1. Notice of Delinquency is sent to a borrower who has fallen behind his payment schedule;
2. Notice of Default is sent to a delinquent borrower who has missed the requisite number of mortgage payments;
3. Notice of Foreclosure is sent to the defaulted borrower, and the process begins;
4. Affidavit by the bank’s representative are signed attesting to: Ownership of the note, who the borrower is, the property in question, the date of last mortgage payment, amount of delinquency, tax escrow owed, other payments (such as homeowners insurance);
5. Notarized documents: A Notary Public affirms that the affidavit was actually signed by the signatory, and this allows it to be entered into the court as documentary evidence;
6. Notice of Pendency (Lis Pendens) is filed with the County Clerk putting the world on notice as to the foreclosure action;
7. Summons and Complaint are prepared by bank attorneys, who further verify the specific information attested to by the bank executives. The attorneys then file the Complaint, commencing the Foreclosure Action;
8. Service of Process is filed, either hand delivered to the home owner, or nailed to the door of the home;
9. Referee is Appointed to review and process the case; calculate the amount owed, and report back to the Court; The Referees report is also notarized;
10. Judgment of Foreclosure is moved for by Note holder;
11. Court orders the property auctioned. The court specifies a notice of the auction, publicizing the property auction;
12. Bidders must Close on the auctioned house in 30-90 days; In the event of no sale, the bank takes possession (REO).

Fraud has happened — though nobody knows the extent yet — in steps four through seven. Banks did not have the proper legal documentation to move forward with the final foreclosure — meaning the foreclosure itself might be illegal. We know that’s a major problem for banks, which will, at the very least, have to spend some serious time answering various state courts about violating consumer-protection and banking laws. And Mike Konczal — in a great series of post called “foreclosure fraud for dummies — shows that there are serious repercussions for homeowners undergoing foreclosure as well:

[T]he process of trying to get people behind on their payments current instead of driving them into bankruptcy has broken down. But for now it’s clear that mortgage servicers don’t have great incentives to get distressed homeowner’s records correct.

There’s well-documented evidence that extra fees are tacked on to mortgages that have fallen behind, fees that aren’t following the terms of the note. This is usually only found out in bankruptcy where there is a lawyer (and multiple parties), not in foreclosure cases. But if homeowners wants to challenge whether what the servicers claim is the correct final due amount, the terms of the note are necessary for the court.

This will matter a great deal for many homeowners. Small, marginal differences in the total owed could allow for a short sale. It could determine if the homeowner has any equity in their home. And this can only be determined by producing the note.

The hope is that homeowners might be empowered to seek better terms and fewer fees from banks and servicers, now that everyone from local courts to the federal government is calling for major investigations of what has gone on.

The signature Obama program to ameliorate this crisis was the Home Affordable Modification Program, or HAMP, which helps homeowners modify their mortgages for lower monthly payments.

But the program has proven frankly disastrous — in many cases hurting the families it was meant to help. The administration expected it to help 3 to 4 million homeowners. It has aided a fraction of that, completing just 434,700 permanent modifications, according to the last scorecard. The process frequently takes months and requires applicants to file extraordinary amounts of paperwork. About half of applicants are rejected during the trial modification period. Worst, for many HAMP participants, their monthly mortgage payment barely goes down. Those homeowners often keep paying a mortgage they can’t afford for a while  before defaulting anyway, meaning the bank is the real winner.

Now, rather than doubling down and helping homeowners, the administration is shuttering, or at least shrinking, the program. As David Dayen noticed, a recent Treasury report on the Troubled Asset Relief Program tucks in the detail that the government is granting HAMP just half of the funds it originally allocated.

As for President Obama’s mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That’s because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

When Obama announced the program in February 2009, he said up to 4 million people could save their homes through the loan modification program, which lowers eligible borrowers’ monthly payments to no more than 31% of their pre-tax income. But more recently, officials have backtracked and said up to 4 million people could qualify for trial modifications, during which loan servicers assess their borrowers’ eligibility and ability to pay.

Through February, around 170,000 distressed homeowners have received long-term modifications under the program. Another $1.5 billion in TARP funds will be used to provide grants to state housing agencies in California, Arizona, Nevada, Florida and Michigan. These agencies are tasked with coming up with programs to assist the unemployed, the underwater who owe more than their homes are worth, and the second-lien holders.

All I can say is that I hope they funnel the additional $30 billion into other, better initiatives to help homeowners.

