AnnieOakley
01-11-2009, 03:08 PM
Record numbers of financially troubled Hoosiers are lowering or delaying their mortgage payments in an effort to stay in their homes.
Called "mods" in industry-speak, the once rare mortgage modifications have become a key tool to head off a flood of home foreclosures, which topped 100,000 in the state last year and are a major contributor to sinking home values.
There were 5,000 mortgage modifications statewide in the third quarter of 2008, four times more than in the same period of the previous year, according to the Homeowners Preservation Foundation, which tracks the mortgage crisis nationally.
The reason is simple: For lenders, "mods" make financial sense. That's because the average home foreclosure results in the loss of 55 percent of the balance for the owner of the mortgage, according to a 2008 study by Alan White, an assistant professor at the Valparaiso University School of Law. For homeowners, however, the modifications might have mixed results. Nearly half of the mods result in higher mortgage payments, and some end up back in default.
But people such as Tabitha Madsen are just grateful for the chance to keep their homes.
It was a last-minute "mod," hammered out with the help of a credit agency, that kept Madsen's two-bedroom Southside Indianapolis house from being sold last month at a sheriff's sale.
"My house was due to be sold at 1 o'clock the next day," said Madsen, 31, who found out the modification was approved in a 5 p.m. phone call from a staffer at Momentive Consumer Credit Counseling Service. "It was a Christmas gift. I had pretty much given up," said Madsen, a single mother of two young children who fell behind on her $386-a-month mortgage payment when she went through a jobless spell.
The modification allowed her to pay a year's worth of overdue payments at the end of her loan period instead of forcing her to make a $1,800 partial catch-up payment that she couldn't afford.
Though some housing experts say enough still isn't being done to prevent the drastic action of foreclosing on houses, more lenders and servicers are endorsing the formerly little-used practice of modifying terms of loans, sometimes in aggressive fashion.
"We are willing to put some skin in the game. We are willing to give (interest) rate concessions to get the customer to a surplus situation," said Jon Meade, vice president of loss mitigation for Cincinnati-based Fifth Third Bank.
Fifth Third's way of dealing with delinquent mortgages "looks nothing like it did years ago," Meade said. The bank during the past year boosted staff in its mortgage loss/hardship assistance offices to 56 from 23. It also lets customers fill out a mortgage workout package online.
JPMorgan Chase & Co., which also does business in Indiana, this month plans to open 24 mortgage modification centers across the country staffed with 300 loan counselors.
The New York bank is trying to head off foreclosures on up to 400,000 at-risk loans in its portfolio during the next two years. Chase took on thousands of default-prone subprime loans last year when it bought financially troubled Bear Stearns and the banking operations of Washington Mutual.
Chase also put in place a 90-day moratorium on foreclosures for any of its home loans. "We're taking a much more proactive approach" to help homeowners, Chase spokeswoman Nancy Norris said.
Lenders lose money on foreclosures because of court fees and other associated costs, charges to fix up the house for resale and foregone mortgage payments. In the past, the mortgage holder often could bank on profiting from appreciation in the foreclosed home's value when resold. But during the recession of the past year, home values have sunk in most markets.
"In a foreclosure, the average loss (for the mortgage holder) has gone up significantly compared to three, four years ago," Meade said. So, "what makes sense is keeping a loan performing."
White's study found modifications don't always benefit the homeowner. In fact, he found that 45 percent of modifications out of a sampling of 300,000 delinquent mortgages analyzed last year actually increased the homeowners' monthly payments, while 35 percent reduced the payment.
A majority of delinquent loans are owned by investors who hire loan servicers to handle the loans, White said. Under their contracts with investors, servicers often must cover late payments out of their own pockets, so the servicers' incentive is to foreclose on delinquent homeowners to stop having to cover their monthly payments, he said.
Paul Koches, executive vice president of Ocwen Financial, a national loan servicer in Florida, agrees that for servicers "the economic incentive is to ram the foreclosure through -- don't delay it, expedite it. Well, that is directly opposite from what public policy should be. It puts more houses on the market and keeps values down for all."
Mortgage insurance companies have gotten into the act, too, including Genworth Financial, a large mortgage insurer in North Carolina. It did mortgage workouts for 11,000 homeowners in the past year, including 373 in Indiana, which it said allowed 91 percent of them to stay in their homes.
Last year, Momentive helped 40 homeowners keep their properties through mortgage modifications, but 971 others decided to file bankruptcy and an additional 316 dropped out before anything was resolved.
"A lot of times clients don't always follow through with the action steps" the agency suggests for avoiding foreclosure, said Kathryn Perron president of Momentive, a nonprofit consumer credit agency. "That's probably the number one issue we have."
Even faced with foreclosure, many homeowners are wary of negotiating with their mortgage lender, said Joe Huntzinger, vice president of mortgage lending for the Indianapolis Neighborhood Housing Partnership. "People won't come to the bank to do these workouts. They don't trust the bank."
The nonprofit housing group worked with New York-based Citibank recently to hold an "intake" meeting in Indianapolis. About 700 Citibank customers in the area who had delinquent mortgages were invited to discuss ways to make their payments easier, but only about 40 homeowners showed up.
Madsen, whose mortgage finally was modified, said it wouldn't have happened without the intervention by a Momentive counselor. "I don't know where I'd be without her. She did not quit."
• Call Star reporter Jeff Swiatek at (317) 444-6483.
