Working it out for measure of relief

There's a light at the end of the foreclosure tunnel in Las Vegas.

It's called loan modification, All Western Mortgage President Chris Biaggi said.

With millions of homeowners stuck in adjustable-rate mortgages and unable to refinance, loan modification or "workouts" will be the hot-button of the mortgage industry in the coming year, he said.

In loan workouts, the lender modifies the interest rate, loan balance, late fees or other terms to make payments more affordable. Homeowners are not forgiven any debt; they're simply given a break to catch up on payments.

In the past, loan workouts were only used when a borrower became delinquent; they're now being used to help people avoid foreclosure.

"Bottom line, your lender does not want the keys to your house," Biaggi said. "Countrywide has enough houses. Wells Fargo has enough houses. Chase has enough houses. Chase is doing anything to keep people in their houses."

Randy Genese, a 25-year Las Vegas resident, is stuck in a troubling situation.

Work has slowed for the heavy-equipment operator, and he's having a hard time paying the mortgage on the $233,000 house he and his wife bought a couple years ago.

"We didn't buy outside our means," Genese said. "We had $60,000 income, so we weren't one of the ones who bought a home with creative financing and no-doc(umentation) loans. We don't have an ARM. We're affected not because of any of that, but because of the economy."

Genese said he read all about the government's $700 billion Emergency Economic Stabilization Act, which includes relief for financially strapped homeowners, but he didn't see it happening.

He called his lender, Bank of America, several times. A customer representative told him the bank couldn't do anything unless he's late with his mortgage payment. He was finally able to get a reduction of his mortgage payments for the next three months.

"In real life, it doesn't work," Genese said of the bailout package. "It does get frustrating. It gives us false hopes."

Gibran Nicholas, chairman of CMPS Institute, an Ann Arbor, Mich., organization that trains and certifies mortgage bankers and brokers, said: "It encourages people to walk away from payments. You have to be 60 days to 90 days late to qualify for these programs."

Rick Simon, spokesman for Countrywide Home Loans in Calabasas, Calif., said Bank of America has a program starting Monday aimed at borrowers in the most danger of going into foreclosure, primarily those with subprime mortgages and option ARMs. Bank of America Corp. owns Countrywide.

The program identified 400,000 customers nationwide who can be helped with a loan workout to bring monthly payments to the "target level," which is 34 percent of gross monthly income, Simon said.

"There (are) lots of options, depending on the type of loan and borrower's situation," he said.

Options could include interest rate freezes or reduction, deferred payments or a reduction in principal, which is "very unusual," he said.

The loan modification plan won't work without massive principal reductions, Moe Bedard of Loan Safe Solutions wrote on LoanWorkout.org.

"Bottom line, thousands of homeowners are just walking away from their underwater homes every month and any loan modification plan that does not address true market real estate values is a plan made to fail," he said.

The success of loan modification depends on the objectives of homeowners, CMPS' Nicholas said.

If a homeowner intends to stay in the home for a long time and raise a family or retire there, then the program advocated by the FDIC would work, he said.

If somebody plans to move in three or four years, he would be better off doing a short sale, which involves a reduction in principal and must be approved by the lender.

The law requires the servicer to modify the loan if it could recover more by loan modification than by sending the home into foreclosure, Nicholas noted.

Home Builders Research President Dennis Smith said the government must figure out a way to bring consumers into the picture instead of benefiting big business.

"The government bails out banks and insurance companies and now they're trying to bail out car companies," Smith said. "What about you and me?"

Government intervention in foreclosures could end up a moot issue, Foreclosures.com President Alexis McGee said. Banks such as FDIC-operated IndyMac, Bank of America and most recently JP Morgan Chase & Co. have pledged to cut monthly payments for many borrowers by lowering interest rates and temporarily reducing home loan balances, she said.

Biaggi said today's financial situation is "very fluid" and what was happening a month ago may not be happening now.

"We can all sit around and wait for what's happening," he said. "But here and now is whatever they (banks) can do to keep people in their homes, to avoid another foreclosure, they're going to do."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.