David Abromowitz, senior fellow at the Center for American Progress, said the main problem with the funding is that lenders will benefit without requiring any concessions or matching of the federal aid. “My concern is what are we asking from lenders who are going to get the benefits source to pay those loans for 24 months,” he said. Under the program, lenders don’t have to make principle reductions on loans or major modifications, he said. Lenders should also be required to make concessions and possibly even match funding. “Banks also should be required to share in the burden being faced by homeowners,” he said.

Despite his reservations with the funding, he emphasized that with millions facing foreclosure, the fragile economy and a slowing economic recovery, “anything that slows or stops foreclosures is good.” “It’s targeted well toward people facing a temporary situation when they can’t pay their mortgage because of unemployment,” he said.

Dean Baker of the Center for Economic and Policy Research also says that he imagines many of the borrowers will end up losing their homes anyway.

I’m a little sunnier on this program — mostly because it is a replica of a highly successful Pennsylvania state program. I wrote in July:

[T]he Emergency Homeowners’ Relief Fund [is] a $1 billion fund to help unemployed workers stay in their homes. [...] Legislators modeled the program after Pennsylvania’s successful Homeowners’ Emergency Mortgage Assistance Program, or HEMAP. Since its creation in 1984, HEMAP has helped 41,500 homeowners with $433 million in loans. About half of HEMAP loan-takers have repaid in full to date. And 90 percent of HEMAP participants have avoided foreclosure.

“Millions of American homeowners, through no fault of their own, have lost their jobs in the current economic downturn and have faced the loss of their piece of the American dream,” [Rep. Chaka] Fattah said in a statement. “[HEMAP] — which the Emergency Homeowners’ Relief Fund is patterned after — is a proven success in Pennsylvania and it will work nationally. It will keep families in their homes, providing emergency relief from foreclosure for those with a proven history of working and paying their mortgage.” He added: “[F]inancial reform isn’t just about saving banks and markets from failure. It has a message for distressed and unemployed homeowners: We won’t allow you to fail either.”

And Pennsylvania has actually expanded HEMAP to keep up with the recession, now allowing loans for up to three years. Housing advocates and many state politicians argue the main problems with HEMAP have been underfunding and too-high rates of loan denial. They also argue that forcing banks to write down mortgages would help to cure the illness rather than treating the symptoms.

Rep. Barney Frank (D-Mass.) and President Obama have proposals to help unemployed homeowners facing foreclosure. (Zuma Press)

Sandra Monroe-Olcott of the Montclare neighborhood of Chicago is in the same position as hundreds of thousands of Americans. She lost her job on April 1, 2008. She applied for unemployment insurance — $804 every two weeks — and immediately started searching for another position. Her husband, now 74, had stopped working and receives Social Security. Her household also includes her elderly father and her son, until recently unemployed and now earning $4.30 an hour as a part-time waiter. The government benefits would tide the family over until she found a new position, she thought. But she never found one.

[Economy1] At the end of March, she received her last unemployment insurance check, becoming one of the million 99ers who have exhausted federal and state benefits. The family went into survival mode. They sold their car, their truck and all of their jewelry except for their wedding bands. They cashed in their insurance policies and 401k. Still, the bills kept coming.

“When that lifeline was cut, so was the mortgage payment,” Monroe-Olcott said. “Last month I used my credit card to take a cash advance to pay my mortgage, knowing that the interest rate on a cash advance is very high, and not knowing how I am going to pay it when the bill arrives. But I was desperate and scared, since I already received an ‘Intent to Foreclose’ letter. I have sold everything I possibly could to make it this far.

“There is nothing else left worth anything. I even rented out the garage, but that person also became unemployed and couldn’t afford the rent. The bank asked me if I would consider selling the home. There are five properties for sale on my block and [they] have been for sale for two years. If I could manage to sell my home” — she laughed — “it would sell for what I owe the bank. Then where would I live? [I would have] no income to pay the rent, even if the landlord overlooked my bad credit check.”

Monroe-Olcott’s predicament is governed by the fundamental equation of the economic crisis: Unemployment drives foreclosure, and the two are jointly destroying middle-class wealth as the effects of the recession linger on. The Obama administration’s efforts to help such homeowners thus far have faltered, failing to put a dent in the wave of home losses. Two new programs are specifically designed to help unemployed people undergoing foreclosure, like Monroe-Olcott. But for many, it might be too little, too late.

This week, the Home Affordable Modification Program — the administration’s flagship effort to help homeowners by letting them refinance for lower monthly mortgage payments and thereby avoid foreclosure — reported dismal numbers. In recent months, the program has kicked out far more homeowners than it has helped. It has completed only 346,000 modifications — though it initially set its sights on three million.

