Sunday, May 4, 2008
Zena Collins knew she had a serious problem when she could no longer afford electricity.
The mortgage payment on her Gaithersburg house had jumped about $500, to $2,000 a month, not counting taxes and insurance, after her adjustable interest rate increased. When she bought the house in 2000, she was a pension administrator. By the time her company decided to cut her job, she was bringing home $5,200 a month. In April 2006, she managed to secure a similar job -- but not a similar salary. So there she was, earning less but paying more for her house. And that's when the lights went out.
"I simply could not do it," she said. "I was sitting there with battery-operated lights and showering with cold water."
So she contacted her lender, California-based Countrywide Financial, to ask for a loan modification. What followed, she said, were months of unanswered pleas for help.
President Bush, Congress and banking regulators are counting on loan modifications, which involve changing the terms of a mortgage, to prevent millions of people from losing their homes. Lenders say they are stepping up efforts to modify loans. But housing counselors and attorneys say it is a painstaking process that few homeowners can navigate on their own.
"We are all in some cases hitting a brick wall," said Diane Cipollone, attorney and director of the Sustainable Homeownership Project at Baltimore-based Civil Justice. "The response time is months -- months -- to get a workout, and the workout is often unaffordable."
There are conflicting data on how many borrowers are getting permanent loan modifications, such as a reduction in debt, rather than temporary solutions, such as repayment plans that will bring down the level of their delinquency. Decreases in debt are especially rare, according to the Mortgage Bankers Association. Some borrowers settle for short sales, in which they sell the home at a loss and are forgiven the debt.
Hope Now, a nationwide coalition of lenders and housing counselors formed last year, recently reported that in January and February, servicers provided about 309,700 workouts -- basically, a solution that keeps the owner in the home. But most were done through repayment plans, not loan modifications.
The State Foreclosure Prevention Working Group, composed of state attorneys general and state banking regulators, last month reported that seven out of 10 seriously delinquent borrowers aren't even in a workout process.
Consumer advocates and mortgage experts said part of the problem was that too many people got second mortgages, often with a separate lender, so they would not have to make large down payments. "Everyone is going to have to work together to get a modification, and frankly, that's hard," said Julia Gordon, policy counsel for the Center for Responsible Lending, a nonprofit research organization.
The other hang-up is that many mortgages were sold to pools of investors, who are less inclined to take a loss.
So how does one get a loan modification? Here's how Collins, 47, did it.