For nine months, Deb Franklin said, she did exactly what JP Morgan Chase and President Barack Obama told her to do. She made her mortgage payments on time, delivered via Western Union, after they were reduced from $1,433 to $1,233 through Obama's Making Home Affordable program. After three payments, the mortgage relief was supposed to become permanent, but a maddening string of paperwork headaches landed her in limbo. Then, on the day after Christmas, a "bomb dropped" on her life.

A letter from a law firm representing Chase said the bank had begun foreclosure proceedings against her.

"It was devastating, just devastating," Franklin said. "I ended up on the couch shaking so badly that my husband started piling blankets on me saying, 'Are you OK?' And I told him, 'I'm not cold, I'm scared.' "

The Franklins are exactly the kind of family the Making Home Affordable program was designed to rescue. They were trying to hang on to their primary home, had enough income to make significant monthly payments and their home's value was still within shouting distance of their mortgage balance. Home values in rural Airville, Pa. -- just across the Maryland border, near Baltimore -- never exploded like those in America's big cities, so market value of their modest split-level hadn't fallen far.

But instead of hope and help, the Franklins say their 10-month odyssey through the Making Home Affordable program raised their mortgage balance from $187,000 to $207,000, ruined their credit score, leading to cancellation of their credit cards, and now -- despite making all their payments -- put them on the brink of losing their home.

Deb and Rick Franklin.

Franklin has been told by bank representatives that the foreclosure notice was sent in error, but she doesn't buy it. On a single day in early January, she says, one Chase representative told her that the loan modification plan had been denied, another said it was approved and a third told her the foreclosure had been "suspended."

"I check my county auctions every Monday to make sure my house isn't on there," she said. "I don't believe anything they say anymore."

Some 4 million American homeowners qualify for the Making Home Affordable program, and around 850,000 of them have been offered lower payments on a trial basis, according to the Treasury Department.  Enrollees see their mortgage payments reduced to 31 percent of their income through interest rate reductions, fee waivers and lengthening of mortgage terms.  Entrants are told that if they make three "temporary" modification payments on time, they will qualify for permanent relief. But as of December, only 66,000 had seen their mortgage permanently modified – a number dwarfed by the 2.8 million foreclosures completed last year.

Until the lower loan payments are made permanent, banks are entitled to continue with foreclosure proceedings.

More from John Schoen: Flaws plague foreclosure relief program

Franklin is one of many homeowners who have enrolled in the Home Affordable Modification Program (HAMP), offered as part of Making Home Affordable, who later compared their experiences through the Web site LoanSafe.org. They found that many of them had similar tales of lost paperwork, surprise foreclosure notices and ruined credit.  Msnbc.com reviewed about two dozen such stories involving virtually every major bank. Franklin, who shared an extensive diary of events she said she kept during her attempt to modify her mortgage, is typical.

The Franklins' home

"I don't know if President Obama knows what's going on," she said, adding that she recently sent a long fax message to the White House chronicling her Red Tape nightmare. "I don't know what else to do."

The Franklins hadn’t suffered significant loss of income during the recession. Rather, health problems and family emergencies pushed them to the brink of financial ruin, placing the home they’ve lived in since 1984 at risk. When their adult child had a near-fatal car accident in July 2008, they emptied their bank account to help him and his three children through the ordeal. Soon, their $1,433 monthly mortgage payments were overwhelming their budget, and they began to dip into their retirement savings. So Franklin was one of the first in line last March after President Obama announced the Making Home Affordable program.

She and her husband received a quick response after signing up March 2 on Chase's Web site. They were told to call the bank two weeks later. Then, when they filed a 37-page packet with Chase later that month, they were told their application was "in underwriting. " On April 22, they were told their modification was approved and a new payment of $1,233 was to be paid via Western Union beginning May 1.  If they managed to also complete payments on June 1 and July 1, their modification would be made permanent, Franklin said Chase employees told them.

