In recent years, lenders have been reluctant to do "workouts": lowering the interest rate or changing other terms so that financially stressed borrowers can pay less and avert foreclosure.
But with foreclosures skyrocketing and government officials, including California Gov. Arnold Schwarzenegger and President Bush, joining housing advocacy groups in pressing lenders to be flexible, it's easier for borrowers to get a hearing these days.
Countrywide says it modified the terms of 14,000 loans in 2006 - about 1 in every 585 of the 8.2 million mortgages for which it was the servicer, or bill collector, at the end of the year.
The company agreed late in September to ease the Breidensteins' loan terms, a change Mona attributed to the Los Angeles Times' asking the company to discuss the mortgage. Countrywide, the largest U.S. mortgage lender, said it is hard to modify loans when borrowers are unemployed and suggested that John's return to work as an alarm installer was the deciding factor.
Feds get involved
Housing activists say lenders usually make only temporary changes if they make changes at all.
Workouts are controversial because they potentially let speculators off the hook for their bad decisions. They also are complicated by the fact that lenders such as Countrywide sell many of their loans and can't modify them without permission from the investors.
Nevertheless, Marietta Rodriguez, national director for housing programs at the nonprofit counseling group NeighborWorks, thinks the industry is at a "turning point" on workouts.
"We're getting calls from high-level federal agencies saying, 'We hear you folks know the most about this.' "
According to Secretary of Housing and Urban Development Alphonso Jackson, 500,000 borrowers with sub prime loans - higher-cost mortgages for people with weak credit or heavy debt loads - could lose their homes in the next 18 months because interest rates will be resetting at higher levels.
Jackson and Treasury Secretary Henry M. Paulson Jr. met with major lenders in September and said they wanted to identify troubled borrowers and get them in touch with cost-free counselors from nonprofits such as NeighborWorks, ACORN and the Homeownership Preservation Foundation. They encouraged the lenders to refinance loans or modify current mortgages.
Lenders say they try to prevent foreclosures because seizing and selling a home typically costs them $30,000 to $50,000. Foreclosure sales also depress the values of near by homes. And a Chicago study backed by the Homeownership Preservation Foundation found that costs to local governments exceeded $30,000 per foreclosure in some cases, owing to the loss of tax revenue, increased policing and higher demand for social services.
The Mortgage Bankers Association said there were no official statistics on workouts at individual lenders or industry wide. But Moody's Investors Service said it surveyed 16 firms handling customer service on 80 percent of existing sub prime home loans. Just 1 percent of the surveyed borrowers facing an interest-rate reset had had their loans modified, the study found.
Some firms reach out
Many large services relied on "passive letter-based contact" to reach customers facing loan adjustments, Moody's said, instead of phone calls to assess potential problems. Non profit groups say many troubled borrowers shrink from debt problems and throw such letters away unopened.
Big commercial banks with sub prime operations generally get higher marks.
London-based HSBC Holdings has been reaching out to borrowers well before their loans adjust to determine if they are under stress, said Bruce Dorpalen, director of housing counseling for ACORN, the Association of Community Organizations for Reform Now.
Dorpalen praised an HSBC program that resets interest rates by calculating how much money borrowers need to buy food, clothing and other basics and then seeing what income remains to pay the mortgage. On a few occasions, HSBC has cut the interest to 0 percent - which Tom Detelich, who oversees HSBC North America's consumer lending, said was possible because the company didn't sell the loans it serviced.
Other housing advocates said HSBC's workout program usually results in only short-term modifications.
"It is not our experience that HSBC is better or more flexible than other lenders," said Matthew Lee, executive director of Fair Finance Watch in New York.
Countrywide - which generally has sold its loans while handling bill collection for a fee - has a reputation for being inflexible, advocacy groups said, "although there are signs that's starting to change," Dorpalen said.
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