As Mike Konczal of the Roosevelt Institute argues, loan modification generally increases the loan balance by capitalizing the fees to alter the mortgage, leaving homeowners even deeper underwater. An analysis by state regulators shows that 70 percent of mortgage modifications bump up the size of the loan. Just 120 HAMP modifications since March have included principal reduction, according to a report by the Office of the Comptroller of the Currency and Office of Thrift Supervision released on Wednesday. Testifying before the Senate Finance Committee, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said the HAMP program “risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals and meager results.”

Worse, the Obama administration’s foreclosure proposals have done little to aid the more than a million Americans who are both unemployed and undergoing foreclosure proceedings, since reducing monthly mortgage payments does little for borrowers who have no income. The vast majority of homeowners in foreclosure have suffered some sort of “income shock,” most often due to unemployment or underemployment. HAMP reports that 58 percent of its applicants cite unemployment as the primary reason for foreclosure. And a recent study by economists at the Federal Reserve shows that four in five subprime mortgage holders who default do so due to income loss.

But this week, the Obama administration is moving on two little-noticed provisions that finally address the crisis of unemployed homeowners facing foreclosure and possibly enact more effective measures than mortgage modification. On Wednesday, President Obama gave final approval for the $1.5 billion Hardest Hit Fund, proposed this winter to help homeowners in the states most impacted by the unemployment and housing crises. The states — at first just California, Nevada, Arizona, Michigan and Florida — have already come up with “innovative” proposals to keep homeowners in homes using federal funds. Now, the federal government will give them hundreds of millions to enact them. The measures include cramdown, or principal reduction, cited as the most effective method to staunch foreclosure; and pools of money to help foreclosed families pay arrears. And some states will give unemployed homeowners like Monroe-Olcott low-interest loans to help make mortgage payments.

A similar measure is also in the financial regulatory reform bill, currently being completed in conference committee and expected to be finished by July 4. Rep. Barney Frank (D-Mass.) has requested that the final bill include a House provision providing low-interest loans to the unemployed facing foreclosure. The provision is modeled after Pennsylvania’s Homeowners’ Emergency Mortgage Assistance Program, or HEMAP, which has successfully helped 43,000 unemployed mortgage-holders. The $3 billion national program would offer unemployed homeowners low-interest loans for up to $50,000, funded from the Troubled Asset Relief Program, to help them pay their mortgages for up to two years until they find jobs. Homeowners would make low payments to the Department of Housing and Urban Development during the spell of joblessness, and then repay the government after finding work.

The fate of the proposal remained uncertain as of the time of this article’s writing. Frank said that rather than taking the funds out of TARP, he might assess very big banks and hedge funds. “I think it would be a good thing for some of those very highly paid employees to contribute some money to help people losing their homes because in many cases it was their misjudgments that led to that happening,” Frank told reporters on Wednesday.

Housing experts say that the provisions should help those hardest hit by the employment and housing crises, but worry that the damage might be done. Already, banks have foreclosed on millions of homes, and 5.5 million more are in the foreclosure pipeline. Barry Zigas, the director of housing policy for the Consumer Federation of America, lauded the efforts but noted that they have the hallmark of most of the administration’s policies towards the unemployed facing housing loss: They do not address the root cause of being underwater or unemployed.

“The new [Wall Street reform bill’s] initiative plus the 10 states that the administration has provided money to for pilot programs to help the unemployed facing foreclosure will be helpful. But ultimately, it is job creation — genuine job creation — and the extension of unemployment benefits that will help the situation,” he said. “If we loan [unemployed persons facing foreclosure] money and then don’t do anything to help them get jobs, it is nothing but a temporary palliative.”

Unemployment is not expected to decline anytime soon, meaning that even if the government gives homeowners facing foreclosure two-year loans, some percentage will still be members of the long-term unemployed, often underwater on their mortgages, in 2012 or later. And the Obama administration thus far has not thrown its weight behind two provisions that might make actual dents in the housing crisis writ large: cramdown and right-to-rent, which would give homeowners the right to rent their home after defaulting on their mortgage.

In the meantime, those out of luck continue to wait. Out of options, Monroe-Olcott decided to apply for a loan modification from her bank. (Her mortgage has been sold between banks five times.) “If we are foreclosed on, I could put my father and husband in a nursing home, and me and my son will walk the streets. There is no welfare if you own a home, and you can’t get welfare if you do not have a permanent address!” She expects to hear back from Chase in 60 to 90 days.

