By Marilyn Kennedy Melia
March 12, 2009
  
You’ve finally reached someone at your mortgage company who has the
authority to change your loan terms and offer relief from the payments
you’ve been struggling to pay.

Congratulations.

If you’ve landed a second chance with your mortgage lender, you’ve
already accomplished more than the thousands of other homeowners, who
go straight into foreclosure.

Unfortunately, though, research shows that substantial numbers of
distressed homeowners who had their mortgages modified last year fell
behind on payments again.

Getting a mortgage "fixed" only to fail again is another sad twist
in this already heart-rending housing situation. But experts offer this
hope: As the crisis unfolds, the government and lending companies are
learning what works to give homeowners a bona fide second chance.
Moreover, experts say consumers can also use some strategies to help
negotiate realistic loan terms for themselves.

It’s really not surprising that homeowners thrown a lifeline drown
in debt quickly again, contends Alan M. White, professor at Valparaiso
University School of Law. White studied subprime and near-subprime
loans modified last November and found that in slightly more than half
of the cases, the borrower’s monthly payment remained the same — and
in some instances increased — from what it had previously been.
Because late fees and missed payments are tacked onto the loan amount
and recalculated in new payments, borrowers often don’t see a reduction
in what they owe each month.

The new mortgage plan announced by the Obama administration Feb. 18
aims to keep monthly housing payments, which includes mortgage
principal and interest, the monthly property tax allotment and monthly
homeowner insurance, at 31 percent of the borrower’s pre-tax household
income.

That 31 percent allotment may become a benchmark in modifications,
regardless of whether a borrower receives a modification under the new
plan, says Geoff Smith, vice president of the Woodstock Institute, a
Chicago nonprofit that studies housing issues. "Hopefully, this will
make a difference," he says.

But mortgage payments even more modest than 31 percent of income
won’t work for many individual families, says Michael van Zalingen,
director of homeownership services at Neighborhood Housing Services of
Chicago. "A lot of the families we counsel are working-class, making
between $25,000 and $50,000 per household. Often, they are behind on
their mortgage payment even when that payment is just 25 percent of
their income. There is so much other debt, like credit card and car
loans," he says. That debt causes them to fall behind on all their
bills.

Some households simply have too little income and too big a
mortgage balance, adds Smith. Even if the interest rate or principal
owed were cut, payments would still be too high to pay comfortably.

The best tactic for borrowers looking for a modification they can
live with is to provide an accurate picture of their total expenses and
income, and even suggest a payment that they think they can live with,
White says.

"That’s exactly what we are asking people to do," confirms Ed
Delgado, senior vice president of government relations at Wells Fargo
Home Mortgage. "That’s how we can help them with a solution that might
be best to their personal situation."

Bankrate suggests a step-by-step plan when seeking help from a
mortgage company, including a list of what paperwork you will need
before calling. Delgado says that Wells Fargo’s Web site also lists
what consumers should gather to document their budgets: wage receipts,
recent tax returns, bank and financial statements, and information
about any other liens that may be on the home. Similar information as
well as a basic primer on the new modification plans aiming at a 31
percent payment is on The White House Briefing Room online.

Most mortgage rates fell slightly this week, although the 30-year jumbo jumped much higher.

The average 30-year fixed-rate slipped 4 basis points, to 5.37 percent. A basis point is one-hundredth of a percentage point.

This week’s average 15-year fixed — a popular option for refinancing — fell 6 basis points, to 4.88 percent.

In contrast, the average jumbo 30-year fixed jumped 22 basis points, to 6.99 percent.

Adjustable-rate mortgages were split this week. The one-year
adjustable-rate mortgage rose 15 basis points, to 5.58 percent. The
popular 5/1 ARM fell 5 basis points, to 5.34 percent.

 
 
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