Now in Legal Rebels:
Posted Jan 22, 2008 04:34 pm CST
Once upon a time, when borrowers couldn’t pay their mortgages, the banks who loaned money to them foreclosed. But today, faced with record-breaking foreclosure rates and a housing market in which a boarded-up bank-owned property can be very difficult to sell, even at a significant loss, lenders are rethinking the traditional ending to this sad story.
Instead of foreclosing, many banks are more willing than ever before to renegotiate loan terms so that delinquent borrowers can afford to stay in their homes. While this approach reduces the bank’s profit, it nonetheless can keep a mortgage loan on the books as a productive asset, explains Reuters. By contrast, a foreclosure generally will result in a significant loss. Unfortunately, however, many borrowers are so severely stretched that there is nothing the bank can do to help them.
Sharon Jackson of Chicago is one of the lucky ones. The 55-year-old Chicago resident considers herself blessed to have gotten two months behind on her mortgage after she lost her job, because this led her to call her lender, Homecomings Financial, which is part of GMAC Financial Services. Although she hadn’t realized this was an option, it cut her interest rate, reducing the monthly payment on her $80,000 mortgage from almost $1,000 to $713. Now, working a part-time job as bookkeeper and supplementing her income by selling cosmetics door-to-door, she can afford to make the payments, Jackson says.
Six months ago, many lenders wouldn’t have considered such deals. But, as mortgage delinquencies have skyrocketed and the housing market has plummeted, banks are eager to avoid more foreclosures, the news agency says.
“The smarter lenders are cutting deals in order to minimize their losses,” says Peter Morici, who teaches at the University of Maryland School of Business. “They don’t have much choice.”