honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Thursday, April 5, 2007

Lenders reaching out to stem foreclosures

By Ellen Simon
Associated Press

Ana Rodriguez and her children, from left, Micaela, Roberto and Ricardo, were able to keep their Chicago house by modifying the home loan. Rodriguez and her husband bought the home in 1998.

M. SPENCER GREEN | Associated Press

spacer spacer

MODIFYING MORTGAGES

THE PUSH: Mortgage companies are knocking on doors, making phone calls and hosting events in hotel ballrooms to persuade troubled borrowers to modify their home loans and avoid foreclosure. The financial companies lose money on foreclosure; they say they want to avoid it as much as homeowners.

THE BACKGROUND: Fifty percent of people who lose homes to foreclosure never talk to their banker, said Colleen Hernandez, president the Home Ownership Preservation Foundation, which helps troubled borrowers modify loans.

"It's tragic," she said. "We have the capacity to help a whole lot more people."

IF YOU'RE IN TROUBLE: The Home Ownership Preservation Foundation runs a 24-hour hotline for any borrower at (888) 995-4673. EMC Mortgage Corp.'s Mod Squad, for EMC customers only, can be reached at (877) 362-6631.

WATCH OUT FOR SCAMS: Mortgage pros say homeowners should beware of anyone who offers a quick fix, rushes to make you sign something or charges for their services. Also watch for people who have nothing to do with your mortgage company and call you. While lenders and servicers are increasingly calling clients, avoid outsiders who call you promising to fix your mortgage.

spacer spacer

NEW YORK — As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They'd rather modify your loan than foreclose.

EMC Mortgage Corp., which has a $78 billion loan portfolio that includes subprime loans to homeowners with weak credit, this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, each team member has time to speak to as few as three people a day.

"You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC. Right now, $2.14 billion in mortgages, 2.74 percent of EMC's portfolio, is in default, up from 1.93 percent a year ago.

Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments, mortgage companies increasingly are prodding anyone who's having trouble making payments for any reason to give them a call.

Critics say lenders made loans to borrowers who weren't creditworthy with terms that would be impossible for them to meet. Whether the current wave of workouts will merely postpone foreclosures — and delay bad loans hitting lenders' books — is an open question.

Regulators will be watching to see how many modifications are successful, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

The scant public information on modifications makes evaluation tricky, said Thomas Lawler. The former chief economist at Fannie Mae now runs his own consulting business, Lawler Economic & Housing Consulting, in Vienna, Va.

Loose lending standards followed by lax modifications can merely delay a problem, Lawler said. He pointed to the raft of modifications done in the manufactured housing business in the mid 1990's, when easy credit led to a wave of defaults and repossessions.

"If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late," he said.

Advocates say that half the people in foreclosure never talk to their banker before losing their house, and many could rework their loans if they only got help.

"It's tragic," said Colleen Hernandez, president of the nonprofit Home Ownership Preservation Foundation. "We have the capacity to help a whole lot more people."

Calls to her group have picked up markedly. Its 24-hour hotline, (888) 995-4673, is getting 300 calls a day, from 75 daily in the first quarter of 2006.

Civil rights groups called yesterday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits.

A modification helped Ana Rodriguez of Chicago, 41, keep her family's home.

Rodriguez and her husband, Ricardo, bought a house in 1998. Their mortgage was $1,200 a month. After he lost his job as a machinist, the couple refinanced the home in 2004 with an adjustable rate mortgage. The new payment was $1,500 a month.

He found a new job, but a year later, he was out of work again.

Rodriguez, a secretary, called Chicago's department of housing, which referred her to a nonprofit. It worked with her mortgage company, Homecomings Financial.

Her husband found a job soon after and the couple made three payments that included penalties and fees for the installments they'd missed. He quickly found a better job and the couple was able to refinance with a 30-year mortgage at 6.62 percent interest last October. The monthly payments are $1,600.