During the pandemic, the US government offered relief to some homeowners, including thousands of military veterans. They were granted a temporary pause to their mortgage payments so they could stay in their homes during tough times. Now that the pause has lifted, those who participated in this program thought they'd be able
to pick up paying where they'd left off. Instead, Bloomberg's Polymasens and Caleb Melby report that veterans across the country are now stuck in a nightmarish battle with lenders that are threatening to foreclose on their homes.
So there are four thousand foreclosures that have already happened to veterans, and there's another six thousand veterans at risk of losing their homes because they're in active foreclosure.
The Veterans Administration does have so many programs that are designed to get veterans in homes and keep them there. So for them to be falling through the cracks like this and for them to be treated this way within that environment was really startled to us.
I'm west Kasova today on the big take, is anyone stepping up to help these bets.
The story really starts at the beginning of the pandemic, which, if you can remember all the way back then, there was a lot of panic that people were not going to be able to work and they were not going to be able to pay for their mortgage bill and lose their homes. And Congress acted both very quickly and a little bit chaotically to try to fend that off. And one of the elements of the Cares Act, which was a giant piece of policy that tried to tackle
a lot of different problems that the pandemic created. One of the things that tried to tackle was mortgage payments, and it created a forbearance system, which effectively allows people to not make mortgage payments while also not facing the risk of foreclosure. So it doesn't mean that your mortgage goes away or that you don't owe that money. It just means that for the duration of your forbearance period,
you do not have to pay that bill. So that's basically what Congress came up with, and after they came up with it, the entire mortgage industry had to figure out very very quickly how to implement it for millions of borrowers across the country at once.
What we found was this pattern of incredibly frustrated borrowers, people who thought they were getting a break and were happy to get a break. They got up to twelve months of not paying their monthly mortgage bill, but when they exited that forbearance period, they had to craft these
plans to make those payments. And while they tried in good faith to put those arrangements together, they were frustrated time and again by these essentially like paperwork delays that in many cases pushed them into first delinquency which destroyed their it, and then also sometimes foreclosure.
Caleb.
A lot of those borrowers were former members of the Armed Forces who took advantage of loan availability for veterans through the Veterans Administration. That's right, So we're looking at people from across the Armed services, a lot of veterans, a lot of folks on disability after serving, who had these federally backed mortgages through the Veterans Administration that were eligible and took advantage of the program.
And maybe it's helpful to know a little bit about how VA loans actually work. So a lot of people associate their mortgage process with a pretty stressful, chaotic one, and it's not to say that the VA loan process isn't, but the VA has put up some guardrails to try to make it a little bit easier. They have a couple policies in place that are a bit unusual, and one of those policies is the loan to value, which allows the veteran to borrow up to one hundred and
three percent of the loan. That is relatively unusual as compared to a traditional mortgage, where that person might not be able to borrow quite as much. So down payments are not always necessary in VA loans, which is a little bit unusual, but it's meant to help the veteran.
And Polly, you're right that banks like these mortgages where they don't have to require a big down payment.
Well, I would say that non banks like these because the vast majority of VA lending in this country is actually done by non banks. It's over eighty percent of VA loans are written by non bank lenders, and one of the reasons for that is because after two thousand and eight, a lot of banks left the space entirely. And John Bell, from the VA Lending Program, who we speak to, he actually said something to the effect of you know, thank goodness that we had these non banks
to step in. So there is definitely the element of liking writing these loans, but there's also the reality that a lot of veterans do not get their loans from a traditional bank anymore.
Let's take them inute here and explain the difference between a bank and a non bank.
So banks deposit taking institution regulated by the FDIC and others. Non banks down take deposits not regulated by the FDIC and other aspects of the US financial regulatory apparatus. Their primary regulator is the Consumer Financial Protection Bureau, the regulator that was born out of the two thousand and eight financial crisis, and so they don't have all the same capital requirements and other regulations. But the big difference is they are not banks.
And from like a human borrower perspective, the way that you might interact with that differently is a bank mortgage
is a bank that you can typically walk into. It might be on main street and you might already have your checking account there, so it's pretty easy to set up your direct deposit for your mortgage, whereas a non bank you often find them online or you might find them through a mortgage broker who has the ability to work with a bunch of different non banks, and that person you might know for meat, you might only deal with them on the innet, though occasionally they do have
storefronts to try to kind of create more of a community feel. But the way that people find these different kinds of lending options tend to be different.
So we had this big federal program to give people mortgage relief during the pandemic, but then it came time to once again start paying in these banks and non banks had to restructure the payments for that missing year, and what happened.