The grants for the first round of funding were awarded in this fashion:

• California received $699.6 million
• Florida received $418 million
• Michigan got $154.5 million
• Arizona got $125.1 million
• Nevada got $102.8 million

In the new round, the awards are generally smaller, though the administration says they are “equivalent on a per person basis to the $1.5 billion awarded in the first HFA Hardest Hit Fund.”

• Ohio gets $172 million
• North Carolina gets $159
• South Carolina gets $138 million
• Oregon gets $88 million
• Rhode Island gets $43 million

As with the previous program, states have to submit their plans for review to the Treasury Department, which encourages them to focus on unemployment and distressed homeowner programs but doesn’t limit its assistance to just those ideas.

The initiative, first announced on Feb. 18, would require applicants for loan modifications to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.

There are no surprises here. The details announced today were outlined by President Obama when he announced the rescue effort last month, as The New York Times noted.

A mortgage lender or mortgage-servicing company would first receive cash incentives to modify a borrowers’ loan so that the monthly housing payment declines to no more than 38 percent of the family’s gross monthly income. At that point, the government would match, dollar for dollar, the lender’s cost in reducing the payments as low as 31 percent of monthly income.

The reduced payments could come in the form of a lower interest rate, longer mortgage term or a reduction in the principal outstanding loan amount. The lender would have to make a calculation on whether its cost from reducing the monthly payments, after accounting for the government’s cost-sharing, would be less than the costs it would incur from foreclosing on the house.

The guidelines indicate that a lender would have to make the loan concessions if the subsidized cost of doing so would be lower than the cost of foreclosure. The decision would become voluntary if the estimated costs of the concessions appeared to be higher than the cost of foreclosure.

However, this is new: Bloomberg reports more than 8.3 million Americans were underwater on their mortgages in the fourth quarter of last year — meaning they owed more on their loans than their homes were worth.

That news alone demonstrates why this plan is necessary.

When we pour $10 or 30$ billion into AIG, it doesn’t vanish into thin air. It goes to someone else. Earlier evidence suggested that Goldman Sachs had massive exposure to a potential AIG bankruptcy. And it’s been alleged — though not on any harder evidence than a certain elementary logic — that AIG got saved in part because of people tied to Goldman who were running Bailout Inc. last fall.

Whatever the truth of that, I think it’s time we know more clearly where the $100 or so billion we’ve ‘loaned’ AIG so far went. (There’s been some data on this. But I don’t believe it’s been exhaustive or particularly detailed.) And where’s the next dollop of money likely to go? Whoever these recipients are, they are by definition companies that are in the capitalism business who made a bad bet on AIG, probably a lot of bad bets on AIG.

They don’t seem to be taking the hits, however. Taxpayers are the ones paying for the bad bets.

But let’s just ignore investigating all that and blame the whole thing on irresponsible homeowners instead. It makes for a better viral video.

As I said before the plan came out, the Obama administration should have stepped up and acknowledged right off the bat that some people will get help who don’t deserve it, and that there’s a certain unfairness to the plan. But with foreclosures killing the economy — and all of our home values — there aren’t many alternatives.  That didn’t happen. Instead, as Slate’s John Dickerson notes, White House Press Secretary Robert Gibbs attacked Santelli. That only added to his fame.

The problem is that Santelli and Sullivan are tapping in to something that’s real, a resentment of being forced to pay for someone else’s mistakes. I’ve heard the same sentiments from friends who rented or  remained cramped in smaller houses as their families grew — and now feel they have to pay for people who bought houses bigger than they could afford. The point is not to ridicule those feelings, but to draw the larger picture.

We’ve spent billions of taxpayer dollars to bail out banks that profited from all this, and yet, the resentment toward homeowners in trouble outweighs that anger.  The often egregious, if not outright illegal, lending practices that went on during the boom haven’t always received the attention they deserve. It would help, I think, to fully lay them out: The targeting of minority neighborhoods for high-rate loans. The deregulatory zealots at the Office of Thrift Supervision who sought banks to regulate by offering easier oversight. The use of the government-chartered Federal Home Loan Banks to provide low-cost money to banks like IndyMac Bankcorp to continue  ”unsafe and unsound lending practices,” as one financial analyst put it, even as they teetered on collapse. The meth addicts at Washington Mutual who frantically processed loans as OTS examiners looked the other way.