The first sign of potential trouble came almost immediately.  On May 1, she said she was told during a phone call that her actual payment should have been $1,233.18 – so she was short 18 cents. If the 18 cents didn't arrive soon, her modification would be "canceled," she quoted the Chase employee as saying. She sent Chase a check for $1, to be safe, and on June 1 and July 1, she sent payment via Western Union for $1,234. Calls to Chase after each payment elicited the same response: "Everything is on track," Franklin said.

But in July, when the modification was to be made permanent, she said she was told that Chase's loan department was overwhelmed and that she would have to wait another 45 to 60 days. In the meantime, her log shows that Chase employees told her to keep making the temporary modified payments.

Things began to go south in August. She received a notice of default from the bank, which demanded $11,000 in late fees and unpaid mortgage payments to bring the loan current. A Chase operator told her to ignore the letter and to keep making modified payments.

Meanwhile, other parts of her financial life began to unravel.  Despite making the payments prescribed by Chase, the bank had reported her to the credit bureaus as having made only partial payments on her mortgage.  Her credit score plummeted from 660 to 444, and penalty credit card interest rates kicked in. In a short time, her cards rocketed from 8.99 and 14.99 percent to 29 percent.

"They did not tell us that would happen when we entered the program," she said. "For many people, their credit is destroyed. I know people who say they never would have entered the program if they knew that."

(A Treasury Department official told the New York Times recently that many early applicants to the Making Home Affordable program did see severe credit score hits of "30 to 100 points." But the official said that in November, banks developed a new way to report mortgage modification recipients to the credit bureaus that does not do as much damage to their credit scores.)

On Aug. 31, before making her next payment, Franklin called to check her status.  At this point, the operator said her paperwork was missing and told her to re-fax the entire 37-page application. She sent the documentation and submitted the payment.

On Sept. 29, she was told that her modification had been approved, but she still had to wait for some delayed paperwork -- perhaps another 30 to 60 days.

On Oct. 10, she received a letter from Chase telling her to call immediately because her modification was at risk.  When she called, she said, an operator told her that the letters were "computer generated," and she should "disregard" them.

When a letter arrived on Dec. 7 from Chase warning her that "although we received a payment on your loan, it was not sufficient to bring the loan current," she was given the same advice by a Chase operator: "Disregard those letters." She was reminded that stable income and stable payment history were the most important factors in modification decisions.

She was about to make her eighth trial payment when the nightmare letter arrived indicating foreclosure had begun.

"The law firm of Shapiro & DeNardo, LLC has been retained to initiate a lawsuit to foreclose the mortgage on your property," it read. It indicated her loan balance was now $213,362.41 – more than $20,000 larger than when she'd entered the HAMP program. When she called the law firm, she was told that $13,235 was required to bring the loan current.

A call to Chase shed little light on the situation.

"We were told the foreclosure process marches on even if you are in the modification," she said.

But an operator also told her that all her paperwork was in order, and she should receive her final modification within the week.  After a few more phone calls, a supervisor asked that she once again re-fax the application.

Two days later, a Chase operator who said he was in Florida called to say the modification had been denied, and demanded $13,235 to stop the foreclosure. A return call to Chase produced a different response: The family was approved for the permanent modification, the operator told her. A call to the lawyers' office confirmed that the foreclosure was suspended.

But as of Monday, the Franklins were still awaiting final paperwork, and assurance that they will be allowed to remain in their home of 26 years. The most recent information, she said, came from a Chase operator, who told her there would be no new information until Feb. 1. On that date, Franklin will make her 10th modified payment.

"This whole thing just doesn't seem like it makes sense," she said. "Everybody is into the big political story here, but I think people are too wrapped up in that to know what's really going on and try to deal with it."

In a statement to msnbc.com Chase apologized for “incorrectly sending a foreclosure notice.”

