LEW SICHELMAN | United Feature Syndicate
April 20, 2008
WASHINGTON—You've managed to pay your mortgage every month. But an interest-rate adjustment is bearing down on you like an out-of-control 18-wheeler. Worse, your house is no longer worth what you paid for it. Hey, it's not even worth what you owe.
While anecdotal evidence suggests that more borrowers are handing their keys to their lenders and walking away from such situations, the vast majority of owners want to remain in their homes, even when they are "upside down."
The question is, how can you stay in the face of overwhelming odds?
The stock answer is to call your lender—before your house payment becomes unmanageable and before you get behind. But first you've got some homework to do, says Jon Daurio, chairman of Kondaur Capital Corp.
Daurio's firm buys "scratch-and-dent" mortgages, non-performing loans that others no longer want. Daurio's firm turns them back into performing assets, allowing borrowers to keep their homes.
Based in Santa Ana, Calif., Kondaur Capital buys these loans from lenders at 75 to 80 percent of their face value, depending on the collateral. To get your lender to write down your loan by 20 to 25 percent, it must be shown that's his best choice.
In other words, you want to show that it would be better to have you still there making payments rather than the loan's owner getting a house that is worth less than he has invested in it.
Say that when you purchased your $125,000 house a couple of years ago, you took out a $100,000 mortgage. Since then, however, the house is worth just $90,000. But you still owe $99,000.
That wouldn't be so bad with a fixed-rate loan. You'd just keep making the same payment every month, and eventually—hopefully—the market would turn back around and your house will start rising in value, at least to what you paid. But you didn't take a fixed-rate loan; you took an adjustable mortgage in which the rate changes periodically and your payments reset accordingly. Or maybe you took a pay-option ARM in which you pay only the interest. And the moment of truth is approaching. So you give your lender a call and say, "Hey, can we work something out here?"
Negotiating with the lender is "an up-mountain battle," Daurio warns. "It's not that it can't be done, but the probability is very, very low."
Still, it's not as if you don't have some leverage. The lender's choice is to write down the loan for a borrower who's in the house and is ready to make the payments or foreclose, clean up the property and find a new buyer, when thousands of other sellers are trying to get rid of their albatrosses.
To prepare, put together a basic financial statement showing your assets and liabilities. On one side of the ledger, you'll list your income and savings; on the other side, your car loans, credit-card accounts, food and clothing allowances, child care and other monthly expenses.
"It doesn't have to be extensive or complex," Daurio says. The idea here is to show that while you can afford to cover your mortgage now, you won't be able to do so when the payment goes up. The message: Deal with me now before I default.
The next step is to show that your house isn't worth what it once was. Find out what properties comparable to yours sold for. Then speak with local agents to learn what similar houses now on the market are bringing in the way of offers.
Usually, value is determined by sales of similar properties. But in a declining market, this information is unreliable, so you have to find another way to show that like properties are not fetching the prices they were just a few months ago. Provide the names and phone numbers of the agents with whom you spoke so the lender can check.
Make the call. Realize, though, that the person on the other end of the line is probably is working for a firm paid to collect the payments.
Not only are servicers inadequately staffed to handle the crush of defaults, says Daurio, they also are compensated on the amount of money they collect. So, he says, it's in their interest to maximize collections.
Speak with someone in the workout department, not collections, and preferably, with someone in authority. "Someone," says Daurio, "who is empowered to make concessions."
Write to Lew Sichelman c/o Chicago Tribune, Real Estate, 435 N. Michigan Ave., 4th floor, Chicago IL 60611. Or e-mail him at realestate@tribune.com. Sorry, he cannot make personal replies. Answers will be supplied only through the newspaper.
Chicago Tribune - April 20, 2008