During the bubble years beginning in 2006, underwriting standards went out the window, and anyone with a pulse got a mortgage, with few or no questions asked. Many of those  Alt-A “liar’s loans” don’t deserve modifications. But banks for years also made  huge profits in subprime  mortgages — the most sophisticated of loan products, sold to the people least likely to understand them. There’s a reason it’s called “predatory lending.” Banks and mortgage firms proved they could make money by bringing in customers who signed up for loan terms they clearly didn’t understand and that trapped them in debt, from prepayment penalties to “exploding” adjustable rate mortgages that increased to unaffordable payments.

When you shopped for a subprime mortgage, you couldn’t just lock in a rate and shop around, a basic tenet for consumers looking for prime loans. It was all risk-based pricing, meaning you had to apply first for the loan, and find out your rate when you were approved. And, of course, the brokers were adding on hidden fees and points as fast as they could. Lenders actually paid brokers extra for bringing in borrowers at higher rates than what they actually qualified for.

All this is to explain that “irresponsible” homeowners is a too-broad term. Yes, some people bought houses beyond their reach or used them as ATMS for vacations and cars. But many others didn’t – they were reaching for the home ownership dream as a responsible path to wealth, and got trapped in loans they didn’t understand and couldn’t afford. The problem with the childish rant of a cable TV talking head is that it can’t grasp the complexity of all this. Neither can any plan to help homeowners, since some of the irresponsible will get help. But banks and lenders profited for a long time by preying on and exploiting many others — and those borrowers do, in fact, deserve  a break.

In Andrew Sullivan’s neighborhood, I somehow doubt that brokers knocked on doors at all hours, attended churches to gain the trust of members and sell them subprime loans, or staked themselves out at community centers to find customers. But that happened all too often in places like Prince George’s County, Md., the nation’s wealthiest majority-black suburb, where housing counselors as early as 2005 complained about a proliferation of subprime loans, and which had almost twice as many  subprime mortgages as the national average.

In Sullivan’s world, there might not be a lot of people who didn’t realize that they could have an attorney at their real estate closing, who didn’t know that it wasn’t standard practice for a broker to come to their office and tell them if they didn’t sign their loan papers right away, they would lose their homes. Some may have understood the interest rate on the loan they were applying for; others may not have. Either way, it didn’t matter, because their broker was assuring them they could refinance out of the loan — the broker they had met at church or in their community, the one they trusted.

The key thing in the Obama plan, and in the idea for national standards for loan modifications, is that you have to verify your income and assets to qualify. In other words, if you lied to get your loan, you won’t get it modified. That takes a lot of unfairness right off the table.

Still, it’s hard for people to swallow the fact that some degree of unfairness will likely be necessary to achieve the greater good of stabilizing the economy — especially when they see a neighbor who blew their home equity on vacations or a nice car getting federal assistance. But it’s what they don’t see that should also trouble them, and that should cause all of us to recognize that irresponsibility in lending didn’t start or end with homeowners alone.

Think about that for a minute. Angulo bought the townhouse, in a working class subdivision in suburban Virginia, for $280,000 in 2005.

Now it’s being offered for a fraction of what Angulo paid for it. He’s out of a home he desperately wanted to stay in. Investors in his loan didn’t exactly come out ahead. No one knows yet how long the home will sit vacant before someone buys it, if anyone ever does. Neighbors who have been paying their mortgages will find their property values taking another hit from this.

Here’s what I can’t figure out: Who really won here? Who benefited from all this?

You could argue Angulo got to live for three years in a house he apparently couldn’t really afford, but that doesn’t take into account the fact that he hoped to stay in it for the long term. Or that he ended up having to go through foreclosure and eviction. He’s back in El Salvador, with a ruined credit rating. The lender, Aurora Loan Services, surely didn’t make much money on this deal – although the firm probably picked up fees for foreclosing and other services, so don’t pull out your hankies just yet.

This is a loan that probably never should have been made to someone who probably didn’t understand what he was getting into. Multiply it by hundreds of thousands of deals just like it and you can understand why we’re in the mess we are right now. What strikes me is that in the end, no one benefited. No one’s better off for what happened – not the former homeowner, the lender, or the neighborhood. Nor are taxpayers who are picking up the tab to clean up messes like this.

What happened, in the end, can’t be summed up with a tidy moral lesson, the hugging and learning moments of television sitcoms. There’s just a sense of purposelessness, of wasted time, wasted emotions, and a churning of money that didn’t create anything of value, although some lenders and Wall Street investors made big profits, for a time. There’s nothing more that comes of this than a glimpse into the way the American Dream of homeownership got twisted and turned upside down in recent years, leaving behind an empty townhouse at a fire-sale price, and a former homeowner broken and gone.