When the $2,000 check showed up from the Independent Foreclosure Review, Vada Kennon was reluctant to let her husband cash it.
She understood why they were getting the money, she just suspected there might be strings attached.
"They might want one last pint of blood," she thought.
Though their mortgage servicer, Chase, initially filed foreclosure in 2009, the Kennons' case has dragged on through the court system for nearly five years. They still have the keys to their home in rural Mayes County, but paperwork errors appear to have kept it off the sheriff's auction block.
The Kennons initially responded to a Tulsa World survey due to problems getting answers from their servicer, but they suspect the reason their foreclosure has stalled so many years could involve inaccuracies on their paperwork prepared by a now-defunct mortgage broker.
So many Americans documented troublesome practices by the nation's five largest mortgage servicers that in 2012, the Department of Justice and attorneys general for 49 states negotiated a landmark $25 billion settlement. The funds were intended to help troubled homeowners and to compensate those who'd unfairly lost their homes.
A key element of the National Mortgage Settlement was improved servicing standards, agreed to by the participating lenders. These standards require the servicer to offer borrowers a single point of contact for questions and problems, have adequate amounts of trained staff and improved communication with borrowers.
The national settlement also aimed to end "robo-signing" by setting standards for executing documents in foreclosure cases and putting a stop to improper fees and dual-track foreclosures.
While many advocates saw the improved standards as a win for consumers, Attorney General Scott Pruitt said those servicing standards were one of the reasons Oklahoma opted out of the national settlement, making it the only state to do so. Pruitt's decision left $10.1 million on the table that could have gone to help Oklahoma borrowers.
Earlier this year, the Kennons received a $2,000 check from the Independent Foreclosure Review, a settlement program of federal banking regulators. It was supposed to determine whether eligible homeowners suffered financial injury because of errors or fraud during foreclosures in the wake of the Making Home Affordable Program, commonly called HAMP for its Home Affordable Modification Program.
More than a dozen companies agreed to a consent order with banking regulators that resulted in affected borrowers receiving payments of up to $125,000, though most will get only $300. When announced in 2011, the review was supposed to be an independent case-by-case examination of foreclosed mortgages.
By January 2013, that plan was scrapped after long delays, cost overruns and allegations that the process wasn't as independent as it had been billed.
In its place, the mortgage industry pledged to pay a $9.6 billion settlement, including $3.6 billion in cash payouts for more than 4 million homeowners. There would be no case-by-case review, it turned out.
That "review" program is separate from the National Foreclosure Settlement, an agreement reached by the nation's five largest mortgage servicers, the Department of Justice and attorneys general for 49 states.
While qualifying Oklahoma borrowers were eligible for the Independent Foreclosure Review, Pruitt opted Oklahoma out of the National Settlement. Instead, he designed his own plan with an $18.7 million payment from those five companies.
Pruitt said the national settlement deviated from its role in investigating consumer fraud and began to dictate housing policy. Participating in the program would have conflicted with his principles and the role of attorney general.
"No one has gotten into the files, into the facts to say, 'What happened and how were you harmed? And here's the relief you deserve,' " he said.
His program has handed out nearly $5 million in restitution to foreclosed borrowers who could prove harm, created a voucher system to pay attorneys for troubled homeowners and handed out more than $1 million in additional grants for legal programs.
What state program?
Al and Vada Kennon said they knew nothing about Pruitt's program for Oklahoma until contacted by the World as part of a survey. The Attorney General's Office maintains it got the word out about the program to Oklahoma homeowners through "the media and others." That includes appearances at bar association events, Rotary clubs, women's groups and chambers of commerce throughout the state, staff said.
Using court records and surveys, the World found several potentially eligible homeowners who had never heard of the program.
Pruitt's office did not send out mailers using foreclosure data, an approach used by the National Settlement and Independent Foreclosure Review Program.
It also didn't include public relations or awareness efforts as part of its settlement budget, as states such as Colorado, Montana and New Hampshire did.
Montana also spent $60,000 to reimburse court clerks in each county to input data on a special website that tracked incoming foreclosure notice filings to reach potentially eligible homeowners.
Earlier this year, Legal Aid Services of Oklahoma began sending out letters to homeowners in new foreclosure cases to make them aware of available services.