Chase spokesman Tom Kelly said that the firm processed many other modification applications quickly, and had ramped up quickly to deal with an "unprecedented volume of customers" seeking mortgage help. He said the firm offered 600,000 trial modifications and approved 120,000 during 2009. Meanwhile, it added 5,000 employees to an existing staff of 8,000 who work with delinquent borrowers, he said.

While Kelly declined to discuss most specifics of Franklin's case, the statement placed some of the blame for delay on the family.

"We set up the borrower's trial modification payment using information the customer provided," the statement read. "When we received the documentation, we learned that the family's income was significantly different.  As a result, we continue to review how we can best help the family."

So for now, Deb Franklin continues to scan the newspapers every week, making sure her home hasn't been put up for sale.  She had a scare on Monday.

"I checked the sheriff's sale this morning and my heart sank when I saw a home on our road listed for auction," she said.  "All I saw was the name of our road at first, but it was not us….Whew, dodged another one this week."

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What some call America's most notorious hidden fee is about to be dealt a serious blow, as new rules kick in that will eliminate many of the booby traps that lead to bank account overdraft fees.

Already, in advance of the Federal Reserve regulations coming in July, many banks are allowing consumers to opt out of the "courtesy" overdraft coverage and associated, cascading $35 fees.

But it should come as no surprise that there's a catch. In fact, there are lots of them. Topping the list: Consumers who opt out of overdraft protection now may find themselves in the worst of both worlds. Their transactions will be denied and they will face a $35 insufficient funds fee anyway.

"My card is being denied and checks are being returned, but the fee remains, " wrote Ginnie Logan, who banks at Elevations Credit Union in Colorado and recently opted out of what the organization calls courtesy pay. "Essentially the issue hasn't gotten any better. In fact, it has gotten worse."

Logan's sentiment would sting consumer advocate groups who spent years fighting high bank overdraft fees. Expect a new round of consumer frustration  this year as insufficient funds fees make a comeback and consumers try to understand why. We'll try to explain.

Much of the frustration with overdraft fees came from the element of surprise.  While most consumers understood the danger of writing a check that might send their account balance into the red, few realized that they could overspend their balance by swiping debit cards or withdrawing cash at ATMs. The new regulations are designed to end those surprises: Beginning in July, banks will not be able to honor the last two kinds of transactions charges and assess the overdraft fee unless those consumers have opted in to a overdraft protection program.

Bank of America, JP Morgan Chase and a number of other institutions already have announced that consumers may call and opt out of overdraft coverage now.  Most consumer advocates, including Consumers Union staff attorney Lauren Bowne, recommend that account holders immediately do so.

That, however, can lead to an unnerving conversation with your bank.  During a recent call to Bank of America, an msnbc.com reporter was told, "You may still incur overdraft charges in some cases," even after opting out. That's because lags between credit and debit transactions and the time they are posted to your account can still cause headaches.

It's possible, for example, that an online bill payment could be sent when a checking account balance is above zero, but not debited until later, after a series of other withdrawals have sent  the balance to zero.  That would still result in an overdraft fee, because the bank could not have known the "true" balance of the account would dip below zero when it initiated the e-payment.

In addition, there are numerous circumstances under which opting out would cause transactions to be denied, triggering an insufficient funds fee.

Wire transfers or checks would bounce the old fashioned way, for example. At Bank of America, the insufficient funds fee is $35 – same as the overdraft fee.

Still, the Bank of America operator gave assurances that opting out would eliminate the possibility of debit card purchases leading to overdraft fees.

That should reassure consumers who aren't so sure. Several have e-mailed msnbc.com recently suggesting they are still seeing overdraft fees related to debit card swipes after opting out.  The confusion is understandable, given the complexity of the systems involved. It doesn't help that Bank of America operators won't provide paper documentation of the procedure, its terms and conditions, or confirmation of the account change. The only way to confirm overdraft protection had been removed is to call after five days and ask another customer service representative to check, she said.

An operator at Logan's credit union gave a less black-and-white answer to the debit purchase/overdraft question.

