Lenders Try To Find Those Home Owners Who Can Be Saved

One of the great scenes in Tom Wolfe's novel A Man in Full was of a loan workout.

The protagonist had gone deeply into debt through reckless spending. He bought a race horse he called "First Draw."

Now he's getting worked over and told to shape up.

It's a classic.

Foreclosures typically cost a lender about $50,000 per house.

Here's a report from the StarTribune.com:

Loan rescues, known in the industry as workouts, are raising a sweat among lenders and borrowers alike. And their success rate may not be much higher than workouts in a gym.

Despite new government and lender initiatives that promise help is on the way, borrowers and brokers complain of long waits to connect with loan representatives, unreturned calls and conflicting information.

"Once you get behind, you're always behind. You're never ahead," said McCune, a St. Louis Park resident who believes a loan modification last spring gave his family "false hope."

Sleva, a Big Lake resident, has tried everything to avoid foreclosure on the home for her family of four. Nothing worked — not refinancing, not negotiating a settlement on her second mortgage and not asking for a revision of her loans.

Many lenders in Minnesota, after years of promoting easy credit, are scrambling to keep up with the swelling numbers of borrowers in financial distress. One of their most challenging tasks: How do you figure which borrowers warrant a "yes," "no" or "maybe"?

The lenders' motives aren't charitable. A foreclosure, when a bank takes possession and ultimately resells the property, costs the lender an average of $50,000 in legal, upkeep and sales expenses.

That's nearly $1.6 billion in foreclosure losses, in Minnesota alone, that lenders are eager to avoid. Or should be.

At the end of 2007, more than 31,000 Minnesota homeowners were seriously delinquent on their mortgage payments — 90 days or more overdue or in the process of foreclosure, by the count of the Mortgage Bankers Association. At the end of 2006, the number of seriously delinquent stood at about 17,700.

"It's a tremendous task to process all these loans that are in the foreclosure process," said Celia Chen, director of housing economics at the website economy.com.

Collateral has evaporated

"I had high hopes, in the beginning, that we'd be able to help more people than we've actually been able to help," said Kris Wilson, loan officer at Summit Mortgage in Bloomington. Summit tries to write new home loans for people who can't pay off their current mortgages.

Investors in Minnesota home loans may live in other states or countries and be hard to reach, especially when the topic is writing off all or part of their loans. As often as not, Wilson has been unable to reach investors in home equity loans. Investors in those debts have second claim on assets when a house is sold, effectively guaranteeing a loss if the home's value has fallen.

Some of these lenders refuse to go along with refinancing plans that will repay some, but not all, of their outstanding home equity loans, she said.

"These people already lost their money," Wilson said. "Their collateral has evaporated. It isn't there. What we're asking [the lenders] to do, in many cases, is simply recognize that."

Twin Cities-area lenders aren't waiting for calls. They're making them.

They've hired extra workers to contact homeowners behind on payments and urge them to come in to discuss ways to work out of their debt crunch. Some had devised new loan programs to present alternatives to foreclosure for people having trouble making payments or living in houses now worth tens of thousands of dollars less than their outstanding mortgage balances.

U.S. Bancorp is sending delinquent homeowners a DVD meant to suggest that scary stories can have happy endings. It's aimed at coaxing borrowers to talk to the bank about how to catch up on payments or qualify for new loans to reduce monthly costs — and raise the odds that the bank is repaid.