Pruitt maintains that "awareness was a focal point" of his settlement.
His office also "published multiple news releases and conducted dozens of interviews with newspapers, television stations and radio stations throughout the state."
Staff posted information about the program on the attorney general's website and provided information at a booth at the state fair. No additional employees were hired to handle the program, Pruitt's spokeswoman said.
Because of what homeowners such as the Kennons have experienced, the National Mortgage Settlement included improved servicing standards agreed to by the companies that participated.
And $20 billion of the settlement was geared toward helping troubled homeowners with assistance such as modifications, principal reductions, lien forgiveness, refinancing and short sales.
Though Oklahoma opted out, homeowners should, in theory, benefit from the improved servicing standards and various national forms of financial relief offered to struggling homeowners.
Yet Pruitt cites both of these consumer benefits as key reasons he objected to participating in the national settlement.
"I don't believe in regulation through litigation," Pruitt said.
According to his staff, the investigation "veered off course and became a vehicle for changing housing policy, not helping those harmed."
Another reason Pruitt objected to joining the federal settlement was "we knew it would be used as a vehicle to apply the new servicing standards to our community banks that were not part of the problem," said his spokeswoman Diane Clay.
"We didn't want to be part of an effort that would ultimately be used to punish the innocent and stifle credit and economic growth in our state," Clay said.
The improved servicing standards agreed to by the nation's five largest mortgage servicers are settlement terms, not national law. They are voluntary and only apply to Bank of America, JPMorgan Chase, Citimortgage, Wells Fargo and Ally/GMAC.
The National Mortgage settlement wasn't about creating housing policy so much as making sure that homeowners could get access to loan modifications when appropriate, said Diane Thompson of the National Consumer Law Center.
"It's not really about how servicers run their shops. It's just making sure they follow principles of basic fairness," she said.
The primary goal was to provide relief to consumers, many of whom were foreclosed upon wrongly, she said. And in some areas such as principal reductions there is evidence it has been successful.
Prior to the settlement, many homeowners were told by mortgage servicers that they needed to fall behind on payments to qualify, which was false, she said.
Some homeowners waited more than a year for an answer. Meanwhile, the servicers filed foreclosure while homeowners waited. Many piled on fees and then offered a substantially higher modified payment, she said.
To truly level the playing field, lawmakers need to understand that national servicing standards are the only way to really protect consumers, Thompson said. In 2011, she testified to the U.S. Senate that "the lack of restraint on servicer abuses has created a moral hazard juggernaut that at best prolongs and deepens the current foreclosure crisis and at worse threatens our global security."
Consumers are willing to open bank accounts because they have security knowing that their money is insured through the FDIC and protected in a regulated industry, she said. Compared to banking, consumers have few protections in the mortgage servicing industry.
That's something most people don't realize while trusting their servicer with an important payment each month, Thompson said.
And unlike choosing a bank or lender to do business with, customers do not get to choose who services their mortgage.
Bad times get worse
Al Kennon, a Vietnam veteran who attends weekly support group meetings for post-traumatic stress disorder, suffers health problems on top of his financial challenges. At age 66, heart problems have plagued him lately.
"I've died four times in the past 10 months," he said.
A plumber who owned his own successful business, in the 1980s he moved to 20 acres he bought in Mayes County, east of Hudson Lake.
He owned the land outright and built their home out of two combined trailers with white aluminum siding and a proper shingled roof. He remodeled and added on as he went, owing nothing on the home for 17 years.
After the housing market began to decline in 2005, his business slowed drastically: from installing plumbing at 350 houses in one year to just six the next. He took out a home equity loan to keep his business afloat and make payroll.
"Things had just gotten so bad," he said. "So I took out the loan with the idea it would turn around. We'd had bad times before, but it had always turned around."
Getting a home equity loan wasn't easy. Most mortgage brokers turned him down because his house, though nicely fixed up, was still technically a mobile home.
A company called Home123 Mortgage made it happen, though at a steep interest rate of nearly 10 percent, with a balloon that could rise as high as 15.4 percent (average 30-year mortgage rates haven't been at 15 percent since the early 1980s).
His loan was quickly sold to Chase for servicing. Home123 and its parent company, New Century Mortgage, filed for bankruptcy in 2008.
