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Usa Today March 14 2008

Usa Today March 14 2008

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USA TODAYMarch 10, 2008 MondayFINAL EDITIONNEWS; Pg. 1A1930 words
Mortgage lenders see more borrowers give up;Fueling the crisis, some in trouble make no effort to save their homes
Noelle KnoxOn the front lines in the mortgage foreclosure crisis, lender and loan servicer DennisLauria says his deepest losses are from borrowers who owe more than their homesare worth and simply mail in the keys, rather than try to work out a new paymentplan."I can't get you to pay if you've got no skin in the game," says Lauria, senior vicepresident of Popular Mortgage Servicing in Cherry Hill, N.J., who says 14% of hiscustomers with subprime loans -- high-interest loans given to people with poor creditratings -- are in default.Nearly 3 million homeowners were behind on their mortgages at the end of last year,the Mortgage Bankers Association (MBA) said last week. An additional 1-million-plusborrowers were at risk of imminent foreclosure. The number of foreclosures is likelyto set records throughout the year and poses an increasing risk to the housingmarket, the financial markets and the economy.Federal Reserve Chairman Ben Bernanke says the mortgage industry needs a"vigorous" response to help beleaguered homeowners. But what about the response-- or lack of one -- from borrowers?In California, Florida and Nevada, particularly, where prices are falling the steepest,rising numbers of borrowers are giving up and abandoning their homes despite thesignificant damage a foreclosure can have on the credit ratings that determine theirability to get future loans.Nationwide, more than half the borrowers who lose their homes through foreclosurenever answered their lenders' calls or letters, according to Freddie Mac. And an MBAanalysis found that 23% of loans in foreclosure last fall were to homeowners whohad no contact with their lenders, and that an additional 18% were to absenteeowners.The numbers help explain why it's so difficult to reverse the trends of risingforeclosures and falling property values. Even some homeowners who can afford topay their mortgages are defaulting, Lauria says, because their house might have lost30% of its value, and they figure it will be a long time before it's worth what theypaid for it."They say, 'If I play my cards right, I can live here free for 12 months, maybelonger'" before the lender can foreclose, Lauria says. "Our challenge isn't contactingthe borrower. I can talk to them, but they stick their tongue out at me."Hundreds of thousands of distressed homeowners are reaching out for help. TheHomeownership Preservation Foundation, part of the Hope Now Alliance, fields morethan 4,000 calls daily to its toll-free hotline (888-995-HOPE). But about 1 in 4 callersdon't want credit counseling, the foundation says. Many simply want financial relief.
 
Thary Yin, 26, who works at Wells Fargo's call center in South Carolina, talks with 10to 20 borrowers a day."A lot of the stories I hear from mortgagors are situations that are very, veryextreme," she says. "I talked to a cancer patient, and after Katrina hit New Orleans,the stories I hear. ... Wells Fargo offers solutions on the mortgage side, but on thepersonal side, you can only cover so much on a phone call. Not being able to domore personally is the most difficult thing for me."Getting more aggressiveWith home prices sliding and politicians calling for government and the mortgageindustry to do more to help troubled homeowners, lenders and loan servicers such asLauria are becoming more aggressive in contacting delinquent borrowers andmodifying loans to make payments a bit easier.Such tactics make sense for the loan industry: The last thing a lender wants isanother vacant property to fix up and sell."We're becoming more realistic about where the market's going to go," said DavidSunlin, senior vice president for foreclosures and bankruptcy at CountrywideFinancial, which is the nation's largest mortgage lender and the focus of severalgovernment investigations into aggressive lending practices that made the companyfinancially vulnerable.With an inventory of nearly 40,000 foreclosed properties nationwide, Sunlin says, hewill work with a borrower to try to sell a property, even with a sizable loss, up to thedate it's scheduled to be auctioned at a foreclosure sale.At JPMorgan Chase, which has seen foreclosures jump 38% in the past two years,cases now go from collections to the "loss mitigation" department just five days aftera borrower misses a payment, so the company can try to find a faster solution tokeep the homeowner in the property. Not so long ago, the loss mitigation departmentdidn't get involved until 90 days after a missed payment.As soon as a lender takes control of a property, the value begins to drop while themaintenance costs mount.Safeguard Properties, a company many lenders use to change the locks, cut thegrass and board up windows on foreclosed homes, has seen business rise more than15% during the past year. A lender will pay $600 to $1,200, and more in somecases, for Safeguard to care for each property.The largest surges in new foreclosures in the fourth quarter of 2007 were inCalifornia, Arizona, Nevada and Florida, where the frenzied real estate boom in thepast several years attracted buyers who put little money down and got risky loanswith virtually no proof of income.Avoiding lendersThere are many reasons homeowners behind on their mortgages fail to contact theirlenders, mortgage specialists say. Some don't believe their lenders can help them.Others fear it will only speed the foreclosure process. And some don't call becausethey simply don't have money to give the lender, according to surveys by Wells Fargoand Freddie Mac."It's (lenders') own fault that borrowers won't answer their calls," says Todd Buckner,CEO of National Housing Solutions, a for-profit mediator between borrowers andlenders to stop foreclosures. "Their collections departments have beat (delinquenthomeowners) over the head for months. It's no wonder borrowers won't answer thephone."To reverse public perception that they don't want to work with troubled borrowers,lenders are hiring and training hundreds of employees to answer calls and helpborrowers restructure their mortgages. They also are turning to more creative waysto try to reach at-risk homeowners.The Hope Now Alliance, a coalition of 28 lenders and loan servicers supported by the
 
