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Revising Loan Modifications

January 8th, 2009 6:54 PM by Lehel Szucs

Revising Loan Modifications
The New York Times

Published: December 19, 2008

AS home foreclosures continue to rise, lenders are intensifying efforts to assist troubled homeowners. But financial advisers warn that borrowers should be vigilant about the type of help they are being offered.

“The average loan servicer wants to reach a resolution about a loan modification with a single letter or a phone call,” said Steven Horne, the president of Wingspan Portfolio Advisors, which helps clients renegotiate loan terms. But, he said, devising an effective long-term strategy to enable a borrower to avoid foreclosure might take several rounds of communication.

Many borrowers who obtain loan modifications, in fact, soon find themselves in trouble again. According to a government survey, 53 percent of the borrowers who had changes to their loans in first quarter of 2008 began missing payments within six months.

John C. Dugan, the comptroller of the currency, said he was baffled by the results, which were released this month.

But Mr. Horne, a former executive at Fannie Mae, suggested that the new loans had not been structured to best meet borrowers’ financial circumstances, in large part because the loan servicers that collect mortgage payments cannot engage in a lengthy analysis of each borrower’s finances.

It is up to the borrowers, therefore, to be more proactive. Mr. Horne says they can increase the likelihood of securing the right loan if they push for more personal attention, and do a little homework about their own finances.

Borrowers should devise a firm budget and determine what monthly payment they can actually afford. Some help can be found at the Internal Revenue Service’s Web site (IRS.gov). Visitors who type in “Collection Financial Standards” into the search box will be directed to pages (sometimes by state) that offer guidelines, based on consumer surveys, of what they can reasonably expect to pay for food, clothing, housekeeping supplies, out-of-pocket health care, utilities and transportation.

For instance, an average family of four in Manhattan (with no one over age 65) would incur total monthly expenses of about $7,614. That includes $1,370 for food, clothing and other items, $228 for out-of-pocket medical expenses, $652 for public transportation and $5,364 for housing-related expenses.

The latest foreclosure figures suggest that New York, New Jersey and Connecticut are generally doing better than the rest of the nation but that problems are worsening.

According to the Mortgage Bankers Association, the foreclosure rate for so-called prime mortgages with fixed interest rates was twice what it was two years ago. In Connecticut, 0.52 percent of these mortgages were in foreclosure at the end of October, the trade group said. In New York, the figure was 0.71 percent, and in New Jersey, 0.9 percent, just slightly higher than the national average of 0.86 percent.

The picture for subprime adjustable-rate mortgages was bleaker. About 17.7 percent of these loans were in foreclosure at the end of October in Connecticut. In New York, the figure was 24.5 percent, and in New Jersey, 25.6 percent. The national average was 20.65 percent.

At the same point in 2006 — before most subprime ARMs started adjusting upward — Connecticut’s foreclosure rate for these loans reached 4.6 percent. In New York, the failure rate was 5.8 percent, and in New Jersey the figure was 4.7 percent, which was identical to the national average.

Subprime ARMs in the three states total 172,257, 12 percent less than two years ago, according to the mortgage trade association.

Posted in:General
Posted by Lehel Szucs on January 8th, 2009 6:54 PM



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