RISMEDIA, November 21, 2008-(MCT)-With no end to the foreclosure epidemic in sight, mortgage lenders have begun to do something they previously resisted: rewriting the terms of mortgage loans.
The about-face is a bow to political pressure and reality: The number of foreclosed properties flooding the market is dragging down home values across the country, a process that could lead to even more home foreclosures.
Two new tenets form the basis of the recent, bank-announced homeowner relief programs: streamlining and outreach. Bank of America, Citigroup Inc. and J.P. Morgan Chase say they will contact mortgage holders who are in or heading toward default, and offer to rework their loans with affordable monthly payments. Many even spell out a preapproved workout in that first letter.
The new approach is borrowed from an FDIC program at the failed IndyMac bank, which FDIC Chairman Sheila Bair reportedly plans to propose going nationwide as part of the federal government’s $700 billion markets bailout plan.
At IndyMac, at-risk borrowers got letters with proposals to cut their payments to no more than 38 percent of their incomes, with modifications such as reduced interest rates or longer loan terms. All they had to do was provide verification of their incomes.
But some are skeptical that these new programs will be effective. Qualification guidelines vary, and the process is likely to be time-consuming, said Guy Cecala, publisher of Inside Mortgage Finance. Most of the troubled loans were bundled and sold as mortgage-backed securities, so modifications need approval from the investors holding them, Cecala said. Banks can move quickly only on the mortgages they own. Even fast-track workouts take time, partly because experience has shown low contact rates with the homeowners, he said.
To Julie Gugin, director of the nonprofit Minnesota Home Ownership Center, the question is how the banks will handle the new programs. The tools in them are the same ones that banks have had all along and were reluctant to use, she said.
Even with the new workouts, Gugin recommended that homeowners still seek a second opinion, to find out if it’s truly affordable and their best option. A list of HUD-approved counseling agencies is available at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