Bush administration, has mailed more than 1 million letters since December toborrowers with subprime, adjustable-rate mortgages (ARMs). In many cases, thelenders are offering to freeze the borrower's interest rate for five years. In othercases, borrowers may qualify for a 30-year, fixed-rate loan. Even so, the responserate has been less than 20%, on average.To find homeowners who have stopped paying their mortgages and moved out,lenders use companies known in the trade as "skip tracers." One of them, PlayersNational Locator, for example, is receiving 7,000 cases a month from lenders lookingto track down delinquent homeowners, up 20% since September.Martin Goodman, president of Residential Capital in San Diego, sends his delinquentborrowers a $5 Starbucks gift certificate, along with documents that explain how hiscompany can help them restructure their loans and avoid foreclosure. His responserate is only 10%.But Goodman says making contact is only one challenge. The other is persuadingdelinquent borrowers to tell the truth about their financial condition. He suspects atleast 90% of borrowers don't explain the real reason they are falling behind on theirpayments out of fear it might accelerate their foreclosure."Everybody's grandmother is dying. Everybody's kid is having surgery," Goodmansays. "I'd rather somebody say, 'We mismanaged our debt. This is what we make,and this is what we can afford.'"A 'sense of entitlement'As home prices fall from coast to coast, 8.8 million homeowners will have mortgagebalances equal to or greater than the value of their property by the end of themonth, Moody's Economy.com. predicts.That could come as a shock to consumers who thought property values would alwaysrise, and it helps explain the attitudes lenders are seeing among their troubledcustomers, Goodman says."If you buy a car and it depreciates," Goodman says, "you don't expect theautomobile dealer to write off your loan. There's a sense of entitlement (amonghomeowners) that is just unbelievable."Goodman, whose firm specializes in home equity credit lines, says the main reasonspeople took out the loans were for home improvement, debt consolidation andmedical expenses. But he estimates that about 20% used the cash to go on vacationor buy a new car.Stories like his are fuel for the opposition in Washington against a governmentbailout for homeowners facing foreclosure. On the other side, consumer advocatessuch as the National Community Reinvestment Coalition (NCRC) can cite a litany of abusive lending practices that hurt homeowners."The government ought to get involved because there's been a market failure," saidJohn Taylor, CEO of NCRC. "Our proposal is for the government to act as a cash-flowagent, to temporarily acquire the mortgages creating these problems long enough torefinance them into sensible terms and conditions. There would be no bailoutbecause the government gets paid back."So far, the Bush administration has backed two initiatives from the Hope NowAlliance to help some homeowners avoid foreclosure. But their restrictions severelylimit their effectiveness.In December, for example, the alliance said it would freeze interest rates or refinancean estimated 1.2 million homeowners with subprime ARMs. To qualify for theinterest-rate freeze, borrowers would have to be facing a 10% increase in theirmortgage payment once their interest rate reset. But many subprime ARMs are tiedto an international index that has fallen 2 percentage points since Christmas."In our portfolio, 60% of the borrowers who would have gotten fast-tracked (underthe Hope Now plan) would not get that now that the rates have changed so much,"

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