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Lender works to minimize losses

By ASSOCIATED PRESS
Published April 5, 2007


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NEW YORK - As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They'd rather modify your loan than foreclose.

EMC Mortgage Corp., which has a $78-billion loan portfolio that includes subprime loans to homeowners with weak credit, this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, each team member has time to speak to as few as three people a day.

"You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC. Right now, $2.14-billion in mortgages, 2.74 percent of EMC's portfolio, is in default, up from 1.93 percent a year ago.

Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments, mortgage companies increasingly are prodding anyone who's having trouble making payments for any reason to give them a call.

Critics say lenders made loans to borrowers who weren't creditworthy with terms that would be impossible for them to meet. Whether the current wave of modifications will merely postpone foreclosures - and delay bad loans hitting lenders' books - is an open question.

The scant public information on modifications makes evaluation tricky, said Thomas Lawler, the former chief economist at Fannie Mae who now runs his own consulting business. Loose lending standards followed by lax modifications can merely delay a problem, Lawler said.

"If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late," he said.

Advocates say that half the people in foreclosure never talk to their banker before losing their house, and many could rework their loans if they only got help. "It's tragic," said Colleen Hernandez, president of the nonprofit Home Ownership Preservation Foundation. "We have the capacity to help a whole lot more people."

New foreclosures hit their highest-ever level in the fourth quarter of 2006, according to the Mortgage Bankers Association. Homeowners are the obvious losers, but all the financial services companies involved lose. The lender loses the steady stream of payments it counted on. If it sold the loan as part of a securitization, a package of mortgage-backed securities, that investor loses. Loan servicers, who are usually paid a fraction of the interest on a loan, lose too.

EMC says it loses, on average, 40 percent of the value of a loan in foreclosure and also has to pay taxes and other expenses on the property.

The Mod Squad is planning a six-city tour; it hopes to attract struggling homeowners to information and counseling sessions with offers of $100 gift cards to Home Depot Inc. The number is toll-free 1-877-362-6631.

Civil rights groups called Wednesday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits. At a news conference in Washington, D.C., the groups said a predicted wave of foreclosures stems from "reckless and unaffordable loans" for which investors bear some responsibility. They said lenders, real estate agents and investors who bought subprime loans could face lawsuits under a law prohibiting housing discrimination.

Fast Facts:

Civil rights groups weigh in

[Last modified April 5, 2007, 01:21:55]


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