Lenders offer leniency

By Jessica Foster

Mortgage rates have hit historic lows, enabling home owners to slash their monthly payments by locking in a new rate.

But many people don’t qualify to refinance – either because they don’t have enough equity in their homes, their income has dropped or they’re behind on payments – and those are often the people who need help the most.

That’s when loan modifications come into play.

Loan modifications, which change the terms of a loan to keep the property out of foreclosure, used to be fairly rare but have jumped in recent months as the government takes steps to keep people in their homes and banks try to avoid acquiring more properties.

"I’d never heard of a loan modification, really," until last year, said Leigh Reid, who has been in the mortgage business for 20 years.

That’s when her customers, especially those in the real estate, building and tourism industries that have been hard hit by the recession, started asking her for help.

One client wanted to refinance but couldn’t. She had a 9 percent mortgage rate and owed $210,000 on her home but it only appraised for $200,000, Reid said.

"There’s no help for you in that kind of situation besides getting your lender to modify," Reid said.

Data from the Federal Housing Finance Agency show that many more homeowners are qualifying for modifications. Fannie Mae and Freddie Mac made almost 24,000 modifications during the fourth quarter of 2008, up 76 percent from the third quarter.

That was before the Obama administration announced the Making Home Affordable program in February, which includes a plan to modify first lien mortgages for up to 3 million or 4 million troubled homeowners.

That program was expanded this week, so that people who get a modification through Making Home Affordable on their first mortgage will automatically get reduced payments on the second mortgage if their servicer agrees to participate, according to the U.S. Department of Housing and Urban Development.

Twelve servicers, including the five largest, are doing modifications under the umbrella of the program, the department’s Web site says.

Debbie Kidd, director of the Homeownership Resource Center in Charleston, said the government support behind modifying has helped, and many lenders are being more lenient.

The homeowner doesn’t always need to be behind on their payments to qualify like they used to, she said.

"I’ve never seen it as easy as it is right now," Kidd said. "Lenders don’t want any more of these homes, they don’t want to take them."

Trippett Boineau, vice president of BB&T’s mortgage services at the branch on Oak Street, said new government programs should help the bank lower monthly payments for more people.

"If somebody can’t afford to stay in the house, maintain the integrity of the house, then you might foreclose. If, on the other hand, you think that the valuation may come back or it’s a temporary job loss, I would say banks are certainly leaning towards trying to work with people as opposed to trying to kick them out in the street," Boineau said.

There are many ways the loan terms could be modified, by lengthening the term of the loan, lowering the interest payment or tacking the past-due amount onto the principal.

One Realtor couple that Catherine Richardson, an independent agent with United First Financial, was doing a financial analysis for had a 6 percent rate on a 30-year jumbo loan that they had trouble paying because their commissions had been cut, Richardson said.

"When the loan modification came back, the loan extended to 40 years from loan modification," and the interest rate was 2.25 percent for the first three years and was scheduled to increase periodically to cap at 6 percent in 2017, she said.

Still, nobody is a shoo-in. The Homeownership Resource Center, a nonprofit that has professionals who help homeowners from across the state negotiate the modifications with their lenders, has about a 68 percent success rate, Kidd said.

Craig Daniel, a self-employed engineer in Pawleys Island, said he has four mortgages on two condos that he rents out. He’s been talking to his lenders for five or six months in hopes of getting lower monthly payments, but with no luck.

"My work has dried up of course so I have not been able to sustain all the mortgages," Daniel said. "My debt-to-income ratio is so high that they consider me a lost cause, so they don’t help me out at all."

It doesn’t help that they’re investment properties, not his primary residence, he said. Foreclosure proceedings have already started on one of the condos, but he hopes to sell both of them.

Lending professionals recommend that those seeking loan modifications be wary of companies that charge money to negotiate the modification with the lender.

People can contact their lenders directly or seek help from a nonprofit for free, they said.

Reid also recommends persistence, keeping all paperwork and financial documents organized, jotting down notes from conversations with the lender, and cutting out luxuries to show every effort is being made to pay the bill.

"You want to be showing them that you’re trying to do everything to eliminate some of the frills that you used to have," she said.

People should contact their mortgage servicers for more information.

Source: www.makinghomeaffordable.gov