Then it was a mess, to put it lightly. So depending on the organization, you're looking at more staff, regulations, and guidelines. You have different rules for different loans, backed
by different components of the federal government. So you have borrowers who, as Polly was saying earlier, especially for VA loans, getting their mortgage was comparatively easy compared to a lot of homeowners, and now they're going through this very confusing process just to try to keep paying their mortgage again, and they keep on running in to an array of roadblocks that delay, delay, delay, lead them into delinquency and sometimes foreclosure.
And Polly, how many people are we talking about who took advantage of this big COVID program.
So about eight and a half million homeowners use the program overall, and of those, about four hundred and forty five hundred thousand were VA loan recipients, so it's a pretty substantial chunk. Obviously, there's a lot of mortgages in the US, but when you have eight and a half million people trying to figure out how to recalculate their mortgage all just about at the same time, I'm sure that that is quite an undertaking.
Caleb, why did you concentrate on veterans in particular, because there are a lot of people who aren't veterans who are also trying to restructure their mortgages who took advantage of this program.
We focused on veterans for the reason that the Veterans Administration does have so many programs that are designed, as Polly said, to get veterans in a home homes and keep them there. The government has spent a lot of time in policy and money to make that happen. So for them to be falling through the cracks like this and for them to be treated this way within that environment was really startling to us.
Caleb. You found a lot of people who are going through this very difficult time trying to keep hold of their house when the bank is essentially telling them they're going to come take it away.
Yeah, that's right. Whenever I reach out to folks in this sort of financial distress, I'm never quite sure what sort of reception I'm going to get. But people were very responsive to us because they felt like they had been ripped off, and we started to develop the sense of these sort of rhyming things that were happening from borrower to borrower. So that could include getting shipped an envelope that's supposed to have your loan modification agreement in
it and it coming to your door empty. It could mean getting asked to submit it financial records or other documents that you've submitted two or three or four times before already. It could mean having your loan modification agreement approved, only to get a call later and being told it actually isn't. And all of these things lead to pushing people out closer and closer to delinquency. And when you're delinquent, it's an immediate, huge scarlet letter on your credit and
sometimes they were pushed into foreclosure. They would learn in some cases from the local court system that they were being foreclosed on by their lender.
So one of the things that would happen to borrowers in some of these cases is they would receive a lump sum payment demand, which basically allows them to not be foreclosed upon. But the reality is that a lot of people do not have twenty thirty forty thousand dollars in cash to pay up all at once, and that is what they would in these cases have to do
to avoid losing their home. So there are four thousand foreclosures that have already happened to veterans, and there's another six thousand veterans at risk of losing their homes because they're an active foreclosure.
We should note that not all of the foreclosure actions were the result of loan modification denials, but the figures also don't include thousands of borrowers who paid a lump sum to avoid foreclosure.
For these non bank lenders, specifically, servicing revenue is a big portion of their business, and if a borrower were to go into forbearance, they're not going to be capturing that revenue anymore. So a lot of them in the early pandemic were quite alarmed by the fact that homeowners were getting this bailout, but lenders themselves were not. Lenders and servicers were not. And J Bray, the CEO of mister Cooper, one of the largest servicers, went onto CNBC
at the time and raised concerns about this. Now, in the end, interest rates drop precipitously to help support the economy during the pandemic, and that meant homeowners across the country millions of them went and refinanced their loans, and that ended up creating a pretty significant revenue stream that prevented any sort of serious damage within the mortgage lending and servicing industry. But it was a very big concern in those very early weeks and months.
When we come back the stories of veterans caught up in this mortgage limbo. Caleb, you spoke to a number of veterans who are going through this, trying to avoid foreclosure, kangling with their lender over trying to figure out a new payment plan. What did they tell you?
A word that gets overused a lot these days is kafka esque. But for a lot of them, I think That's really what it felt like. Imagine you are trying in good faith to close this documentation you need to keep your home, and just finding that it is not happening for a variety of reasons. So a lot of
them were very upset, very stressed. We talked to folks like Rosie Bennett, a seventy nine year old widow of a Navy veteran out in Idaho, and she has multiple sclerosis, and she was telling us about how this was incredibly stressful and worsening her conditions as she tried really, really hard to close this documentation.
My husband and I we were living here for twenty eight years in this home. We were in the middle of a modification and they were trying to send me the form to fill out all the contracts and stuff. So they sent me this envelope. I received it with ups They opened the envelope and there was just another envelope in there with nothing else. So I didn't know what that was supposed to mean. And you know, so I called the company and they said they were going to send me another one, and they never did.
And what happened after that when she contacted her lender.
