incomes, will need the help of advocates more than ever.  Legal Aid is taking steps to reach out to homeowners letting them know what mediation is, how it works, and where they can get help if they cannot afford a lawyer.  As a part of that effort, Legal Aid recently ran internal bus ads providing information about the mediation program on over 300 WMATA metrobuses, using funding from an Equal Justice Works Innovation Grant.   The bus ads used the slogan, “Mediation – Choose it Or Lose It,” attempting to emphasize that homeowners must affirmatively opt in to mediation within the required timeframe in order to obtain the benefit of the new law.

Legal Aid’s Consumer Unit is available to help lower income homeowners opt in to mediation and to represent homeowners at the mediation sessions themselves.  In addition, Legal Aid is partnering with the law firm of Cohen Milstein Sellers & Toll, PLLC where several attorneys will offer their pro bono assistance and representation with mediation to homeowners referred by Legal Aid.  Applicants seeking assistance with this process should call Legal Aid’s foreclosure mediation intake line at (202) 386-6699.

Eric Angel, Executive Director

On February 19, 2011, the U.S. House of Representatives passed legislation that would shut down the Corporation for National and Community Service and put an end to several large-scale service programs – including AmeriCorps, which funds organizations like Habitat for Humanity, Teach for America, City Year, Jumpstart, and Big Brothers Big Sisters.  The impact of such legislation would be devastating.

Here at Legal Aid, we have seen the difference that AmeriCorps funding can make first-hand.  In just the past two years, the AmeriCorps program has enabled Legal Aid to expand the scope of its services through the creation of two Equal Justice Works AmeriCorps Legal Fellow positions focusing on providing legal representation and advice to homeless veterans and to low-income DC homeowners facing foreclosure.  Through the work of these fellows and their projects, individuals in desperate need of help have been able to obtain legal assistance – for veterans, this has included assistance with child support and public benefits issues creating barriers to veterans finding housing and reentering the workforce; for low-income homeowners, this has included assistance negotiating loan modifications and litigating mortgage-related scam cases.  Both fellows have conducted extensive outreach and education in the community about their respective issue areas.

Congress must now reach a budget compromise by March 18th.  Whether that compromise will include funding for the Corporation for National and Community Service and AmeriCorps remains unknown.  Help save these invaluable programs by calling your Senators today.  Find out more about what you can do at www.saveservice.org

Eric Angel, Executive Director

It was refreshing to read the recent New York Times article about the efforts the New York judiciary is making to ensure that all homeowners facing foreclosure are represented by an attorney.  This is a welcome development. New Yorkers already enjoy the protections of a judicial process to oversee foreclosure proceedings. Providing lawyers should ensure that homeowners will have the opportunity to properly utilize the court process and will enable homeowners to assert any defenses that they may have to a foreclosure.

Foreclosures are legally complicated proceedings that require analysis of relatively arcane issues such as a lender’s standing to foreclose. They also require in-depth analyses of the financial impact and benefits of a potential loan modification on both a homeowner and a lender. New York has taken an important step in recognizing the importance of representation for homeowners in these proceedings, particularly in these times when a more common impulse is to pull back on new expenditures. Providing an attorney ensures that homeowners are not needlessly or unwarrantedly removed from their homes. Both New York homeowners and New York lenders should benefit from that.

In the District, we lag well behind New York with respect to protections for homeowners in the foreclosure process. Although the DC Council recently passed important legislation that will allow homeowners to elect mediation prior to foreclosure, it is not enough. DC should join the 20 states that already provide judicial scrutiny of foreclosures. New York’s judiciary has recognized the importance of the judicial foreclosure process by providing attorneys for its homeowners. In the coming years, DC should provide for judicial foreclosure and then follow New York in providing counsel for homeowners facing the loss of their homes.

Jen Ngai

Chief Operations Officer

Eric Angel, Acting Executive Director

Legal Aid’s work with low-income clients facing foreclosure was highlighted in an article in today’s Washington Examiner.  Many thanks to the Neighbors in Need Fund of the Community Foundation for the National Capital Region for the support that helps to make this work possible.

Chief Operations Officer

The Legal Aid Society’s Consumer Unit continues to work to preserve affordable and sustainable housing despite the most difficult situations.  One area that Wendy Weinberg, Supervising Attorney of the Unit, and Jennifer Ngai, Equal Justice AmeriCorps Fellow, both focus on are foreclosures that result from fraudulent and/or predatory lending.  Jen shares the story of client with whom our Consumer Unit has successfully intervened on behalf of to prevent a foreclosure. 

Unfortunately, stories like the one shared here are all too common in the District of Columbia.  Funding cuts proposed in the District’s budget threaten to further limit the ability for legal services programs to continue at their current levels let alone grow the program to meet the increasing need.  Legal Aid is grateful to the opportunities provided by organization like Equal Justice / AmeriCorps program as it has allowed us to expand our staffing in this unit.

Equal Justice AmeriCorps Recovery Fellow

Legal Aid recently became a Community Partner with public broadcasting network WHUT Howard University Television as part of a nationwide programming initiative to increase awareness about the current mortgage crisis and to connect homeowners facing foreclosure with various trusted community resources.  On December 1^st, WHUT announced the launch of its new “Facing the Mortgage Crisis” website, connecting Washington, D.C. area residents with local Community Partners that provide mortgage- and foreclosure-related information and services, including Legal Aid, Homefree USA, Manna, Inc., HUD, and the Greater Washington Urban League.  The website also contains downloadable community fliers in English, Spanish, and Amharic. 

Legal Aid began handling foreclosure prevention work in September 2008 with the launch of its Consumer Law Program headed by supervising attorney Wendy Weinberg.  Legal Aid recently expanded its foreclosure practice in October 2009 with the addition of Jen Ngai, an Equal Justice Works AmeriCorps Recovery Fellow.  Legal Aid assists low-income clients facing foreclosure by litigating cases involving mortgage-related fraud, negotiating with servicer banks to obtain mortgage modifications, and conducting related community education and outreach.  The partnership with WHUT will help get the word out about this important anti-foreclosure work.