Kennon never saw the written appraisal that the mortgage broker prepared to push the loan through, the one that appraised his home at $168,000 and loaned him $121,000, plus fees and interest.
And the bad times didn't turn around. Now, Kennon had a $1,168 per month payment with an interest rate about to spike and too little income to pay it. He fell behind and tried to catch up by making half a payment at the beginning of the month, half by the end.
Customer service representatives at Chase told him they could not accept partial payments. He asked for a modification and was accepted into the trial phase.
Under HAMP, homeowners who made the trial phase payments on time were supposed to be considered for permanent modifications.
The Kennons made their $475 trial payment on time for eight months.
Then Chase kicked them out of the modification program and began foreclosure, telling Kennon he simply didn't make enough money. But he had never been late or missed a single modified payment.
As Chase began the legal process of filing foreclosure, Kennon noticed something odd on the documents: An appraisal of the home before its first auction date showed a picture of the wrong house the one down the road.
He asked for a copy of the original appraisal for his equity loan, one he'd never seen.
"They put it down as a modular home instead of a trailer," he said.
The appraiser said it had a slab foundation and stem walls, also not true, he said. It's a combined trailer on blocks that can be moved. Had the original appraiser fudged details so the Kennons could get a loan for $168,000, he wondered?
In recent years, the appraisals have dropped significantly, to $110,000 at one point and now closer to $75,000.
A recent statement from the Kennons' servicer lists their debt obligations on the home and property as $126,000 in unpaid principal, $48,000 in interest, $8,300 in escrow advances, $4,525 in "corporate advances" and $600 in late charges. It all adds up to debt of nearly $188,000.
"I'd have been better off if they'd said, 'Sorry, we can't loan you the money,' right then and there," Al Kennon said.
Greg Hassell, a spokesman for Chase, said the servicer worked "for many months" to find a solution to help the Kennons avoid foreclosure, including a trial modification and short sale.
"Unfortunately, the customer didn't qualify for these programs," he said.
Nationally, many servicers drag their feet through the foreclosure process because they make money doing so, said Thompson, of the National Consumer Law Center.
And because the mortgage servicing companies were often lesser-equipped to deal with homeowners seeking modifications, foreclosure was initially viewed by many as the cheaper and easier option, even if it took longer.
"Before HAMP, the servicers had virtually no experience doing loan modifications," Thompson said.
Loan modification requires staffing, time and training for employees. Many companies did the math and simply decided foreclosure was cheaper, despite the $1,000 per homeowner incentives the federal government was offering to sweeten the deal for servicers.
Often, when it came to examining the finances of homeowners like the Kennons, the servicers with untrained and understaffed workforces were doing the math wrong anyway.
Loan modifications require the servicer to input information such as income and debts into a mathematical formula to determine who is eligible.
"Virtually in every case the servicers were mis-entering the inputs," Thompson said. "The servicers were losing documents and not processing the people in a timely fashion."
And mortgage servicing companies often don't have as much to gain financially by working with the homeowner, she said.
Fees that servicers charge borrowers in default essentially reward servicers for getting and keeping a borrower in default, Thompson said.
As those fees pile up, they make a modification a less feasible and financially attractive option to the servicer.
Long time in limbo
In nearly six years of foreclosure proceedings in Mayes County District Court, the Kennons' house has never made it to auction. They don't have the money to hire an attorney. They moved in with their son's family closer to Pryor and still drive out to their empty home at least every other day, just to check on it.
Now that they're aware of Pruitt's program, they plan to apply for assistance.
Regardless, their foreclosure drags on. Recently, Chase sold their loan servicing to another company, Select Servicing Inc.
The auction date keeps moving. Letters arrive, telling the Kennons: "Make us an offer!"
The Kennons suspect that a paperwork error perhaps a missing signature or possibly evidence that their loan documents were "robo-signed" has kept their home from being sold.
"I'm just sitting here wondering why they won't foreclose," Al Kennon said. "That's a long time to be in limbo."
Their credit is wrecked and the $2,000 from the Comptroller of the Currency's review program isn't enough to get the servicer off their backs.
"Our government has given money to these big banks and they don't want to do nothing for the small people out here," he said. "We don't count."
Cary Aspinwall 918-581-8477
Casey Smith 918-732-8106