[NYTr] As foreclosures surge, lenders pressured to offer borrowers aid

[All the News That Doesn't Fit]

AP via SF Chronicle - Oct 23, 2007
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2007/10/23/financial/f140641D40.DTL


As foreclosures surge, lenders pressured to offer borrowers aid

By Alex Veiga
The Associated Press

Los Angeles  -- Countrywide Financial Corp., the nation's largest
mortgage lender, said Tuesday it will begin calling borrowers to offer
refinancing or modifications on $16 billion in loans with interest
rates set to adjust by the end of 2008.

But as defaults and foreclosures snowball, the mortgage industry is
under increasing pressure to do even more to help financially strapped
borrowers hang on to their homes.

"People are talking about it, saying it might be necessary, but there's
not a lot of it going on," said Guy Cecala, publisher of Inside Mortgage
Finance, an independent trade publication.

The Mortgage Bankers Association is currently surveying its members to
determine how many mortgages have been modified in recent months.

Moody's Investors Service recently surveyed 16 mortgage servicers that
accounted for 80 percent of the market for subprime loans made to
borrowers with shaky credit histories.

It found that most of those companies had modified only about 1 percent
of loans with interest rates that reset in the first half of this year.

The bankers association said the survey was flawed because it didn't
include other ways that borrowers are being helped, including temporary
reductions of monthly payments or spreading delinquent amounts over
future payments.

"It is important to understand that the (loan) modification is only one
means of helping a borrower who is behind on their payments," said Steve
O'Connor, the association's senior vice president.

So far this year, Calabasas, Calif.-based Countrywide said it has
completed about 20,000 loan modifications - a figure that represents
less than 5 percent of the more than 500,000 loans the lender reports
were behind in payments as of last month.

The figure amounts to about 24 percent of the roughly 82,000 loans the
company said were in foreclosure.

Countrywide said the statistics can be misleading.

"The number is not small when you sort down to the people who are
seriously in trouble." said Steve Bailey, CEO of loan administration at
Countrywide, which has 8.9 million loans valued at $1.45 trillion,

On Tuesday, the company said it would discuss possible loan changes with
borrowers who are current on loans but face pending interest rate
resets. The lender said it intends to refinance about $10 billion in
loans and modify another $4 billion.

It also plans to contact holders of loans totaling some $2.2 billion
who are late on their loans and struggling because of recent rate
resets.

Countrywide said it has already helped more than 40,000 borrowers and
would reach out to 82,000 more to provide some kind of relief.

Countrywide late Tuesday also announced a joint initiative with the
Neighborhood Assistance Corporation of America in which NACA will help
struggling Countrywide borrowers identify solutions to help them save
their homes, such as creating a payment plan or modifying their loans.

The program is based on NACA's methods that include individual
counseling and development of a documented budget that calculates what
homeowners can afford to pay. NACA said it will work with the borrowers
to develop the most effective plan to save their homes, then submit the
plan to Countrywide for approval and implementation.

Countrywide shares fell 63 cents, or 4 percent, to $15.05 Tuesday. The
shares have traded in a 52-week range of $14.40 to $45.26.

Many lenders have only recently began ramping up their loss mitigation
departments after years when the booming housing market let many
borrowers who fell behind on mortgages sell their homes for more than
the value of their mortgage.

Another problem has been investors balking at interest rate cuts that
could eat into their profits.

Earlier this year, Seattle-based Washington Mutual Inc., with a mortgage
servicing portfolio valued at $713.3 billion, said it would refinance
up to $2 billion in subprime loans to discounted fixed-rate loans for
borrowers who are current on payments.

Wells Fargo & Co., with a mortgage servicing portfolio of $1.41
trillion at the end of June, declined to say how many home loans it has
modified.

The San Francisco-based bank reported that less than 4.5 percent of its
loans were delinquent at the end of June, while 0.56 percent had entered
foreclosure.

"We work hard to keep customers in their homes, whenever possible, when
they experience financial difficulties," bank spokesman Jason Menke
said in a prepared statement.

Charlotte, N.C.-based Bank of America Corp., the nation's second-largest
bank, said it modified 3,200 home loans representing $240 million
during the eight months ended Aug. 30 and had just 192 homes in
foreclosure as of Sept. 30.

The bank declined to break out how many mortgages made up its loan
servicing portfolio, valued at $377 billion at the end of September.

"We believe we're already doing an excellent job helping our borrowers
avoid foreclosure," spokesman Terry H. Francisco said in a statement.

Despite industry efforts, relief remains out of reach for many borrowers
such as Carlos Ortiz, who says he's on the verge of losing the
four-bedroom home he bought for $580,000 in suburban Rancho Cucamonga,
east of Los Angeles.

Like other buyers at the height of the housing boom, he got a loan that
kept his monthly payments low for two years and counted on being able to
refinance before the rate adjusted sharply higher.

When he didn't qualify for a new loan, he tried to get his mortgage
servicer to restructure his existing one.

"I told them I cannot afford it, you have to help me to refinance or
modify my loan," Ortiz said. "They don't want to work with me."

The mortgage industry will likely face growing pressure to alter loans
in the coming months, as some 2 million adjustable-rate loans begin
resetting to higher monthly payments.

Treasury Secretary Henry Paulson has called for Congress and mortgage
lenders to move more quickly.

Meanwhile, Sheila Bair, chairman of the Federal Deposit Insurance Corp.,
suggested that mortgage service companies consider doing broad
conversions of adjustable-rate loans to fixed-rate loans if the
borrowers are current on their payments and living in the homes.

Kevin Stein, associate director of the San Francisco-based California
Reinvestment Coalition advocacy group, said the best way for lenders to
help distressed borrowers is to lower long-term interest rates before
they adjust higher. Rate cuts for a year or two are little help, he
said.

"That's akin to getting another bad loan that's going to adjust in a
year and be unaffordable," he said.

The coalition noted the most common outcome for borrowers seeking to
modify loans is either foreclosure or a short sale, meaning the home is
sold for less than the amount owed on the mortgage. That often leaves
the borrower facing an income tax hit.

Paul Leonard, director of the California office of the Center for
Responsible Lending, acknowledged that some borrowers simply can't be
helped.

"There are going to be some that should never have gotten a loan, and no
matter what you do are probably not going to be able to afford
homeownership," he said.

Still, he estimates that roughly 40 percent of subprime borrowers would
qualify for a prime-rate refinance loan, and another 40 percent could
make the monthly payments if their lender would adjust their loans to a
lower rate.

Some people do manage to hold on to their homes.

Patsy Brinson, 52, was in danger of losing her home in Victorville,
Calif., last year.

The registered nurse bought it two years ago for $218,000 but fell
behind on payments because of problems with other debts.

Her loan servicer, American Servicing Co., tried various workarounds to
get her current, including making bigger payments every month to catch
up on what she owed.

That made it worse, pushing her monthly payment from around $2,000 to
more than $2,700, she said.

In June, her loan servicer modified her terms from an adjustable rate
to a 40-year, fixed at her original rate of 7.99 percent, she said.

Along the way, she had to pay around $4,000 in fees.

"I'm not happy with it, but I figure if I had waited two years and it
had adjusted, it would have gone up higher," Brinson said.