For Borrowers in Trouble, There May Be Alternatives

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By Benny L. Kass
Saturday, April 25, 2009

Q: I am in financial trouble and have been trying to reach my lender. I have made several calls in the past two weeks, with no success. Sometimes, I have been disconnected while talking to a bank representative. When I am finally able to reach a live person, it is never the same one I talked with earlier. Once, I spoke with someone in New Delhi, and the next day my call was directed to Phoenix. I have to go through the same drill each time: what's my loan number, my name, the last four digits of my Social Security number. Then I am told that a supervisor will review my case and someone will get back to me. In the meantime, I am advised not to make any more payments.

Thus far, no one has called me back. I am now two months behind and concerned that I will soon receive a foreclosure notice. Please help.

A: This is a problem that is getting worse every day. Lenders are busy dealing with foreclosures, short sales and workouts. Additionally, now that interest rates are so low, they are deluged with requests for refinancing. As a result, it does not appear that they have sufficient staff to handle problems such as yours.

As a result of new government initiatives, you have alternatives. For instance, the Obama administration's Making Home Affordable program provides options for refinancing or modifying mortgages. For details, see the Web site http://www.makinghomeaffordable.gov.

If you are current on your mortgage, but are unable to take advantage of the very low mortgage rates available because your home has decreased in value -- and if your loan is owned or securitized by Fannie Mae or Freddie Mac -- you may be able to refinance your loan through this program.

To determine if your loan is covered, you should start by trying to contact your current mortgage lender or the company that services your loan -- that is, the company to which you make payments. If you cannot get through to a human being, both Fannie and Freddie have established toll free phone numbers and Web sites to assist you. (For Fannie, those are 800-7FANNIE or http://www.fanniemae.com/loanlookup; for Freddie they are 800-FREDDIE or http://www.freddiemac.com/mymortgage.)

To be eligible for such refinancing, your current loan cannot exceed 105 percent of the current market value of your property. For example, if your property is worth $200,000 but you owe $210,000 or less, you may qualify.

Even if you are a month or two behind, you still should contact your mortgage company or the servicer. Many have agreed to postpone foreclosures on mortgages that meet the qualifications for modification under the government program.

Privacy laws prohibit lenders from talking to anyone about a specific mortgage unless the lender is satisfied that the caller is actually the borrower. If you decide to use a lawyer or a financial adviser to intervene on your behalf, you have to provide a specific letter of authorization.

This is time consuming. Lenders tell me that you cannot e-mail them the information. You have to fax everything. From my experience, it can take 72 hours or more before your fax gets into their system. To complicate matters, your fax may go to Dallas, but when you call to speak to a loan modification person, he or she may be anywhere in the world.

Despite the government programs, there do not appear to be any uniform standards for helping homeowners. This is especially true when dealing with a short sale, which is a home sale in which the lender agrees to accept less than the amount owed on a loan.

Let's assume your house has lost value in the past year and is now appraised at $350,000. You owe the lender $400,000. You retain a real estate broker who finds a potential buyer willing to pay $325,000 for the property. You or your broker submit the sales contract to the lender for approval. You understand that your lender will be losing $75,000 in the deal, and your broker understands that he may not get a full commission if the lender approves.


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