Banks are getting tens of millions of taxpayer dollars through a key foreclosure prevention program to pay down borrower debt, but are also using the money to pay off their own attorney's fees and other costs associated with taking back people's homes.
In Florida, the more than $1 billion Hardest Hit program has been operating for two years, awarding struggling borrowers 12 months of mortgage payments and between $18,000 and $24,000 to bring a mortgage current.
But some homeowners exiting the program are finding themselves still in debt and on the same path to foreclosure after their lender subtracted legal costs from the Hardest Hit stipend.
While the Hardest Hit program allows lenders to use the money to pay their attorney fees and out-of-pocket expenses, the federal law that authorized the plan forbids homeowners from doing the same.
The Treasury Department determined in 2010 that legal aid for borrowers was not allowed under the Emergency Economic Stabilization Act of 2008. One of Florida's original proposals to use Hardest Hit money was rejected because it included $25 million for legal counseling and representation for homeowners.
"Even though it's a good-intentioned program, it is a funnel to the banks," said South Florida foreclosure defense attorney Rory Rohan. "The end result seems to be the banks get the money and the homeowner doesn't get the house."
Rohan is representing a 68-year-old woman whose credit union took more than $17,000 in Hardest Hit money to pay her arrearage and its attorney's foreclosure costs. It then stopped participating in the program, cutting the woman off from further funding, and finished the foreclosure.
There's no question that many homeowners have been helped by the Hardest Hit program, which nationwide has dedicated $7.6 billion to 18 states and the District of Columbia. Announced in February 2010 by the Obama administration, it is meant to act as a bridge for unemployed or underemployed homeowners until they can find new or better-paying jobs. States have until 2017 to spend the money.
The Florida Housing Finance Corporation, which oversees the Hardest Hit program in the state, is not required to monitor how banks apply the money to homeowners' accounts, said corporation spokeswoman Cecka Green.
Without that kind of auditing, some attorneys and homeowners fear abuse, and complain the Hardest Hit money was intended to pay down mortgages, not such bank expenses as foreclosure filing fees and serving summonses.
"Those are the credit union's expenses, not mine," said Rohan's client, Sandra Morales, about the court costs included in her arrearage by Florida Central Credit Union. "I don't believe they should have been paid to them as part of my mortgage reinstatement."
Of the $17,102 the credit union received from the Hardest Hit program, $4,600 paid for its attorney's fees and "other expenses," according to court documents. A final foreclosure judgment of $184,292 awarded last month in favor of the credit union included another $4,462 in attorney's fees.
Some homeowner advocates say it is appropriate for Hardest Hit money to be used for bank legal expenses.
Weston, Fla.-based attorney Roy Oppenheim, a strong critic of the banks, said the court costs are part of a homeowner's overall arrearage and should be paid to bring a mortgage current.
"In terms of how funds are applied these are standard rules," he said. "Part of the money owed will be back interest, taxes, insurance and expenses for attorney fees."
The Hardest Hit program was tumultuous from the start. It has faced national criticism for a hasty debut - some states were given just one day's notice that they were getting money, according to a 2012 federal progress report - and for failing to garner lender participation.
State housing authorities scrambled to assemble programs to distribute the money and recruit banks willing to take it.
Laura Johns, a community organizer with the Home Defenders League, a national group, said her concern about Hardest Hit paying for legal fees is that banks often make mistakes when tallying homeowner debt.
"It can be almost impossible to get an accurate accounting," she said. "Personally, I think those fees should just be waived through the courts, but it's David against Goliath and homeowners lack the resources to fight."
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Morales, of Pinellas County, worked for FEMA for 20 years, bouncing from disaster to disaster. In 2005, after the death of her husband, Morales refinanced to a five-year balloon mortgage believing she would sell the home and downsize. Then the real estate market crashed.
"I wish I had never done that," she said about her refinance.
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Jupiter, Fla., homeowner Deborah Stockhammer, 60, also acknowledges mistakes when she and her now estranged husband took equity from their home as its value rose during the housing boom.
Then he left and the economy tanked. She managed her $605 monthly payments for years until she lost her job in retail. She sold her jewelry and held yard sales and then applied for Hardest Hit.
In August, Ocwen Financial Corp. told the program Stockhammer's arrearage had grown to $21,000 - an amount that included foreclosure fees and costs, according to Ocwen Communications Director Susan Fitzpatrick. Stockhammer was foreclosed on in 2011, but the case was dropped in October when she started getting Hardest Hit payments.
She disputed the $21,000 arrearage, saying there was no way she could owe that much even with the force-placed insurance put on her account, but she's been unable to get a breakdown.
Hardest Hit paid $18,000 toward the arrearage and about $10,000 more in mortgage payments, said Florida Housing Finance Corporation spokeswoman Green, who is sympathetic to Stockhammer's plight.
"While the idea is to save people's homes, the program can only go so far," she said.
Three months out of the program, Stockhammer, 60, still owes $7,680 to Ocwen and is angry that some of the Hardest Hit money paid for Ocwen's legal fees.
"The money is to save our homes, not pay for their foreclosure," she said.
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Stockhammer recently sat in her small kitchen surrounded by years of mortgage statements that never quite seem to add up.
Her composure, held together by angry talk over daily bank calls and her fight to keep her home of 35 years, hitches only when she's asked why she still wants the little gray house on Chickasaw Street.
"I was three months pregnant with my daughter when I moved in here," Stockhammer said. "I take care of my grandson here. To me, my home isn't worth money; it's about love and security."