"From what I've seen that's not happening," he said. "But it is possible."

 He described some potentially thorny time-lag situations. Not all merchants immediately process transactions -- many transmit transactions in batches every hour or two, for example --  so it would be possible for a consumer to swipe their debit card four or five times in different stores during a day before the bank realizes the account holder's balance had gone south of zero.

Consumers who use ATMs outside their own banks' network could also face this problem, as some ATMs perform what are called "stand-in" authorizations, and don't transmit transaction information until later in the day.  That could also result in an overdrawn account.

Still, he said such situations were extremely rare.

The American Bankers Association offered several warnings about this kind of confusion last year while arguing against overdraft reform. But Nessa Feddis, spokeswoman for the trade group, said much of the confusion should be cleared up by the time the new Fed rules kick in this summer.

"The rule is very consumer-oriented," she said. "... The Fed did a lot of testing and the rule forces banks to do things the way consumers would want them in each situation." After July, she said, banks will not be able to charge a fee because of a lag in batch transactions, for example, because the Fed decided that consumers could not be expected to know about merchant transmission procedures.

The new rules aren't perfect, however. Many consumers would want small debit card transactions or ATM withdrawals denied when their balance is at zero (saving a overdraft $35 fee), but prefer that checks be honored (since they would result in an insufficient funds fee anyway, and they would also lead to additional fees from the jilted merchant).  But many banks' systems can't handle such a split decision, Feddis said. Overdraft protection must either be on or off.

Consumers who misunderstand their overdraft protection has been removed may wind up bouncing a lot of checks.

"There are a lot of operational issues that still have to be solved," Feddis said.  "Some of these things will be resolved, but it might be through a different kind of product." One possibility: banks will offer incentives to customers to keep larger minimum balances in their accounts to avoid overdraft situations, she said.

Despite the confusion, and the "worst of both worlds" possibility, the Consumer Union's Bowne said she's sticking by her initial advice.

"Overall, I still think it is sound advice to opt-out of overdraft, when possible, as we wait for the rule to go into effect," she said.  "I cannot envision a scenario where a bank would charge a consumer for 'attempting' a debit or ATM transaction in which the consumer never completes the transaction. ... That being said, nothing much surprises me with respect to these bank practices and without seeing the actual terms and conditions from the different banks it is hard to be certain."

Red Tape Wrestling Tips
You should opt out of overdraft protection now if your bank allows it. The end goal here is to avoid overdrawing your checking account through debit purchases or ATM withdrawals. You never want to pay $40 for a $5 hamburger, as has happened to many people in recent years. But there are hazards.

If you have overdrawn your account in the past year, think before you opt out. A bounced check can have more far-reaching consequences than an overdraft fee.  You might end up in the ChexSystems database and lose check-writing privileges, for example.  So don't opt-out until you are ready to stay out of the red.

Consumers who live near a zero balance will find that so-called "account holds" placed on debit purchases by gas stations and some other businesses can cause headaches in a post-overdraft-fee world.  Holds, which exceed the transaction price, can freeze funds for days and cause confusing time lags. Be cautious using your debit card for purchases at firms that place holds.  One tip: If you must use debit, use a PIN instead of a signature. PIN-debit transactions generally are processed faster than signature-debits, so that will help you keep your account balance up to date.

When July comes, look for a mandatory notice from the bank about the new procedures. Don't fall for comes-ons advertising "courtesy" protection.  If you do nothing, you won't have it. And that's probably your best choice.

After you opt out, and the fed rule kicks in, when might you be hit with a fee?  When the bank has to "return" an attempted payment to you – a bounced check, for example, or an e-payment that can't be honored.

The safe way to protect yourself from overdrawing your checking account is to link it to other accounts – your savings account, a credit card, or even a line of credit. Everyone makes mistakes. Yours will be less costly if you borrow your own money through linked accounts than if you borrow the bank's money through a "courtesy."

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