This is the other maddening thing is all of these borrowers get into these he said. She said, who did?
Who didn't? Fights with their lenders, and their lenders have these systems of, you know, different times we've called you, and they're very often robo calls, or different times we've sent you a letter, and most homeowners are just not prepared to have an entire docket at the ready to have these conversations with their lenders because they weren't expecting to have to fight with a lender to continue to
pay their mortgage. So at one point, Rosie gets this letter that says you've run out of time, you haven't submitted your documents, and you need to pay thirty three thousand dollar, which is not money that she has. So in Rosie Bennett's case, she hired an attorney, a rather high profile when a guy by the name of Mark dan the former Ohio Attorney General who specializes in cases just like this. Rosie told us that as soon as she hired a lawyer, her lenders started to treat her
very differently. She felt she was suddenly getting some modicum of respect that she was not getting before.
And so where is that case now?
So we reached out to all of the lenders in this story, including Rosie's PhH and the other servicer who was involved with Rosie's loan, Devin Mule, which is no longer involved with Rosie's loan. They both said that they had complied with all the applicable laws and guidelines for her loan, and PhH no longer intends to foreclose on Rosie. One thing that's interesting about Rosie is she entirely accidentally
ended up in this situation. This home mortgage was originally taken with the bank, the note has been sold several times, the servicing is now with a different company. So you know, her and her husband never could have known that they would have ended up having their mortgage service and owned by non bank lenders. When they began this process. They began it in the way that a lot of people before two thousand and eight began their mortgage process at a traditional bank.
And this is something that happens a lot, right where you started mortgage for someone and then it's sold several times and you have no say in who that mortgage is sold to and who's going to be servicing it.
That's right, Yeah, And sometimes you know the original person who wrote the loan might want to retain the servicing, but there's no standard for that in the US. There's nothing requiring it be done a certain way. So it's entirely possible by the time you're done paying off your home or by the time you're selling it, that you will have gone through a half dozen servicers and people holding your loan.
And Caleb Rosie Bennett wasn't the only person who spoke to is in this situation.
That's right. Another person we spoke to was Makeita Young.
My name is Makita tay Young, and I am a major in the North Carolina National Guard. I am a chemical officer. So I purchased my home in Charlotte, North Carolina in twenty eighteen, and I would have to say it was such a momentous occasion because I just got clear from cancer and it was something I wanted to do for myself. And it's a beautiful house that since right in front of Linda Lake, and I knew as soon as I saw it online, I was going.
To get it.
She had a similar situation where she was just sending in her documentation again and again, had her modification agreement approved several times actually, and then it was suddenly not again, which was incredibly maddening to her. And she did end up paying her lump sum payment because she got to the end of that road and she had no other options, and luckily in her case, she was able to afford to do so. But she was a very special borrower insofar as that she was not going to let that
be the end of the road for her. She wanted answers, she wanted to figure out what had happened, and she took matters into her own hands, so she reached out to the Department of Justice in her home state of North Carolina to explain what happened. And what the NCDOJ was able to do is they reached out to her lender, mister Cooper, and they were like, hey, we heard this about you. What happened? And mister Cooper responded, as a lot of these lenders do, saying we tried to reach
her many times and she was non responsive. And for a lot of borrowers, that's the end of the road. That's where they lose. They don't have the documentation at the ready to prove otherwise, But Makita did. She had collated all of her phone records and all of her emails, and she was able to show that mister Cooper's documentation
of their interactions was incomplete. And after she went through that with the North Carolina Department of Justice, they rescinded their claim to Experience and other credit agencies that she'd been delinquent, and she was able to get her credit restored. But this was after months of labor, essentially working as
her own advocate. And what did mister Cooper say about that it spoke to them for Mister Cooper told us that Makita Young's application had been denied after all of her documents had been received, and that the company is committed to finding solutions to keep customers in their homes.
I pass all these billboards onto all the cities I travel to, whether I'm going to drill or a training mission. It says we will never forget support, help honor the veteran. And the one thing that they told us that they would guarantee us during our service, and that was to honor us, was completely obliterated in a mass hall to take homes.
Caleb for every customer like Rosie Bennett or Mackitda Young who are able to push back. There are others who aren't able to keep their homes, and you spoke to some of them too.
One person we spoke to was Monica Rosario, another art me veteran. Monica is somebody who was going through a very hard time in her life. Already, she was going through a divorce. She's a colon cancer survivor. She was getting disability payments from the VA.
I served in the military for eight years on active duty, and I was an engineer officer. I purchased a home in August of twenty nineteen. I bought this house mainly because I was married at the time and we decided that we wanted to go ahead and start building a family, so we wanted to buy a house.
