Renegotiation to avoid foreclosure on rise

 A sudden, drastic drop in income last year had Bob and Roxanne Curry fearing they would become another foreclosure statistic.

He works at a brokerage firm and she runs a child care business out of their Queen Creek home. In mid-2008, her weekly income fell from $1,000 to $300 as fewer parents could afford day care.

“I was robbing Peter to pay Paul to make ends meet,” Bob Curry said. “I started charging up credit cards and taking money from my 401(k), and then, in November, there was finally no more money to rob Peter from. That’s when we started to get behind on our mortgage.”

The couple’s loan servicer wasn’t interested in working with them until they were at least two months behind on the mortgage. Bob Curry then compiled a 39-page document requesting a loan modification, with advice from Jeff Underwood, vice president for the Central Chapter of the Arizona Association of Mortgage Brokers. Underwood is also with AmeriFirst Financial in Mesa.

“It took two months from the time that we first faxed in the paperwork for it to finally come to a close,” Curry said. “We did all that we could do. We didn’t get into a home we couldn’t afford.”

The couple was able to get their mortgage interest rate cut from 7.45 percent to 5 percent, and all late fees and charges were moved to the end of the loan.

“Basically we saved about $700 a month,” Curry said. “The loan is fixed for five years, and so hopefully when that time comes we’ll be able to do what we need to do.”

The Currys are part of a growing trend of distressed homeowners reaching deals with their lenders to get back on track with their mortgage payments and remain in their homes.

“We’re seeing more (mortgage) modifications and we’re also seeing for the first time … balance write-downs as part of a modification to avoid any sort of foreclosure,” said Andrew Loubert, vice chairman of the Arizona Foreclosure Prevention Task Force. “What didn’t work six months ago is working today. We are seeing the lenders more proactive in their understanding that the market has substantially dropped and as a result they need to be more flexible with how they handle balances and things like that.”

In April, 270,000 modified mortgages and repayment plans were completed nationally, according to Hope Now, a private sector alliance of mortgage servicers, nonprofit counselors and investors. It was the largest number in any month since Hope Now began compiling data in July 2007. It has not yet released any 2009 figures for Arizona.

In the Valley, President Barack Obama’s Homeowner Affordability and Stability Plan prompted some increase in mortgage modifications, Underwood said.

“I do think that banks have opened up a little bit to the reality that if we don’t work with these folks, it’s most likely going to go to a foreclosure process and that’s not what the housing market obviously needs,” he said.

Lenders helping

The increase in loan modifications is a sign that homeowners are contacting their lenders earlier, and lenders are more streamlined and able to help customers quicker, said Tanya Wheeless, president and CEO of the Arizona Bankers Association.

“Obviously it’s been an evolution as homeowners and banks alike figure out how to respond to what’s been an overwhelming volume of need out there,” she said.

Earlier this year, JP Morgan Chase opened a “homeownership center” in Phoenix, one of 27 across the country, offering face-to-face assistance to borrowers behind on their mortgages, said spokeswoman Mary Jane Rogers.

“Since we opened those … 19,000 people around the country have contacted one of those centers,” she said. “Every week, we get 40,000 calls at our toll-free number nationally. And since the beginning of 2007, we know that we have helped avert 400,000 foreclosures (nationally).”

The Phoenix center includes seven full-time loan counselors assisting Chase, Washington Mutual and EMC Mortgage Co. borrowers, Rogers said.

“We are working directly with homeowners … and most of the time we are able to lower their payments,” she said.

Genworth Financial, a national mortgage insurer, says it completed more than 450 mortgage workouts in Arizona during the 12 months ending March 31. Those borrowers were able to save their homes and become current on their mortgages.

“Unfortunately there are more borrowers that need help because of the delinquencies and unemployment, and all the issues in the economy,” said Alan Goldberg, vice president of homeowner assistance for Genworth’s U.S. mortgage insurance business. “However, we have greater tools now than we had a year or two ago. In particular, we have modification programs that can make pretty deep reductions in the borrower’s payments, giving them the opportunity to remain in the home.”

Homeowners have to want to remain in their homes and have the income necessary to cover a mortgage to receive a mortgage workout, he said.

“It really depends on the borrower’s income and what their debts are, and what program is available,” Goldberg said.

Not all positive

Still, federal initiatives aren’t expected to help many distressed homeowners in Arizona because most are too far upside-down, meaning their loan balances are so much higher than the value of their homes, Underwood said.

“The government hasn’t made any major changes yet to what they rolled out in March, which means if (homeowners) are above 105 percent loan-to-value on their house … then they’re not going to qualify for those programs,” he said.

Darryn Rozas, an independent mortgage broker in Mesa, said it’s still difficult to get banks to work with distressed homeowners because they’re “so busy that the right hand doesn’t know what the left hand is doing, to be honest.”

“I would say less than 3 percent of Arizonans are even going to qualify for Obama’s stimulus package because of the restrictions that are on it,” he said. “If you were to refinance your property, you’re only allowed to have 105 percent negative equity. Who in Arizona is 105 percent negative? Everybody here is 140-150 percent negative, if not higher.”

Also, it’s difficult to obtain interest rates that make refinancing equal a much lower payment, Rozas said.

“Yeah, interest rates are at nearly historic lows, but who can quality for them?” he said. “Hardly anybody in Arizona can.”

Still, homeowners are qualifying for mortgage modification all the time, Rozas said.

“We’ve had situations where we’ve been able to reduce principal balances, and we’ve done modifications where they’ve lowered the interest rates to a point where they can afford it,” he said. “The bottom line is these banks don’t want these properties. So they just need to lighten up or figure out a way to process these things a lot faster because if they work with people, they would have a whole lot less foreclosures.”