Paper Avalanche Buries Plan to Stem Foreclosures, By PETER S. GOODMAN, June 29, 2009, The New York Times (provided solely for educational purposes)  LOS ANGELES — Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November. “I don’t know what happened,” says a customer service officer who identifies himself as Chris. “I don’t know if there was a glitch in the system, whether it was transferred from one call center to the other.”  Think of the documents as being part of a pile massing inside the bank, Chris suggests. “This pile is not going to be moved forward at any point in time.”

Ms. Montenegro and her colleagues suffer these sorts of excruciating exchanges all day long. It is a potent indication of the difficulties afflicting the $75 billion taxpayer-financed program created by the Obama administration in an effort to avoid foreclosure for as many as four million distressed homeowners.  Under the plan, the government offers mortgage companies $1,000 for each loan they agree to modify, then another $1,000 a year for up to three years.

Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households.

Yet in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure. For now, progress is constrained by the limited capacities of mortgage servicing companies, said Michael S. Barr, the assistant Treasury secretary for financial institutions. He offered the first signs of the administration’s impatience with the institutions that control home loans. “They need to do a much better job on the basic management and operational side of their firms,” Mr. Barr said. “What we’ve been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet.”

The administration still does not know how many mortgages have been modified under the program. In a recent interview, Mr. Barr estimated the number at “over 50,000,” explaining that precise figures must wait for a soon-to-be-completed tracking system.  By the end of August, the program should produce 20,000 loan modifications a week, he said.

Tom Kelly, a spokesman for JPMorgan Chase, which now owns Washington Mutual, affirmed the administration’s criticism.  “We’ve done a lot,” he said, noting that the bank has added 950 loan counselors since the beginning of the year, bringing the total to 3,500. “But we’ve got a lot more to do.”

Two days in Los Angeles — where a loan modification company allowed a reporter to listen as its agents contacted mortgage servicers provided the firm not be named — starkly illustrated the problems. The company charges homeowners $3,000, typically upfront, as it seeks to persuade lenders to rewrite loan documents so as to lower monthly payments. The company says it refunds the money when it fails to secure a modification.

For Ms. Montenegro, a college student at the University of Southern California, her summer job makes for fitting symmetry. In high school, she worked as a clerk at a Washington Mutual branch in Downey, Calif., which specialized in mortgages that invited customers to make such tiny payments that their balances increased.

Many homeowners did not understand the terms: Once they owed a lot more than their house was worth, their payments spiked. Now, that day has come, and Ms. Montenegro is working the other side. She calls WaMu, as the bank is known, trying to cut deals. Among her clients is Vladimir Vishmid, who owes $490,000 on the mortgage for his three-bedroom home in the Sherman Oaks section of Los Angeles. Mr. Vishmid’s income as a self-employed computer engineer has plummeted, making it hard for him to make his $2,542 monthly payments. He is current on his loan, he says, but behind on his car insurance and utilities.  Software on Ms. Montenegro’s computer logs the details of the three applications her company has submitted for Mr. Vishmid. Chris, the WaMu representative, is telling her to send in No. 4. “Personally, I’d submit a new file,” Chris counsels. “I’m telling you honestly, anything over 30 days is a new submission for us.”  For Ms. Montenegro, “honestly” is one of those words marinated in so much irony that her eyes roll. Two weeks earlier, she called the bank to check on the file and was told it was being reviewed. Now, it has disappeared.  “So, if I wouldn’t have called, we wouldn’t have known?” Ms. Montenegro scolds.  “It would have just sat in the queue and nothing would have happened,” Chris says. “I wish I had a better explanation.”

In the same office, Ms. Montenegro’s colleague, Sean Milotta, has run into a problem on a loan billed by American Home Mortgage Servicing. Though the borrower appears eligible for the Obama administration plan, the company refuses to take an application because the loan is owned by an investor who is unwilling to absorb a loss.

In another office down the hall, Ramin Lavi, 27, has picked up the file of Alice Descovich, who is seeking to shave down the $708,000 she owes on a mortgage serviced by WaMu for her home in Alameda, Calif. As the interest rates reset in coming months, it will become even harder for her to make the payments, which are now $4,400 a month.  A note in the system shows that the bank confirmed receiving documents on April 29 — pay stubs, tax returns, a letter disclosing her hardship, bank statements. Since then, the company has been waiting for WaMu to review the file.  But when Mr. Lavi calls, a representative coolly discloses that the application has been rejected because one document, a proof-of-insurance form, is missing. He must start over.  “The file had been submitted properly, and you didn’t put the pieces together,” Mr. Lavi says, his body quivering with anger. “I’m not going to stand in line again for another six months.”  He demands to speak to a supervisor, but the representative says none is free. He hangs up and redials, hoping to land in a different call center. Eventually, he reaches Chase’s executive offices, where Becky takes over the call. “We’re not taking cases now,” she says calmly. “Why was I transferred to you?” Mr. Lavi asks. Becky does not know. He implores her to keep the file open while he faxes in the lone missing document.  “Impossible,” she says, warning of “the sheer amount of papers coming in.”

Another agent, Lee Wasser, props his feet on an adjacent desk chair as he waits on hold for more than 20 minutes to speak with GMAC Mortgage. His clients, Dean and Nancy Piercy, owe $380,000 on the loan for their home in Shasta Lake, Calif. A logger, Mr. Piercy has lost work hours, making it hard for them keep up with their $2,048 monthly payment — soon set to rise.  Mr. Wasser has already negotiated a solution: GMAC will accept only $270,000 in repayment, allowing the couple to get a fixed rate mortgage from another bank. But that suddenly is in disarray. The Piercys have been making their payments, but GMAC has been putting their checks aside, holding the money as “loss mitigation fees,” until their application is completed. It has notified credit bureaus that their loan is more than 90 days delinquent, which has lowered their credit score, disqualifying them for the next mortgage.

Mr. Wasser reaches GMAC’s loss mitigation department. He asks for the delinquency to be removed from their status. But that must be handled by a different department: customer service. He is transferred there, where Jessica picks up the call.  “We are not going to amend,” she says, after a strained back and forth. If Mr. Wasser wants it otherwise, he will have to talk to loss mitigation.  “I just talked to them five minutes ago,” he tells Jessica.  “No, you didn’t.” “Are you accusing me of lying?”  Mr. Wasser asks for Jessica’s employee identification number, but the line goes dead. Jessica has apparently hung up.

This is an analysis of cram-down by the Illinois State Treasurer, a former community banker. http://www.dailykos.com/storyonly/2009/6/26/747122/-Cram-downfrom-the-Perspective-of-a-Community-Banker