And she went into another one of these sort of maddening scenarios with her leunder a lender called Freedom Mortgage. She lost her home. Rather than have it go to foreclosure, she sold it in a short sale. We can see on the listing for the home now that it's been listed for a remarkable markup. I believe over fifty percent
from what she bought it for. And that's the worst case scenario where a veteran is going through a hard time, is not equipped to handle a document battle like this, and then they lose their home.
And what did her lender have to say about that case?
Freedom Mortgage declined to comment.
After the break. Will the government step in to stop more foreclosures from happening? Polly, You're right that lenders used to do a lot to work with customers to avoid foreclosure, and now that's no longer the case.
Yeah, I mean, foreclosure is frustrating, time consuming, and expensive. So in order for a mortgage servicer to want to go down that road, they need to have total confidence that they'll be able to recoup their funds out of it. That typically means that the property is not a short sale, that it's not underwater. That all of a sudden really consistently became the case as real estate prices have absolutely skyrocketed the last couple of years and they haven't really
gone down despite how interest rates are right now. So you're dealing with a very different real estate market than you were, for example, in two thousand and eight and two thousand and nine, when the foreclosure crisis was also really significant, but the real estate market looked entirely different. So it used to be the very common adage that foreclosure is never profitable. That is less the case today.
Partly, I guess a question a lot of people listening to this might be asking themselves is where's the government? Where's the Veterans Administration? Where's the consumer protection agency that oversees some of these non bank lenders to help these veterans.
Yeah, so let's talk about what the government actually looks like when it comes to regulating this. So the VA is where you would think that a lot of regulation could have happen, but that's not necessarily the case. They cannot unilaterally decide that a lender doesn't qualify for VA loans. The other big regulator that you often think of is the CFPB, but the CFPB doesn't necessarily do as much
as you think they would. The Consumer Financial Protection Bureau and the Department of Justice in December twenty twenty one wrote a letter to mortgage servicers and basically said, hey, we're watching and we're dealing with consumer complaints. But that's a letter, right, It's not a regulatory action, and it's certainly not preventing anyone from accessing the VA market going forward. It's just a letter. So then you look at Congress
and they have not addressed this matter. So as a result, you have this situation where a lot of people might be watching, but no one has actually done anything.
After that December twenty twenty one letter, all of the problems that we've described continued to happen, and the CFPB came back around in another report covering transactions through March twenty twenty three of this year, where they said, functioning the same thing, we are seeing this bad stuff happen. As we understand it, borrowers cannot avoid this bad stuff because they count on you, the lenders and servicers, to
duly execute these documents. But a problem with that is CFPB did not name the lenders that identified as failing to execute these agreements, and they kind of just said, after we identified these problems, they instituted new policies and procedures and the problem was fixed. Now Again, that was for transactions through March of twenty twenty three, and we know just from the borrowers that we talked to that borrowers were still dealing with these problems after the fact.
So we talked to people who work in this space, consultants, lawyers, advocates and they're really frustrated. They feel there's a lack of accountability there and a lack of transparency.
And I'll add here that a spokesperson for the CFPB said it doesn't make public its supervisory interactions with companies. Probably you said that the VA doesn't have a mechanism to decide which lenders to include and exclude, but you also write that the VA has stepped in on behalf of some borrowers to try to solve these problems.
Yeah, so I think it's a good thing to contemplate, like what the v's responsibility is and how much it can or can't do. So they do have these financial counselors that are meant to serve as an aid to people who are the recipients of these loans, and they do exist and they're there to help. But I think what we've been hearing from the borrowers that Caleb spoke with is that despite those services existing, they're not necessarily the easiest to access, and they're also not necessarily the
easiest to actually get some thing from. And when we spoke with the VA, one thing they said is, you know, we want to keep people in homes We don't just want to sell them a mortgage. We want to be sure they actually are able to stay in that home and that they need to reach out to us for help.
And I think that's something we've been contemplating as we report the story, is how much is the veteran supposed to be reaching out constantly versus how much are these institutions supposed to be there to help them when something goes wrong without them having to be proactive. It's totally understandable if someone doesn't want to chase down help if they're expecting it because they're in a position they didn't ask for after a pandemic that no one thought.
Whatever happened, Caleb Polly, thanks so much for sharing your reporting. Thanks for having us, we us, thank you thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicki Burgolina, our
senior producer is Katherine Fink. Sam Gebauer produced this episode. Raphael Umsili is our engineer. Our original music was composed by Leo Sidron. I'm west Kosova. We'll be back tomorrow with another big take.