Add your thoughts: Post a comment
http://www.indystar.com/article/20090111/LOCAL18/901110400
Called "mods" in industry-speak, the once rare mortgage modifications have become a key tool to head off a flood of home foreclosures, which topped 100,000 in the state last year and are a major contributor to sinking home values.
There were 5,000 mortgage modifications statewide in the third quarter of 2008, four times more than in the same period of the previous year, according to the Homeowners Preservation Foundation, which tracks the mortgage crisis nationally.
The reason is simple: For lenders, "mods" make financial sense. That's because the average home foreclosure results in the loss of 55 percent of the balance for the owner of the mortgage, according to a 2008 study by Alan White, an assistant professor at the Valparaiso University School of Law. For homeowners, however, the modifications might have mixed results. Nearly half of the mods result in higher mortgage payments, and some end up back in default.
But people such as Tabitha Madsen are just grateful for the chance to keep their homes.
It was a last-minute "mod," hammered out with the help of a credit agency, that kept Madsen's two-bedroom Southside Indianapolis house from being sold last month at a sheriff's sale.
"My house was due to be sold at 1 o'clock the next day," said Madsen, 31, who found out the modification was approved in a 5 p.m. phone call from a staffer at Momentive Consumer Credit Counseling Service. "It was a Christmas gift. I had pretty much given up," said Madsen, a single mother of two young children who fell behind on her $386-a-month mortgage payment when she went through a jobless spell.
The modification allowed her to pay a year's worth of overdue payments at the end of her loan period instead of forcing her to make a $1,800 partial catch-up payment that she couldn't afford.
Though some housing experts say enough still isn't being done to prevent the drastic action of foreclosing on houses, more lenders and servicers are endorsing the formerly little-used practice of modifying terms of loans, sometimes in aggressive fashion.
"We are willing to put some skin in the game. We are willing to give (interest) rate concessions to get the customer to a surplus situation," said Jon Meade, vice president of loss mitigation for Cincinnati-based Fifth Third Bank.
Fifth Third's way of dealing with delinquent mortgages "looks nothing like it did years ago," Meade said. The bank during the past year boosted staff in its mortgage loss/hardship assistance offices to 56 from 23. It also lets customers fill out a mortgage workout package online.
JPMorgan Chase & Co., which also does business in Indiana, this month plans to open 24 mortgage modification centers across the country staffed with 300 loan counselors.
The New York bank is trying to head off foreclosures on up to 400,000 at-risk loans in its portfolio during the next two years. Chase took on thousands of default-prone subprime loans last year when it bought financially troubled Bear Stearns and the banking operations of Washington Mutual.
Chase also put in place a 90-day moratorium on foreclosures for any of its home loans. "We're taking a much more proactive approach" to help homeowners, Chase spokeswoman Nancy Norris said.
Lenders lose money on foreclosures because of court fees and other associated costs, charges to fix up the house for resale and foregone mortgage payments. In the past, the mortgage holder often could bank on profiting from appreciation in the foreclosed home's value when resold. But during the recession of the past year, home values have sunk in most markets.
"In a foreclosure, the average loss (for the mortgage holder) has gone up significantly compared to three, four years ago," Meade said. So, "what makes sense is keeping a loan performing."
White's study found modifications don't always benefit the homeowner. In fact, he found that 45 percent of modifications out of a sampling of 300,000 delinquent mortgages analyzed last year actually increased the homeowners' monthly payments, while 35 percent reduced the payment.
A majority of delinquent loans are owned by investors who hire loan servicers to handle the loans, White said. Under their contracts with investors, servicers often must cover late payments out of their own pockets, so the servicers' incentive is to foreclose on delinquent homeowners to stop having to cover their monthly payments, he said.
Paul Koches, executive vice president of Ocwen Financial, a national loan servicer in Florida, agrees that for servicers "the economic incentive is to ram the foreclosure through -- don't delay it, expedite it. Well, that is directly opposite from what public policy should be. It puts more houses on the market and keeps values down for all."
Mortgage insurance companies have gotten into the act, too, including Genworth Financial, a large mortgage insurer in North Carolina. It did mortgage workouts for 11,000 homeowners in the past year, including 373 in Indiana, which it said allowed 91 percent of them to stay in their homes.
Last year, Momentive helped 40 homeowners keep their properties through mortgage modifications, but 971 others decided to file bankruptcy and an additional 316 dropped out before anything was resolved.
"A lot of times clients don't always follow through with the action steps" the agency suggests for avoiding foreclosure, said Kathryn Perron president of Momentive, a nonprofit consumer credit agency. "That's probably the number one issue we have."
Even faced with foreclosure, many homeowners are wary of negotiating with their mortgage lender, said Joe Huntzinger, vice president of mortgage lending for the Indianapolis Neighborhood Housing Partnership. "People won't come to the bank to do these workouts. They don't trust the bank."
The nonprofit housing group worked with New York-based Citibank recently to hold an "intake" meeting in Indianapolis. About 700 Citibank customers in the area who had delinquent mortgages were invited to discuss ways to make their payments easier, but only about 40 homeowners showed up.
Madsen, whose mortgage finally was modified, said it wouldn't have happened without the intervention by a Momentive counselor. "I don't know where I'd be without her. She did not quit."
• Call Star reporter Jeff Swiatek at (317) 444-6483.
Add your thoughts: Post a comment
http://www.indystar.com/article/20090111/LOCAL18/901110400