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Mortgage Survivors
On the Brink of Foreclosure, They Got Their Loans Changed -- but It Wasn't Easy

By Nancy Trejos
Washington Post Staff Writer
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.

Yes, she admits, she made some bad financial choices, going from a 30-year, fixed-rate mortgage at an 8 percent interest rate in 2000 to an adjustable-rate mortgage at 8.5 percent two years later so she could use the equity to replace appliances and fix a cracked patio.

When that rate was set to increase, she refinanced again and took out more money to work on her 32-year-old house. In February 2007, she refinanced to a 10.8 percent interest-only mortgage that would soar to as high as 13.8 percent after two years.

She never missed a payment, but she knew it was only a matter of time. "There was a point when I was thinking, 'You know, I'm going to have to walk away from this. I can't keep doing this.' I had seven years in the house. I don't want to do that. But how long do I have to sit here in the dark from night to night?" she said.

The answer was three months. In June 2007, she contacted Countrywide. According to Collins, Countrywide told her she did not qualify for a workout because she was not yet behind on her payments. She kept calling and spoke to many people in different departments. "They would say, 'I'll look into it,' and then I'd get the same response."

That's when she turned to Keith Johnson, director of the District office of NACA, the Neighborhood Assistance Corp. of America.

A friend told Collins about NACA, which has completed thousands of workouts, partly through an agreement it has with Countrywide and CitiMortgage to permanently reduce interest rates and/or loan balances. It is one of many nonprofit organizations working with homeowners.

Johnson asked Collins for W-2 forms, tax returns and bank statements. "We figure out, what can this person afford based on their income?" he said.

He calculated that Collins could handle about $1,300 a month. Last October, armed with all her financial documents, Johnson bypassed Countrywide's customer-service department and went straight to loss mitigation.

Sixty days later, they agreed to a 30-year, fixed-rate mortgage of 4 percent. Her monthly payment would cover both the principal and interest, and she would pay no fees for refinancing.

But her loan grew from $105,000 to $237,000 because she had pulled out so much equity and done so many refinances. "That's fine," she said. "I'm immensely relieved."

A spokesman for Countrywide said he could not provide information about a specific borrower.

In January, Countrywide counselors helped 11,844 borrowers stay in their homes, the company recently reported. The majority of those loans -- 9,921 -- were modified in some way, such as an interest rate reduction. The rest were resolved other ways, such as repayment plans or forbearances, which involve suspending or reducing monthly payments until borrowers regain their financial footing.

The outcome is not always so positive, Johnson said, for "there are some lenders out there who are just not willing to work with anyone."

Consumer advocates and attorneys said homeowners could do a few things to boost their chances.

First, contact your lender, even if you are not delinquent. "The earlier that they know [homeowners] are having a difficulty and a hardship, the easier it is for us to put a plan in place and allow them to get back on their feet," said Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

Then, said Cipollone, contact a nonprofit housing counseling agency or an attorney. Avoid any unsolicited offers from people who say they can save your house. Do not avoid mail or phone calls from your lender. And if your lender stops accepting payments because it is moving toward foreclosure, save that money for a contribution toward the loan workout. "If you've missed eight mortgage payments and have spent all that money because the lender stopped accepting payments, that is not a good outcome [nor] a good way to start negotiations," said Cipollone.

Nakisha Ramsey, 30, and her husband made sure to hoard their money.

They bought their Burtonsville home for $310,000 in June 2005 with two loans. The first, and larger, mortgage had a 6.4 percent interest rate due to increase after three years to as high as 12 percent. The second had a 10.2 percent rate. Their monthly payment was originally $2,000, not including homeowners association fees and taxes.

The rate jumped last summer. Eventually they were paying $3,050 a month. Her salary as a social worker and his as an insurance salesman wouldn't cover it. In July, they stopped paying.

Ramsey called her lender, Houston-based Litton Loan Servicing, but had trouble getting hold of anyone with decision-making authority. The company then scheduled foreclosure proceedings for Dec. 18. She called again to propose a short sale.

"I was willing to do whatever it took so that we didn't lose the house," she said.

Ramsey found a willing buyer, but Litton rejected the $200,000 offer, she said. Instead, she said, the company offered a modification that would bring the monthly payment to $2,290, with the balance increasing to $325,000 because of missed payments and penalties.

She was going to take it, until she met Cipollone at a foreclosure prevention seminar.

Ramsey gave Cipollone documents showing what she and her husband made and owed. Cipollone contacted Litton's loss mitigation department.

Donna Marie Jendritza, a spokeswoman for Litton, said she could not comment on specific borrowers because of privacy laws. But she said the company made multiple offers to Ramsey.

"There are many instances where we'll look at financials and give an offer and the customer will say, 'You know what? This is still squeezing me too much,' and we come back with a different offer," she said.

It took several weeks, but Cipollone got both mortgages down to 7 percent, fixed for 30 years. Litton also dropped the balance to $302,000 after the Ramseys contributed $3,000 for a down payment.

"I'm terribly excited," Ramsey said. "I wanted to pack up and leave my house because I want to, not because I'm going to go through a foreclosure situation, but because it's planned."

She doesn't plan on leaving anytime soon, but if she ever does, she said, it will be on her terms.

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